##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 Mark One
 þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
 for the fiscal year ended December 31, 2009
 OR
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 for the transition period from  to.
 Commission
file number 000-51446
 CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.
  Delaware
    
    02-0636095(State or other jurisdiction of
    
    (IRS Employer Identification No.)incorporation or organization)
 121 South 17th StreetMattoon, Illinois
    
    61938(Address of principal executive offices)
    
    (Zip Code)
 (Registrants Telephone Number, including Area Code)
  Title of each class:
    
    Name of exchange on which registered:Common Stock, $0.01 par value
    
    NASDAQ Global Select Market
  YES o NO þ
 YES o NO þ
 þ o
 YES o NO o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   Class
    
    Outstanding as of March 3, 2010Common Stock, $0.01 par value
    
    29,608,653 Shares




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##### 



FORM 10-K
YEAR ENDED DECEMBER 31, 2009
TABLE OF CONTENTS
 Page No.Acronyms Used in this Annual Report on Form 10-K
    
    
    1Terminology Used in this Annual Report on Form 10-K
    
    
    2Forward-Looking Statements
    
    
    3Market and Industry Data
    
    
    3PART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    28Item 1B. Unresolved Staff Comments
    
    
    40Item 2. Properties
    
    
    40Item 3. Legal Proceedings
    
    
    42Item 4. [Reserved]
    
    
    42PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    43Item 6. Selected Financial Data
    
    
    45Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    50Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
    
    
    76Item 8. Financial Statements and Supplementary Data
    
    
    77Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    77Item 9A. Controls and Procedures
    
    
    77Item 9B. Other Information
    
    
    80PART IIIItem 10. Directors and Executive Officers of the Registrant and Corporate Governance
    
    
    81Item 11. Executive Compensation
    
    
    81Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
    
    
    81Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    81Item 14. Principal Accounting Fees and Services
    
    
    81PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    82Exhibit 21.1Exhibit 23.1Exhibit 23.2Exhibit 31.1Exhibit 31.2Exhibit 32.1




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Acronyms Used in this Annual Report on Form 10-K
 ARPU
    
    Average revenue per userCLEC
    
    Competitive local exchange carrierCSA
    
    Carrier serving areaDSL
    
    Digital subscriber lineDVR
    
    Digital video recorderEBITDA
    
    Earnings before interest, taxes, depreciation and amortizationETFL
    
    East Texas Fiber Line, Inc.FASB
    
    Financial Accounting Standards BoardFCC
    
    Federal Communications CommissionGAAP
    
    Generally accepted accounting principlesHD
    
    High definitionICC
    
    Illinois Commerce CommissionICTC
    
    Illinois Consolidated Telephone CompanyILEC
    
    Incumbent local exchange carrierIP
    
    Internet protocolIPO
    
    Initial public offeringIPTV
    
    Internet protocol digital televisionISP
    
    Internet service providerLIBOR
    
    London interbank offer ratembps
    
    megabit per secondMPLS
    
    Multi-protocol label switchingNECA
    
    National Exchange Carrier AssociationNOC
    
    Network operations centerNOL
    
    Net operating lossPAPUC
    
    Pennsylvania Public Utility CommissionPAUSF
    
    Pennsylvania Universal Service FundPUCT
    
    Public Utility Commission of TexasPURA
    
    Texas Public Utilities Regulatory ActRBOC
    
    Regional Bell Operating CompanyRLEC
    
    Rural local exchange carrierSONET
    
    Synchronous Optical NetworkSPCOA
    
    Service Provider Certificate of Operating AuthorityTXUCV
    
    TXU Communications Ventures CompanyUNE
    
    Unbundled network elementUNE-P
    
    Unbundled network element platformVOIP
    
    Voice over Internet ProtocolWACC
    
    Weighted-average cost of capital
  1




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##### Table of Contents



Terminology Used in this Annual Report on Form 10-K
 Access line equivalents
 Competitive local exchange carriers
 Digital telephone or VOIP service
 exchange
 Hosted VOIP
 Incumbent local exchange telephone companies
 Metro Ethernet
 MPLS or Multiprotocol Label Switching
 Rural telephone companies
 Unified messaging
  2




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FORWARD-LOOKING STATEMENTS
     
 MARKET AND INDUSTRY DATA
    3




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PART I
 
 Item 1. Business
 General
        4




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Available Information
 www.consolidated.com
 Business Overview
  Sources of Revenue
  2009
    
    
    2008
    
    
    2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(in millions, except for percentages)
    
    $
    
    
    Revenues
    
    
    $
    
    
    Revenues
    
    
    $
    
    
    RevenuesTelephone operations:Local calling services
    
    
    97.2
    
    
    
    23.9
    
    
    
    104.6
    
    
    
    25.0
    
    
    
    82.8
    
    
    
    25.2Network access services
    
    
    86.3
    
    
    
    21.3
    
    
    
    95.3
    
    
    
    22.8
    
    
    
    70.9
    
    
    
    21.5Subsidies
    
    
    56.0
    
    
    
    13.8
    
    
    
    55.2
    
    
    
    13.2
    
    
    
    46.0
    
    
    
    14.0Long-distance services
    
    
    20.4
    
    
    
    5.0
    
    
    
    24.1
    
    
    
    5.7
    
    
    
    14.2
    
    
    
    4.3Data and Internet services
    
    
    68.1
    
    
    
    16.8
    
    
    
    62.7
    
    
    
    15.0
    
    
    
    38.0
    
    
    
    11.5Other services
    
    
    36.6
    
    
    
    9.0
    
    
    
    37.1
    
    
    
    8.9
    
    
    
    36.3
    
    
    
    11.0Total telephone operations
    
    
    364.6
    
    
    
    89.8
    
    
    
    379.0
    
    
    
    90.6
    
    
    
    288.2
    
    
    
    87.5Other operations
    
    
    41.6
    
    
    
    10.2
    
    
    
    39.4
    
    
    
    9.4
    
    
    
    41.0
    
    
    
    12.5Total operating revenue
    
    
    406.2
    
    
    
    100.0
    
    
    
    418.4
    
    
    
    100.0
    
    
    
    329.2
    
    
    
    100.0
  5




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Telephone Operations
  December 31,2009
    
    
    2008
    
    
    2007Residential access lines in service
    
    
    146,766
    
    
    
    162,067
    
    
    
    183,070Business access lines in service
    
    
    100,469
    
    
    
    102,256
    
    
    
    103,116Total local access lines in service
    
    
    247,235
    
    
    
    264,323
    
    
    
    286,186VOIP telephone subscribers
    
    
    8,665
    
    
    
    6,510
    
    
    
    2,494IPTV subscribers
    
    
    23,127
    
    
    
    16,666
    
    
    
    12,241ILEC DSL subscribers
    
    
    100,122
    
    
    
    91,817
    
    
    
    81,337Total broadband connections
    
    
    131,914
    
    
    
    114,993
    
    
    
    96,072CLEC access line equivalents (1)
    
    
    72,681
    
    
    
    74,687
    
    
    
    70,063Total connections
    
    
    451,830
    
    
    
    454,003
    
    
    
    452,321Long-distance lines (2)
    
    
    165,714
    
    
    
    165,953
    
    
    
    166,599Dial-up subscribers
    
    
    2,371
    
    
    
    3,957
    
    
    
    5,578
 (1)
    
    CLEC access line equivalents represent a combination of voice services and data circuits.
The calculations represent a conversion of data circuits to an access line basis. Equivalents
are calculated by converting data circuits (basic rate interface, primary rate interface, DSL,
DS-1, DS-3 and Ethernet) and SONET-based (optical) services (OC-3 and OC-48) to the equivalent
of an access line.(2)
    
    Reflects the inclusion of long-distance service provided as part of our VOIP offering while
excluding CLEC long-distance subscribers.  Local calling services
    6




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Network access services
   Subsidies
  Long-distance services
   7




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Data and Internet services
  Other services
  Other Operations
  
    
    Public Servicesprovides local and long-distance service and automated calling
service for correctional facilities.
 
    
    Business Systemssells and installs telecommunications equipment, such as key,
private branch exchange (PBX), and IP-based telephone systems, to business customers
in Texas and Illinois.
  Wireless partnerships
    8




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Customers and Markets
    9




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Sales and Marketing
 Telephone Operations
  
    
    Positioning ourselves as a single point of contact for our customers communications
needs;
 
    
    Providing customers with a broad array of voice and data services, and bundling
these services whenever possible;
 
    
    Providing excellent customer service, including 24-hour, 7-days a week centralized
customer support to coordinate installation of new services, repair and maintenance
functions;
 
    
    Developing and delivering new services to meet evolving customer needs and market
demands; and
 
    
    Leveraging our history and involvement with local communities and expanding
Consolidated Communications and Consolidated brand recognition.
   10




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Other Operations
  Information Technology and Support Systems
    11




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Network Architecture and Technology
        12




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Employees
  # of
    
    
    
    
    
    
    ContractEmployees
    
    
    Union
    
    
    ExpirationLocation
    
    Covered
    
    
    (1)
    
    
    DateIllinois
    
    
    340
    
    
    IBEW
    
    
    11/15/2012Lufkin/Conroe, Texas
    
    
    181
    
    
    CWA
    
    
    10/16/2010Pennsylvania (ILEC)
    
    
    66
    
    
    CWA
    
    
    09/30/2011Katy, Texas
    
    
    38
    
    
    CWA
    
    
    02/28/2011Pennsylvania (CLEC)
    
    
    11
    
    
    CWA
    
    
    02/29/2012Totals
    
    
    636
 (1)
    
    IBEW  International Brotherhood of Electrical WorkersCWA  Communication Workers of America   Our Strengths
 Technologically advanced network
    13




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Attractive markets
      Broad product offerings and bundling of services
   14




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Experienced management team with proven track record
  
    
    Providing superior quality services to rural customers in a regulated environment;
 
    
    Implementing successful business acquisitions and integrations; and
 
    
    Launching and growing new services, such as DSL and IPTV, along with managing CLEC
businesses and complementary services, such as transport, business systems and
directory publishing.
 Generally supportive regulatory environment
  Business Strategies
 Increase revenues per customer
    15




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Improve operating efficiency
  Maintain capital expenditure discipline
  Pursue selective acquisitions
  
    
    The market is attractive;
 
    
    The network is of appropriate quality;
 
    
    We can integrate the acquired company efficiently;
 
    
    There are significant potential operating synergies; and
 
    
    The transaction is cash flow accretive from day one.
 Competition
  Local telephone market
   16




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Wireless service
  Internet service
   17




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Long-distance service
  Other competition
  Regulatory Environment
 The following summary does not describe all existing and proposed legislation and regulations
affecting the telecommunications industry. Regulation can change rapidly, and ongoing proceedings
and hearings could alter the manner in which the telecommunications industry operates. We cannot
predict the outcome of any of these developments, nor their potential impact on us. See Risk
FactorsRegulatory Risks.
 Overview
     18




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Federal regulation
  Removal of entry barriers
   
    
    Allow other carriers to resell their services;
 
    
    Provide number portability where feasible;
 
    
    Ensure dialing parity, meaning that consumers can choose their default local or
long-distance telephone company without having to dial additional digits;
 
    
    Ensure that competitors customers receive non-discriminatory access to telephone
numbers, operator service, directory assistance, and directory listings;
 
    
    Afford competitors access to telephone poles, ducts, conduits, and rights-of-way;
and
 
    
    Establish reciprocal compensation arrangements with other carriers for the transport
and termination of telecommunications traffic.
  
    
    Negotiate interconnection agreements with other carriers in good faith;
 
    
    Interconnect their facilities and equipment with any requesting telecommunications
carrier, at any technically feasible point, at non-discriminatory rates and on
non-discriminatory terms and conditions;
 
    
    Offer their retail services to other carriers for resale at discounted wholesale
rates;
 
    
    Provide reasonable notice of changes in the information necessary for transmission
and routing of services over the incumbent telephone companys facilities or in the
information necessary for interoperability; and
 
    
    Provide, at rates, terms, and conditions that are just, reasonable, and
non-discriminatory, for the physical collocation of other carriers equipment necessary
for interconnection or access to UNEs at the premises of the incumbent telephone
company.
  19




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Access charges
        20




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Unbundled network element rules
   21




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22




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Promotion of universal service
     State regulation of CCI Illinois
   23




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State regulation of CCI Texas
    24




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Texas universal service
   25




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State regulation of CCI Pennsylvania
  Price regulation in Pennsylvania
  Pennsylvania universal service and access charges
   Local government authorizations
   26




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Broadband and Internet regulatory obligations
      27




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American Recovery and Reinvestment Act of 2009
  Broadband Stimulus (ARRA)
  National Broadband Plan
  
 Item 1A. Risk Factors
 Risks Relating to Current Economic Conditions
 The current volatility in economic conditions and the financial markets may adversely affect our
industry, business, and financial performance .
   28




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Unfavorable changes in financial markets could adversely affect pension plan investments resulting
in material funding requirements to meet our pension obligations.
  Weak economic conditions in our service areas could cause us to lose subscriber connections and
revenues.
  
    
    Demographic trends;
 
    
    In Illinois, the strength of the agricultural markets and the light manufacturing
and services industries, continued demand from universities and hospitals, and the
level of government spending;
 
    
    In Pennsylvania, the strength of small- to medium-sized businesses, healthcare, and
education spending; and
 
    
    In Texas, the strength of the manufacturing, healthcare, waste management, and
retail industries and continued demand from schools and hospitals.
  Risks Relating to Dividends
  Our board of directors could, in its discretion, depart from or change our dividend policy at any
time.
   29




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
    
    The state of our business, the environment in which we operate, and the various
risks we face, including competition, technological change, changes in our industry,
and regulatory and other risks summarized in this Annual Report on Form 10-K;
 
    
    Changes in the factors, assumptions, and other considerations made by our board of
directors in reviewing and adopting the dividend policy, as described under Dividend
Policy and Restrictions in Item 5 of this Annual Report;
 
    
    Our results of operations, financial condition, liquidity needs, and capital
resources;
 
    
    Our expected cash needs, including for interest and any future principal payments on
indebtedness, capital expenditures, taxes, and pension and other postretirement
contributions; and
 
    
    Potential sources of liquidity, including borrowing under our revolving credit
facility or possible asset sales.
 We might not have sufficient cash to maintain current dividend levels.
  
    
    Reduce or eliminate dividends;
 
    
    Fund dividends by incurring additional debt (to the extent we are permitted to do so
under the agreements governing our then-existing debt), which would increase our
leverage, debt repayment obligations, and interest expense, decrease our interest
coverage, and reduce our capacity to incur debt for other purposes, including to fund
future dividend payments;
 
    
    Amend the terms of our credit agreement, if our lenders agree, to permit us to pay
dividends or make other payments the agreement would otherwise restrict;
 
    
    Fund dividends by issuing equity securities, which could be dilutive to our
stockholders and negatively affect the price of our common stock;
 
    
    Fund dividends from other sources, such as by asset sales or working capital, which
would leave us with less cash available for other purposes; and
 
    
    Reduce other expected uses of cash, such as capital expenditures.
   30




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Because we are a holding company with no operations, we can only pay dividends if our subsidiaries
transfer funds to us.
  Restrictions in our debt agreements or applicable state legal and regulatory requirements may
prevent us from paying dividends.
     We expect that our estimated tax payments related to our federal income tax liability will increase
in the future as we have utilized all of our federal net operating losses, which may reduce the
amount of cash available to pay dividends.
   31




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Risks Relating to Our Common Stock
 If we continue to pay dividends at the level currently anticipated under our dividend policy, our
ability to pursue growth opportunities may be limited.
  Our organizational documents could limit or delay another partys ability to acquire us and,
therefore, could deprive our investors of a possible takeover premium for their shares.
  
    
    Divide our board of directors into three classes, which results in roughly one-third
of our directors being elected each year;
 
    
    Require the affirmative vote of holders of 75% or more of the voting power of our
outstanding common stock to approve any merger, consolidation, or sale of all or
substantially all of our assets;
 
    
    Provide that directors may only be removed for cause and then only upon the
affirmative vote of holders of two-thirds or more of the voting power of our
outstanding common stock;
 
    
    Require the affirmative vote of holders of two-thirds or more of the voting power of
our outstanding common stock to amend, alter, change, or repeal specified provisions of
our amended and restated certificate of incorporation and bylaws;
 
    
    Require stockholders to provide us with advance notice if they wish to nominate any
candidates for election to our board of directors or if they intend to propose any
matters for consideration at an annual stockholders meeting; and
 
    
    Authorize the issuance of so-called blank check preferred stock without
stockholder approval upon such terms as the board of directors may determine.
   32




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The concentration of the voting power of our common stock could limit a shareholders ability to
influence corporate matters.
  
    
    The election of directors;
 
    
    Significant corporate transactions, such as a merger or other sale of our company or
its assets;
 
    
    Acquisitions that increase our indebtedness or the sale of revenue-generating
assets;
 
    
    Corporate and management policies;
 
    
    Amendments to our organizational documents; and
 
    
    Other matters submitted to our stockholders for approval.
  Risks Relating to Our Indebtedness and Our Capital Structure
 We have a substantial amount of debt outstanding and may incur additional indebtedness in the
future, which could restrict our ability to pay dividends and fund working capital and planned
capital expenditures.
  
    
    We may be required to use a substantial portion of our cash flow from operations to
make interest payments on our debt, which will reduce funds available for operations,
future business opportunities, and dividends;
 
    
    We may have limited flexibility to react to changes in our business and our
industry;
 
    
    It may be more difficult for us to satisfy our other obligations;
 
    
    We may have a limited ability to borrow additional funds or to sell assets to raise
funds if needed for working capital, capital expenditures, acquisitions, or other
purposes;
 
    
    We may become more vulnerable to general adverse economic and industry conditions,
including changes in interest rates; and
 
    
    We may be at a disadvantage compared to our competitors that have less debt.
   33




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Our credit agreement contains covenants that limit managements discretion in operating our
business and could prevent us from capitalizing on opportunities and taking other corporate
actions.
  
    
    Incur additional debt and issue preferred stock;
 
    
    Make restricted payments, including paying dividends on, redeeming, repurchasing, or
retiring our capital stock;
 
    
    Make investments and prepay or redeem debt;
 
    
    Enter into agreements restricting our subsidiaries ability to pay dividends, make
loans, or transfer assets to us;
 
    
    Create liens;
 
    
    Sell or otherwise dispose of assets, including capital stock of subsidiaries;
 
    
    Engage in transactions with affiliates;
 
    
    Engage in sale and leaseback transactions;
 
    
    Make capital expenditures;
 
    
    Engage in a business other than telecommunications; and
 
    
    Consolidate or merge.
    34




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We may not be able to refinance our existing debt if necessary, or we may only be able to do so at
a higher interest expense .
  Risks Relating to Our Business
 The telecommunications industry is constantly changing and competition is increasing.
  
    
    Increased competition within established markets from providers that may offer
competing or alternative services;
 
    
    The blurring of traditional dividing lines between, and the bundling of, different
services, such as local dial tone, long-distance, wireless, cable, and data and
Internet services; and
 
    
    An increase in mergers and strategic alliances that allow one telecommunications
provider to offer increased services or access to wider geographic markets.
   The use of new technologies by other companies may increase our costs and cause us to lose
customers and revenues.
   35




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Future acquisitions could be expensive and may not be successful.
    A system failure could cause delays or interruptions of service, which could cause us to lose
customers.
    36




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The State of Illinois is a significant customer, and our contracts with the state are favorable to
the government.
  
    
    Permits the applicable state agency to terminate the contract without cause and
without penalty under some circumstances;
 
    
    Has renewal provisions that require decisions of state agencies that are subject to
political influence;
 
    
    Gives the State of Illinois the right to renew the contract at its option but does
not give us the same right; and
 
    
    Could be cancelled if state funding becomes unavailable.
  We have employees who are covered by collective bargaining agreements and could be adversely
affected by labor disputes.
  If we cannot obtain and maintain necessary rights-of-way for our network, our operations may be
interrupted and we would likely face increased costs.
   37




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We are dependent on third-party vendors for our information, billing, and network systems, as well
as IPTV service.
  We depend on certain key management personnel, and need to continue to attract and retain highly
qualified management and other personnel in the future.
  Regulatory Risks
 The telecommunications industry is subject to extensive regulation that could change in a manner
adverse to us.
  Legislative or regulatory changes could reduce or eliminate the revenues our rural telephone
companies receive from network access charges.
    38




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Legislative or regulatory changes could reduce or eliminate the government subsidies we receive.
   Proposed access and universal service reforms could have an adverse impact on our revenues.
  The high costs of regulatory compliance could make it more difficult for us to enter new markets,
make acquisitions, or change our prices.
    39




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Legislative and regulatory changes in the telecommunications industry could raise our costs and
reduce potential revenues.
  We are subject to extensive laws and regulations relating to the protection of the environment,
natural resources, and worker health and safety.
  
    
    Hazardous materials may have been released at properties that we currently own or
formerly owned (perhaps through our predecessors). Under certain environmental laws,
we could be held liable, without regard to fault, for the costs of investigating and
remediating any actual or threatened contamination at these properties, and for
contamination associated with disposal by us or our predecessors of hazardous materials
at third-party disposal sites.
 
    
    We could incur substantial costs in the future if we acquire businesses or
properties subject to environmental requirements or affected by environmental
contamination. In particular, environmental laws regulating wetlands, endangered
species, and other land use and natural resource issues may increase costs associated
with future business or expansion opportunities or delay, alter, or interfere with such
plans.
 
    
    The presence of contamination can adversely affect the value of our properties and
make it difficult to sell any affected property or to use it as collateral.
 
    
    We could be held responsible for third-party property damage claims, personal injury
claims, or natural resource damage claims relating to contamination found at any of our
current or past properties.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
   40




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Operating segment
    
    ApproximateOwned/
    
    Telephone
    
    Other
    
    squareLocation
    
    Primary Use
    
    leased
    
    Operations
    
    Operations
    
    footageGibsonia, PA
    
    Office and switching
    
    Owned
    
    X
    
    X
    
    
    91,141Conroe, TX
    
    Regional office
    
    Owned
    
    X
    
    X
    
    
    51,900Mattoon, IL
    
    Order fulfillment
    
    Leased
    
    
    
    X
    
    
    50,000Mattoon, IL
    
    Corporate office
    
    Leased
    
    X
    
    X
    
    
    49,100Mattoon, IL
    
    Operator services and operations
    
    Owned
    
    X
    
    X
    
    
    36,300Charleston, IL
    
    Communications center and office
    
    Leased
    
    X
    
    X
    
    
    34,000Mattoon, IL
    
    Operations and distribution center
    
    Leased
    
    X
    
    X
    
    
    30,900Mattoon, IL
    
    Sales and administration center
    
    Leased
    
    X
    
    X
    
    
    30,700Lufkin, TX
    
    Office and switching
    
    Owned
    
    X
    
    X
    
    
    28,707Conroe, TX
    
    Warehouse and plant
    
    Owned
    
    X
    
    X
    
    
    28,500Terre Haute, IN
    
    Communications center and office
    
    Leased
    
    X
    
    X
    
    
    25,450Lufkin, TX
    
    Communications center and office
    
    Owned
    
    X
    
    X
    
    
    23,190Katy, TX
    
    Warehouse and office
    
    Owned
    
    X
    
    X
    
    
    19,716Butler, PA
    
    Office and switching
    
    Owned
    
    X
    
    X
    
    
    18,564Taylorville, IL
    
    Communications center and office
    
    Owned
    
    X
    
    X
    
    
    15,900Taylorville, IL
    
    Operations and distribution center
    
    Leased
    
    X
    
    X
    
    
    14,700Lufkin, TX
    
    Warehouse
    
    Owned
    
    X
    
    X
    
    
    14,200Cranberry Township, PA
    
    Office and switching
    
    Owned
    
    X
    
    X
    
    
    13,110Charleston, IL
    
    Communications center and office
    
    Owned
    
    X
    
    X
    
    
    12,661Litchfield, IL
    
    Office and switching
    
    Owned
    
    X
    
    X
    
    
    12,190Lufkin, TX
    
    Office and data center
    
    Owned
    
    X
    
    X
    
    
    11,900Conroe, TX
    
    Office
    
    Owned
    
    X
    
    X
    
    
    10,650Mattoon, IL
    
    Office
    
    Owned
    
    X
    
    X
    
    
    10,100
   41




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##### Table of Contents



Item 3. Legal Proceedings
    
 Item 4. [Reserved]
  42




---



##### Table of Contents



PART II
 
 Item 5.
    Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases
of Equity Securities
 Market for our Common Stock and Holders of Record
  2009
    
    
    2008Period
    
    High
    
    
    Low
    
    
    High
    
    
    LowFirst quarter
    
    
    12.48
    
    
    
    7.90
    
    
    
    19.19
    
    
    
    14.00Second quarter
    
    
    12.12
    
    
    
    10.24
    
    
    
    15.71
    
    
    
    13.70Third quarter
    
    
    16.01
    
    
    
    11.17
    
    
    
    15.74
    
    
    
    13.48Fourth quarter
    
    
    17.48
    
    
    
    13.60
    
    
    
    14.65
    
    
    
    7.82
  Dividend Policy and Restrictions
     43




---



##### Table of Contents



Performance Graph
  COMPARISON OF 53 MONTH CUMULATIVE TOTAL RETURN*
 
 *
    
    $100 invested on 7/22/05 in stock or 6/30/05 in index, including reinvestment of dividends. Fiscal year ending December 31.Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. Copyright© 2010 Dow Jones & Co. All rights reserved. At December 31,(In dollars)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Consolidated
    
    
    197.31
    
    
    
    118.58
    
    
    
    177.23
    
    
    
    172.70
    
    
    
    97.12S&P Telecom Services
    
    
    102.94
    
    
    
    81.40
    
    
    
    129.21
    
    
    
    122.48
    
    
    
    105.77Dow Jones US Fixed  Line Tele.
    
    
    137.54
    
    
    
    126.59
    
    
    
    174.36
    
    
    
    149.99
    
    
    
    100.47Peer Group
    
    
    39.03
    
    
    
    26.70
    
    
    
    92.59
    
    
    
    199.36
    
    
    
    115.13
  44




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##### Table of Contents



Issuer Purchases of Common Stock During the Quarter Ended December 31, 2009
  Total number of
    
    
    Maximum numberShares purchased
    
    
    of shares that mayTotal number of
    
    
    Average price paid
    
    
    As part of publicly
    
    
    yet be purchasedPurchase period
    
    Shares purchased
    
    
    Per share
    
    
    announced plans
    
    
    under the plansOctober 2009
    
    
    2,646
    
    
    $
    15.66
    
    
    
    n/a
    
    
    
    n/aNovember 2009
    
    
    1,954
    
    
    $
    14.20
    
    
    
    n/a
    
    
    
    n/aDecember 2009
    
    
    28,975
    
    
    $
    16.11
    
    
    
    n/a
    
    
    
    n/a
 
 Item 6. Selected Financial Data
   Year ended December 31,(In millions, except per share amounts)
    
    2009
    
    
    2008
    
    
    2007 (6)
    
    
    2006
    
    
    2005Telephone operations revenues
    
    $
    364.6
    
    
    $
    379.0
    
    
    $
    288.2
    
    
    $
    280.4
    
    
    $
    282.3Other operations revenues
    
    
    41.6
    
    
    
    39.4
    
    
    
    41.0
    
    
    
    40.4
    
    
    
    39.1Total operating revenues
    
    
    406.2
    
    
    
    418.4
    
    
    
    329.2
    
    
    
    320.8
    
    
    
    321.4Cost of products and services (exclusive of depreciation
and amortization shown separately below)
    
    
    145.5
    
    
    
    143.5
    
    
    
    107.3
    
    
    
    98.1
    
    
    
    101.1Selling, general and administrative expense
    
    
    104.8
    
    
    
    108.8
    
    
    
    89.6
    
    
    
    94.7
    
    
    
    98.8Intangible asset impairment
    
    
    
    
    
    
    6.1
    
    
    
    
    
    
    
    11.3
    
    
    
    Depreciation and amortization
    
    
    85.2
    
    
    
    91.7
    
    
    
    65.7
    
    
    
    67.4
    
    
    
    67.4Income from operations
    
    
    70.7
    
    
    
    68.3
    
    
    
    66.6
    
    
    
    49.3
    
    
    
    54.1Interest expense, net (1) (2)
    
    
    (57.9
    )
    
    
    (66.3
    )
    
    
    (46.5
    )
    
    
    (42.9
    )
    
    
    (53.4
    )Other, net (3)
    
    
    25.5
    
    
    
    10.8
    
    
    
    (3.4
    )
    
    
    8.0
    
    
    
    6.4Income before income taxes and extraordinary item
    
    
    38.3
    
    
    
    12.8
    
    
    
    16.7
    
    
    
    14.4
    
    
    
    7.1Income tax expense
    
    
    12.4
    
    
    
    6.6
    
    
    
    4.7
    
    
    
    0.4
    
    
    
    10.9Income (loss) before extraordinary item
    
    
    25.9
    
    
    
    6.2
    
    
    
    12.0
    
    
    
    14.0
    
    
    
    (3.8
    )Extraordinary item, net of tax
    
    
    
    
    
    
    7.2
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    25.9
    
    
    
    13.4
    
    
    
    12.0
    
    
    
    14.0
    
    
    
    (3.8
    )Net income of noncontrolling interest (4)
    
    
    1.0
    
    
    
    0.9
    
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.7Net income (loss) attributable to common stockholders (4)
    
    
    24.9
    
    
    
    12.5
    
    
    
    11.4
    
    
    
    13.3
    
    
    
    (4.5
    )
  45




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##### Table of Contents



Year ended December 31,(In millions, except per share amounts)
    
    2009
    
    
    2008
    
    
    2007 (6)
    
    
    2006
    
    
    2005Dividends on redeemable preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10.2
    )Net income (loss) applicable to common shares
    
    $
    24.9
    
    
    $
    12.5
    
    
    $
    11.4
    
    
    $
    13.3
    
    
    $
    (14.7
    )Income per common sharebasic: (5)Income per common share before extraordinary item
    
    $
    0.84
    
    
    $
    0.18
    
    
    $
    0.43
    
    
    $
    0.48
    
    
    $
    (0.83
    )Extraordinary item per share
    
    
    
    
    
    
    0.24
    
    
    
    
    
    
    
    
    
    
    
    Net income per common sharebasic
    
    $
    0.84
    
    
    $
    0.42
    
    
    $
    0.43
    
    
    $
    0.48
    
    
    $
    (0.83
    )Basic weighted-average number of shares
    
    
    29,396
    
    
    
    29,321
    
    
    
    25,764
    
    
    
    27,740
    
    
    
    17,822Income per common sharediluted: (5)Income per common share before extraordinary item
    
    $
    0.84
    
    
    $
    0.18
    
    
    $
    0.43
    
    
    $
    0.48
    
    
    $
    (0.83
    )Extraordinary item per share
    
    
    
    
    
    
    0.24
    
    
    
    
    
    
    
    
    
    
    
    Net income per common sharediluted
    
    $
    0.84
    
    
    $
    0.42
    
    
    $
    0.43
    
    
    $
    0.48
    
    
    $
    (0.83
    )Diluted weighted-average number of common and common
equivalent shares
    
    
    29,396
    
    
    
    29,321
    
    
    
    25,764
    
    
    
    28,171
    
    
    
    17,822Cash dividends per common share
    
    $
    1.55
    
    
    $
    1.55
    
    
    $
    1.55
    
    
    $
    1.55
    
    
    $
    0.80Consolidated cash flow data:Cash flows from operating activities
    
    $
    116.3
    
    
    $
    92.4
    
    
    $
    82.1
    
    
    $
    84.6
    
    
    $
    79.3Cash flows used for investing activities
    
    
    (41.6
    )
    
    
    (48.0
    )
    
    
    (305.3
    )
    
    
    (26.7
    )
    
    
    (31.1
    )Cash flows used for financing activities
    
    
    (47.4
    )
    
    
    (63.3
    )
    
    
    230.9
    
    
    
    (62.7
    )
    
    
    (68.9
    )Capital expenditures
    
    
    42.4
    
    
    
    48.0
    
    
    
    33.5
    
    
    
    33.4
    
    
    
    31.1Consolidated Balance Sheet:Cash and cash equivalents
    
    $
    42.8
    
    
    $
    15.5
    
    
    $
    34.3
    
    
    $
    26.7
    
    
    $
    31.4Total current assets
    
    
    104.4
    
    
    
    78.6
    
    
    
    99.6
    
    
    
    74.2
    
    
    
    79.0Net property, plant and equipment (7)
    
    
    377.2
    
    
    
    400.3
    
    
    
    411.6
    
    
    
    314.4
    
    
    
    335.1Total assets
    
    
    1,223.0
    
    
    
    1,241.6
    
    
    
    1,304.6
    
    
    
    889.6
    
    
    
    946.0Total long-term debt (including current portion) (2)(8)
    
    
    880.3
    
    
    
    881.3
    
    
    
    892.6
    
    
    
    594.0
    
    
    
    555.0Stockholders equity
    
    
    80.7
    
    
    
    75.3
    
    
    
    159.7
    
    
    
    118.7
    
    
    
    202.2Other financial data (unaudited):Adjusted EBITDA (9)
    
    $
    188.8
    
    
    $
    189.8
    
    
    $
    143.8
    
    
    $
    139.8
    
    
    $
    136.8Other data (as of the end of the period) (Unaudited):Local access linesResidential
    
    
    146,766
    
    
    
    162,067
    
    
    
    183,070
    
    
    
    155,354
    
    
    
    162,231Business
    
    
    100,469
    
    
    
    102,256
    
    
    
    103,116
    
    
    
    78,335
    
    
    
    79,793Total local access lines
    
    
    247,235
    
    
    
    264,323
    
    
    
    286,186
    
    
    
    233,689
    
    
    
    242,024CLEC access line equivalents
    
    
    72,681
    
    
    
    74,687
    
    
    
    70,063
    
    
    
    
    
    
    
    VOIP subscribers
    
    
    8,665
    
    
    
    6,510
    
    
    
    2,494
    
    
    
    
    
    
    
    IPTV subscribers
    
    
    23,127
    
    
    
    16,666
    
    
    
    12,241
    
    
    
    6.954
    
    
    
    2,146ILEC DSL subscribers
    
    
    100,122
    
    
    
    91,817
    
    
    
    81,337
    
    
    
    52,732
    
    
    
    39,192Total connections
    
    
    451,830
    
    
    
    454,003
    
    
    
    452,321
    
    
    
    293,375
    
    
    
    283,362
 (1)
    
    Interest expense includes amortization of deferred financing costs totaling $1.3 million
for the year ended December 31, 2009, $1.4 million for 2008, $3.2 million for 2007, $3.3 million
for 2006, and $5.5 million for 2005.(2)
    
    In connection with the acquisition of North Pittsburgh on December 31, 2007, we incurred $296.0
million new term debt, net of the repayment of existing debt. All remaining senior notes were
retired on April 1, 2008.(3)
    
    We recognized $0.3 million and $2.8 million of net proceeds in other income in 2007 and 2005,
respectively, because we received key-man life insurance proceeds relating to the passing of former
TXUCV employees.  46




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##### Table of Contents



(4)
    
    We adopted the FASBs authoritative guidance on the presentation of noncontrolling interests
in consolidated financial statements effective January 1, 2009. This presentation has been
retrospectively applied to all periods presented.(5)
    
    We adopted the FASBs authoritative guidance on the treatment of participating securities in
the calculation of earnings per share on January 1, 2009. This presentation has been
retrospectively applied to all periods presented.(6)
    
    We acquired North Pittsburgh on December 31, 2007. Balance sheet and other data as of that
date includes the accounts of North Pittsburgh. Our results of operations include North Pittsburgh
beginning January 1, 2008.(7)
    
    Property, plant and equipment are recorded at cost. The cost of additions, replacements, and
major improvements is capitalized, while repairs and maintenance are charged to expenses. When
property, plant and equipment are retired from our regulated subsidiaries, the original cost, net
of salvage, is charged against accumulated depreciation, with no gain or loss recognized in accordance with composite group life
remaining methodology used for regulated telephone plant assets.(8)
    
    In July 2006, we repurchased and retired approximately 3.8 million shares of our common
stock for approximately $56.7 million, or $15.00 per share. We financed this transaction using
approximately $17.7 million of cash on hand and $39.0 million of additional term-loan borrowings.(9)
    
    We present Adjusted EBITDA for three reasons: we believe it is a useful indicator of our
historical debt capacity and our ability to service debt and pay dividends; it provides a measure
of consistency in our financial reporting; and covenants in our credit facilities contain ratios
based on Adjusted EBITDA.   plus
      minus plus
 minus plus
 plus minus
 plus minus
 plus minus
 plus
 minus
  47




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##### Table of Contents



Year ended December 31,(In millions, unaudited)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Net cash provided by operating activities
    
    $
    116.3
    
    
    $
    92.4
    
    
    $
    82.1
    
    
    $
    84.6
    
    
    $
    79.3Non-cash, stock-based compensation
    
    
    (1.9
    )
    
    
    (1.9
    )
    
    
    (4.0
    )
    
    
    (2.5
    )
    
    
    (8.6
    )Other adjustments, net (a)
    
    
    (1.0
    )
    
    
    3.8
    
    
    
    (9.5
    )
    
    
    (2.0
    )
    
    
    (18.0
    )Changes in operating assets and liabilities
    
    
    (2.2
    )
    
    
    9.9
    
    
    
    8.5
    
    
    
    0.6
    
    
    
    10.2Interest expense, net
    
    
    57.9
    
    
    
    66.3
    
    
    
    46.5
    
    
    
    42.9
    
    
    
    53.4Income taxes
    
    
    12.4
    
    
    
    6.6
    
    
    
    4.7
    
    
    
    0.4
    
    
    
    10.9EBITDA (b)
    
    
    181.5
    
    
    
    177.1
    
    
    
    128.3
    
    
    
    124.0
    
    
    
    127.2Adjustments to EBITDA (c):Integration, restructuring and Sarbanes
Oxley (d)
    
    
    7.4
    
    
    
    4.8
    
    
    
    1.2
    
    
    
    3.7
    
    
    
    7.4Professional service fees (e)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.9Other, net (f)
    
    
    (24.4
    )
    
    
    (19.9
    )
    
    
    (6.6
    )
    
    
    (7.1
    )
    
    
    (3.0
    )Investment distributions (g)
    
    
    22.4
    
    
    
    17.8
    
    
    
    6.6
    
    
    
    5.5
    
    
    
    1.6Pension curtailment gain (h)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.9
    )Loss on extinguishment of debt (i)
    
    
    
    
    
    
    9.2
    
    
    
    10.3
    
    
    
    
    
    
    
    Intangible asset impairment (a)
    
    
    
    
    
    
    6.1
    
    
    
    
    
    
    
    11.2
    
    
    
    Extraordinary item (j)
    
    
    
    
    
    
    (7.2
    )
    
    
    
    
    
    
    
    
    
    
    Non-cash, stock-based compensation (k)
    
    
    1.9
    
    
    
    1.9
    
    
    
    4.0
    
    
    
    2.5
    
    
    
    8.6Adjusted EBITDA
    
    $
    188.8
    
    
    $
    189.8
    
    
    $
    143.8
    
    
    $
    139.8
    
    
    $
    136.8
 (a)
    
    Other adjustments, net includes $6.1 million and $11.2 million of intangible asset
impairment charges for years ended December 31, 2008 and December 31, 2006, respectively.
During our annual impairment review for 2008, we determined that the projected future cash
flows of CMR would not be sufficient to support the carrying value of the goodwill. In
addition, based on a decline in estimated future cash flows of CMR and operator services
business, our 2006 annual impairment review determined that the value of the customer lists
associated with these businesses was impaired. Non-cash impairment charges are excluded in
arriving at Adjusted EBITDA under our credit facility.(b)
    
    EBITDA is defined as net earnings (loss) before interest expense, income taxes,
depreciation, and amortization on an unadjusted basis.(c)
    
    These adjustments reflect those required or permitted by the lenders under the credit
facility in place at the end of each of the years included in the periods presented.  48




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##### Table of Contents



(d)
    
    In connection with the TXUCV acquisition, we incurred certain expenses associated with
integrating and restructuring the businesses. These expenses include severance; employee
relocation expenses; Sarbanes-Oxley start-up costs; and costs to integrate our technology,
administrative and customer service functions, and billing systems. In connection with the
North Pittsburgh acquisition we incurred similar expenses with the exception of
Sarbanes-Oxley start-up costs.(e)
    
    Represents the aggregate professional service fees paid to certain large equity
investors prior to our initial public offering. Upon closing of the initial public
offering, these service agreements terminated.(f)
    
    Other, net includes the equity earnings from our investments, dividend income, and
certain other miscellaneous non-operating items. Key man life insurance proceeds of $0.3
million and $2.8 million received in 2007 and 2005, respectively, are not deducted to
arrive at Adjusted EBITDA.(g)
    
    For purposes of calculating Adjusted EBITDA, we include all cash dividends and other
cash distributions received from our investments.(h)
    
    Represents a $7.9 million curtailment gain associated with the amendment of our Texas
pension plan. The gain was recorded in general and administrative expenses. However,
because the gain is non-cash, it is excluded from Adjusted EBITDA.(i)
    
    Represents the redemption premium and write-off of unamortized debt issuance costs in
connection with the redemption and retirement of our senior notes during 2008 and the
write-off of debt issuance costs in connection with retiring the obligations under our
former credit facility and entering into a new credit facility contemporaneously with the
North Pittsburgh acquisition.(j)
    
    Upon making the election to discontinue the applicable accounting guidance for
regulated enterprises in accounting for the effects of certain types of regulation, we
recognized an extraordinary non-cash gain and began to apply the authoritative guidance
required for the discontinuance of the application of regulatory accounting. See the
financial statements and footnotes for additional information.(k)
    
    Represents compensation expenses in connection with our Restricted Share Plan. Because
of their non-cash nature, these expenses are excluded from Adjusted EBITDA.  49




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Consolidated Communications or the Company refers to Consolidated Communications Holdings,
Inc. alone or with its wholly owned subsidiaries as the context requires. When this report uses
the words we, our, or us, they refer to the Company and its subsidiaries.
 Overview
  Executive Summary
   Acquisition of North Pittsburgh and new credit facility
   50




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##### Table of Contents



Redemption of senior notes
  Discontinuance of Accounting for the Effects of Certain Types of Regulation
    51




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##### Table of Contents



General
  Revenues
 Telephone Operations and Other Operations.
 Local access lines and bundled services.
    
    
    Aggressively promoting DSL service, including selling DSL as a stand-alone offering;
 
    
    Value bundling services, such as DSL or IPTV, with a combination of local service
and custom calling features;
 
    
    Maintaining excellent customer service standards; and
 
    
    Keeping a strong local presence in the communities we serve.
  52




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##### Table of Contents




    
    Hosted VOIP service in all of our markets to meet the needs of small- to
medium-sized business customers that want robust functionality without having to
purchase a traditional key or PBX phone system;
 
    
    VOIP service for residential customers, which is being offered to our customers as
a growth opportunity and as an alternative to the traditional phone line for customers
who are considering a switch to a cable competitor. Since we began to more
aggressively promote our VOIP service in situations in which we are attempting to save
or win back customers, we estimate that the product has allowed us to reduce our
residential customer loss by 10%;
 
    
    DSL serviceeven to users who do not have our access linewhich expands our
customer base and creates additional revenue-generating opportunities;
 
    
    Metro-Ethernet services delivered over our copper infrastructure with speeds of 25
mbps to 40 mbps;
 
    
    DSL product with speeds up to 20 mbps for those customers desiring greater Internet
speed; and
 
    
    High definition video service and digital video recorders in all of our IPTV
markets.
   Expenses
   53




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##### Table of Contents



Cost of services and products.
 
    
    Operating expenses relating to plant costs, including those related to the network
and general support costs, central office switching and transmission costs, and cable
and wire facilities;
 
    
    General plant costs, such as testing, provisioning, network, administration, power,
and engineering; and
 
    
    The cost of transport and termination of long-distance and private lines outside our
rural telephone companies service area.
  Selling, general and administrative expenses
  Depreciation and amortization expenses.
  YearsBuildings
    
    
    1840Network and outside plant facilities
    
    
    350Furniture, fixtures and equipment
    
    
    315Capital Leases
    
    
    11
   54




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##### Table of Contents



Results of Operations
 Segments
  For the year ended December 31, 2009, compared to December 31, 2008
  For the years ended December 31,2009
    
    
    2008(in million, except for percentages)
    
    $
    
    
    %
    
    
    $
    
    
    %RevenueTelephone operationsLocal calling services
    
    
    97.2
    
    
    
    23.9
    
    
    
    104.6
    
    
    
    25.0Network access services
    
    
    86.3
    
    
    
    21.3
    
    
    
    95.3
    
    
    
    22.8Subsidies
    
    
    56.0
    
    
    
    13.8
    
    
    
    55.2
    
    
    
    13.2Long-distance services
    
    
    20.4
    
    
    
    5.0
    
    
    
    24.1
    
    
    
    5.7Data and Internet services
    
    
    68.1
    
    
    
    16.8
    
    
    
    62.7
    
    
    
    15.0Other services
    
    
    36.6
    
    
    
    9.0
    
    
    
    37.1
    
    
    
    8.9Total telephone operations
    
    
    364.6
    
    
    
    89.8
    
    
    
    379.0
    
    
    
    90.6Other operations
    
    
    41.6
    
    
    
    10.2
    
    
    
    39.4
    
    
    
    9.4Total operating revenue
    
    
    406.2
    
    
    
    100.0
    
    
    
    418.4
    
    
    
    100.0ExpensesTelephone operations
    
    
    211.1
    
    
    
    52.0
    
    
    
    214.5
    
    
    
    51.2Other operations
    
    
    39.2
    
    
    
    9.6
    
    
    
    43.8
    
    
    
    10.5Depreciation and amortization
    
    
    85.2
    
    
    
    21.0
    
    
    
    91.7
    
    
    
    21.9Total operating expense
    
    
    335.5
    
    
    
    82.6
    
    
    
    350.0
    
    
    
    83.6Income from operations
    
    
    70.7
    
    
    
    17.4
    
    
    
    68.4
    
    
    
    16.4Interest expense, net
    
    
    57.9
    
    
    
    14.3
    
    
    
    66.3
    
    
    
    15.9Other income
    
    
    25.5
    
    
    
    6.3
    
    
    
    10.7
    
    
    
    2.6Income tax expense
    
    
    12.4
    
    
    
    3.0
    
    
    
    6.6
    
    
    
    1.6Income before extraordinary item
    
    
    25.9
    
    
    
    6.4
    
    
    
    6.2
    
    
    
    1.5Extraordinary item, net of tax
    
    
    
    
    
    
    
    
    
    
    7.2
    
    
    
    1.7Net income
    
    
    25.9
    
    
    
    6.4
    
    
    
    13.4
    
    
    
    3.2Net income attributable to noncontrolling
interest
    
    
    1.0
    
    
    
    0.3
    
    
    
    0.9
    
    
    
    0.2Net income attributable to common stockholders
    
    
    24.9
    
    
    
    6.1
    
    
    
    12.5
    
    
    
    3.0
  55




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##### Table of Contents



Revenue
  December 31,2009
    
    
    2008Residential access lines in service
    
    
    146,766
    
    
    
    162,067Business access lines in service
    
    
    100,469
    
    
    
    102,256Total local access lines in service
    
    
    247,235
    
    
    
    264,323VOIP subscribers
    
    
    8,665
    
    
    
    6,510IPTV subscribers
    
    
    23,127
    
    
    
    16,666ILEC DSL subscribers
    
    
    100,122
    
    
    
    91,817Total broadband connections
    
    
    131,914
    
    
    
    114,993CLEC access line equivalents (1)
    
    
    72,681
    
    
    
    74,687Total connections
    
    
    451,830
    
    
    
    454,003Long-distance lines (2)
    
    
    165,714
    
    
    
    165,953Dial-up subscribers
    
    
    2,371
    
    
    
    3,957
 (1)
    
    CLEC access line equivalents represent a combination of voice services and data circuits. The
calculations represent a conversion of data circuits to an access line basis. Equivalents are
calculated by converting data circuits (basic rate interface, primary rate interface, DSL, DS-1,
DS-3 and Ethernet) and SONET-based (optical) services (OC-3 and OC-48) to the equivalent of an
access line.(2)
    
    Reflects the inclusion of long-distance service provided as part of our VOIP offering while
excluding CLEC long-distance subscribers Telephone Operations Revenue
 Local calling services
 Network access services
 Subsidy
  56




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##### Table of Contents



Long-distance services
 Data and Internet
 Other services
 Other Operations Revenue
  Operating Expenses
  Telephone Operations Operating Expenses
  Other Operations Operating Expenses
  Depreciation and Amortization
   57




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Interest Expense, Net
  Other Income (Expense)
  Extraordinary Item
   Income Taxes
    58




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Net Income Attributable to Noncontrolling Interest
   59




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For the year ended December 31, 2008, compared to December 31, 2007
  For the years ended December 31,2008
    
    
    2007(in million, except for percentages)
    
    $
    
    
    %
    
    
    $
    
    
    %RevenueTelephone operationsLocal calling services
    
    
    104.6
    
    
    
    25.0
    
    
    
    82.8
    
    
    
    25.2Network access services
    
    
    95.3
    
    
    
    22.8
    
    
    
    70.9
    
    
    
    21.5Subsidies
    
    
    55.2
    
    
    
    13.2
    
    
    
    46.0
    
    
    
    14.0Long-distance services
    
    
    24.1
    
    
    
    5.7
    
    
    
    14.2
    
    
    
    4.3Data and Internet services
    
    
    62.7
    
    
    
    15.0
    
    
    
    38.0
    
    
    
    11.5Other services
    
    
    37.1
    
    
    
    8.9
    
    
    
    36.3
    
    
    
    11.0Total telephone operations
    
    
    379.0
    
    
    
    90.6
    
    
    
    288.2
    
    
    
    87.5Other operations
    
    
    39.4
    
    
    
    9.4
    
    
    
    41.0
    
    
    
    12.5Total operating revenue
    
    
    418.4
    
    
    
    100.0
    
    
    
    329.2
    
    
    
    100.0ExpensesTelephone operations
    
    
    214.5
    
    
    
    51.2
    
    
    
    155.0
    
    
    
    47.1Other operations
    
    
    43.8
    
    
    
    10.5
    
    
    
    41.9
    
    
    
    12.7Depreciation and amortization
    
    
    91.7
    
    
    
    21.9
    
    
    
    65.7
    
    
    
    20.0Total operating expense
    
    
    350.0
    
    
    
    83.6
    
    
    
    262.6
    
    
    
    79.8Income from operations
    
    
    68.4
    
    
    
    16.4
    
    
    
    66.6
    
    
    
    20.2Interest expense, net
    
    
    66.3
    
    
    
    15.9
    
    
    
    46.5
    
    
    
    14.1Other income
    
    
    10.7
    
    
    
    2.6
    
    
    
    (3.4
    )
    
    
    (1.0
    )Income tax expense
    
    
    6.6
    
    
    
    1.6
    
    
    
    4.7
    
    
    
    1.4Income before extraordinary item
    
    
    6.2
    
    
    
    1.5
    
    
    
    12.0
    
    
    
    3.7Extraordinary item, net of tax
    
    
    7.2
    
    
    
    1.7
    
    
    
    
    
    
    
    Net income
    
    
    13.4
    
    
    
    3.2
    
    
    
    12.0
    
    
    
    3.7Net income attributable to
noncontrolling interest
    
    
    0.9
    
    
    
    0.2
    
    
    
    0.6
    
    
    
    0.2Net income attributable to common
stockholders
    
    
    12.5
    
    
    
    3.0
    
    
    
    11.4
    
    
    
    3.5
  60




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Revenues
  December 31,2008
    
    
    2007Residential access lines in service
    
    
    162,067
    
    
    
    183,070Business access lines in service
    
    
    102,256
    
    
    
    103,116Total local access lines in service
    
    
    264,323
    
    
    
    286,186VOIP subscribers
    
    
    6,510
    
    
    
    2,494IPTV subscribers
    
    
    16,666
    
    
    
    12,241ILEC DSL subscribers
    
    
    91,817
    
    
    
    81,337Total broadband connections
    
    
    114,993
    
    
    
    96,072CLEC access line equivalents (1)
    
    
    74,687
    
    
    
    70,063Total connections
    
    
    454,003
    
    
    
    452,321Long-distance lines (2)
    
    
    165,953
    
    
    
    166,599Dial-up subscribers
    
    
    3,957
    
    
    
    5,578
 (1)
    
    CLEC access line equivalents represent a combination of voice services and data circuits. The
calculations represent a conversion of data circuits to an access line basis. Equivalents are
calculated by converting data circuits (basic rate interface, primary rate interface, DSL, DS-1,
DS-3 and Ethernet) and SONET-based (optical) services (OC-3 and OC-48) to the equivalent of an
access line.(2)
    
    Reflects the inclusion of long-distance service provided as part of our VOIP offering while
excluding CLEC long-distance subscribers Telephone Operations Revenue
 Local calling services
 Network access services
 Subsidy
 Long-distance services
  61




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Data and Internet
 Other services
 Other Operations Revenue
  Operating Expenses
  Telephone Operations Operating Expenses
  Other Operations Operating Expenses
  Depreciation and Amortization
   62




---



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Interest Expense, Net
  Other Income (Expense)
  Extraordinary Item
    63




---



##### Table of Contents



Income Taxes
      Net Income Attributable to Noncontrolling Interest
  Trends and Factors that May Affect Future Operating Results
 Growth of Data and Internet services
   64




---



##### Table of Contents



Loss of Access Lines
  Competition and Regulation
  Summary of Critical Accounting Policies
  Goodwill and other intangible assets
 Goodwill
   65




---



##### Table of Contents



Telephone operations
    
    $
    519.5 millionPrison Systems
    
    $
    0.2 millionBusiness Systems
    
    $
    0.8 million
  66




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67




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##### Table of Contents



Other Intangible Assets
  
    
    A change in the use or perceived value of our tradenames;
 
    
    Significant underperformance relative to historical or projected future operating
results;
 
    
    Significant regulatory changes that would impact future operating revenues;
 
    
    Significant changes in our customer base;
 
    
    Significant negative industry or economic trends; or
 
    
    Significant changes in the overall strategy we employ to operate our business.
  Revenue recognition
        68




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Derivatives
   Income taxes
  Subsidies revenues
   69




---



##### Table of Contents



Allowance for uncollectible accounts
  Pension and postretirement benefits
    Liquidity and Capital Resources
 Outlook and Overview
  December 31,(In thousands)
    
    2009
    
    2008Cash and cash equivalents
    
    $
    42,758
    
    
    $
    15,471Working capital
    
    
    23,789
    
    
    
    2,841Total debt
    
    
    880,344
    
    
    
    881,266Current ratio
    
    
    1.30
    
    
    
    1.04
   70




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##### Table of Contents



Sources of Liquidity
  Cash and cash equivalents
  71




---



##### Table of Contents



Cash provided by operations.
 Cash available under our secured revolving credit facility.
 Working capital.
 Uses of Liquidity
  Dividend payments
 Interest and other payments related to outstanding debt.
 Pension and postretirement obligations.
 Capital expenditures.
 Debt
  (in thousands)
    
    Balance
    
    
    Maturity Date
    
    Rate (1)Capital lease
    
    $
    344
    
    
    April 12, 2010
    
    7.4%Revolving credit facility
    
    
    
    
    
    December 31, 2013
    
    LIBOR plus 2.75%Term loan
    
    $
    880,000
    
    
    December 31, 2014
    
    LIBOR plus 2.50%
 (1)
    
    As of December 31, 2009, the 1-month LIBOR rate in effect on our borrowings was 0.23%.  72




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##### Table of Contents



Credit Facilities
    Derivative Instruments
   73




---



##### Table of Contents



Covenant Compliance
    Dividends
   74




---



##### Table of Contents



Surety Bonds
  Table of contractual obligations and commitments
  Payments due or expiring by periodLess Than 1
    
    
    
    
    
    
    
    
    
    
    More than 5(In thousands)
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    yearsContractual obligations:Term loan and associated interest (a)
    
    $
    1,142,240
    
    
    $
    52,448
    
    
    $
    104,896
    
    
    $
    984,896
    
    
    $
    Capital lease
    
    
    344
    
    
    
    344
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    6,514
    
    
    
    3,151
    
    
    
    2,301
    
    
    
    652
    
    
    
    410Interest rate swaps
    
    
    32,179
    
    
    
    6,074
    
    
    
    17,094
    
    
    
    9,011
    
    
    
    Other (b)
    
    
    2,590
    
    
    
    1,438
    
    
    
    952
    
    
    
    133
    
    
    
    67Total Contractual obligations
    
    $
    1,183,867
    
    
    $
    63,455
    
    
    $
    125,243
    
    
    $
    994,692
    
    
    $
    477
 (a)
    
    These items consist of interest and principal payments under our credit facilities. The credit
facilities consist of a $760.0 million term loan facility and a $120.0 million DDTL facility, both
maturing on December 31, 2014, and a $50.0 million revolving credit facility, which was fully
available but undrawn as of December 31, 2009. For purposes of this table, we assumed a fixed
interest rate of 5.96% throughout the entire term of the loan, which was the average rate in effect
during the fourth quarter of 2009. The actual rate will vary depending on the LIBO rates in effect
at the time of payment and the expiration dates of the swap agreements.(b)
    
    Represents payments for four operational support systems obligations. Should we terminate
any of the contracts prior to their expiration, we will be liable for minimum commitment payments
as defined in the contracts for the remaining term of the contracts. In addition, we have a
contractual obligation for network maintenance.   75




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##### Table of Contents



Market Risks
    Subsequent Events
    Impact of Recently Issued Accounting Standards
  
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
   76




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
  PageReport of Independent Registered Public Accounting Firm
    
    
    79Report of Independent Registered Public Accounting Firm
    
    
    F-1Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Operations  For the years ended
December 31, 2009, 2008 and 2007
    
    
    F-3Consolidated Balance Sheets  December 31, 2009 and 2008
    
    
    F-4Consolidated Statements of Changes in Stockholders Equity  For
the years ended December 31, 2009, 2008 and 2007
    
    
    F-5Consolidated Statements of Cash Flows  For the years ended
December 31, 2009, 2008 and 2007
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7Report of Independent Registered Public Accounting Firm
    
    
    F-44Pennsylvania RSA 6(II) Limited Partnership Balance Sheets 
December 31, 2009 and 2008
    
    
    F-45Pennsylvania RSA 6(II) Limited Partnership Statements of
Operations  For the years ended December 31, 2009, 2008 and
2007
    
    
    F-46Pennsylvania RSA 6(II) Limited Partnership Statements of Changes
in Partners Capital  For the years ended December 31, 2009,
2008 and 2007
    
    
    F-47Pennsylvania RSA 6(II) Limited Partnership Statements of Cash
Flows  For the years ended December 31, 2009, 2008 and 2007
    
    
    F-48Notes to Consolidated Financial Statements
    
    
    F-49Report of Independent Registered Public Accounting Firm
    
    
    F-58GTE Mobilnet of Texas #17 Limited Partnership Balance Sheets 
December 31, 2009 and 2008
    
    
    F-59GTE Mobilnet of Texas #17 Limited Partnership Statements of
Operations  For the years ended December 31, 2009, 2008 and
2007
    
    
    F-60GTE Mobilnet of Texas #17 Limited Partnership Statements of
Changes in Partners Capital  For the years ended December 31,
2009, 2008 and 2007
    
    
    F-61GTE Mobilnet of Texas #17 Limited Partnership Statements of Cash
Flows  For the years ended December 31, 2009, 2008 and 2007
    
    
    F-62Notes to Consolidated Financial Statements
    
    
    F-63
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   77




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Changes in Internal Control over Financial Reporting
  Managements Report on Internal Control over Financial Reporting
 Internal Control-Integrated Framework
  Inherent Limitation of the Effectiveness of Internal Control
   78




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control
 Integrated Framework
      /s/  Ernst & Young LLP 
  79




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Item 9B. Other Information
   80




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
   
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accountant Fees and Services
   81




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a)
    
    Index to exhibits, financial statements and schedules.
 (1)
    
    The following consolidated financial statements and reports are included beginning on
page F-1 hereof:Reports of Independent Registered Public Accounting Firm.Consolidated Statements of Operations  For the years ended December 31, 2009, 2008, and
2007.Consolidated Balance Sheets  December 31, 2009 and 2008.Consolidated Statements of Changes in Stockholders Equity  For the years ended December
31, 2009, 2008, and 2007.Consolidated Statements of Cash Flows  For the years ended December 31, 2009, 2008, and
2007.Notes to Consolidated Financial Statements.Report of Independent Registered Public Accounting Firm.Pennsylvania RSA 6(II) Limited Partnership Balance Sheets  December 31, 2009 and 2008.Pennsylvania RSA 6(II) Limited Partnership Statements of Operations  For the years ended
December 31, 2009, 2008 and 2007.Pennsylvania RSA 6(II) Limited Partnership Statements of Changes in Partners Capital  For
the years ended December 31, 2009, 2008 and 2007.Pennsylvania RSA 6(II) Limited Partnership Statements of Cash Flows  For the years ended
December 31, 2009, 2008 and 2007.Notes to Consolidated Financial Statements.Report of Independent Registered Public Accounting Firm.GTE Mobilnet of Texas #17 Limited Partnership Balance Sheets  December 31, 2009
and 2008.GTE Mobilnet of Texas #17 Limited Partnership Statements of Operations  For the
years ended December 31, 2009, 2008 and 2007.GTE Mobilnet of Texas #17 Limited Partnership Statements of Changes in Partners
Capital  For the years ended December 31, 2009, 2008 and 2007.GTE Mobilnet of Texas #17 Limited Partnership Statements of Cash Flows  For the
years ended December 31, 2009, 2008 and 2007.Notes to Consolidated Financial Statements.(2)
    
    The following consolidated financial statement schedule of the Company is included on
page F-43 hereof:
 SCHEDULE II Valuation and Qualifying Accounts
  (3)
    
    Exhibits required by Item 601 of Regulation S-K:
  82




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##### Table of Contents



ExhibitNumber
    
    Description2.1
    
    
    Agreement and Plan of Merger, dated as of July 1, 2007,
by and among Consolidated Communications Holdings, Inc.,
North Pittsburgh Systems, Inc. and Fort Pitt Acquisition
Sub Inc. (incorporated by reference to Exhibit 2.1 to
Current Report on Form 8-K dated July 12, 2007).3.1
    
    
    Form of Amended and Restated Certificate of
Incorporation (incorporated by reference to Exhibit 3.1
to Amendment No. 7 to Form S-1 dated July 19, 2005).3.2
    
    
    Form of Amended and Restated Bylaws, as amended
(incorporated by reference to Exhibit 3.1 to Form 10-Q
for the period ended September 30, 2009).4.1
    
    
    Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to Amendment No. 7 to Form S-1
dated July 19, 2005).10.1
    
    
    Credit Agreement, dated December 31, 2007, among
Consolidated Communications Holdings, Inc., as Parent
Guarantor, Consolidated Communications, Inc.,
Consolidated Communications Acquisition Texas, Inc. and
Fort Pitt Acquisition Sub Inc., as Co-Borrowers, the
lenders referred to therein, Wachovia Bank, National
Association, as administrative agent, issuing bank and
swingline lender, CoBank, ACB, as syndication agent,
General Electric Capital Corporation, as
co-documentation agent, The Royal Bank of Scotland PLC,
as co-documentation agent, and Wachovia Capital Markets,
LLC, as sole lead arranger and sole bookrunner
(incorporated by reference to Exhibit 10.1 to Current
Report on Form 8-K dated December 31, 2007).10.2
    
    
    Form of Collateral Agreement, dated December 31, 2007,
by and among Consolidated Communications Holdings, Inc.,
Consolidated Communications, Inc., Consolidated
Communications Acquisition Texas, Inc., Fort Pitt
Acquisition Sub Inc., certain subsidiaries of
Consolidated Communications Holdings, Inc. identified on
the signature pages thereto, in favor of Wachovia Bank,
National Association, as Administrative Agent
(incorporated by reference to Exhibit 10.2 to Form 10-K
for the period ended December 31, 2007).10.3
    
    
    Form of Guaranty Agreement, dated December 31, 2007,
made by Consolidated Communications Holdings, Inc. and
certain subsidiaries of Consolidated Communications
Holdings, Inc. identified on the signature pages
thereto, in favor of Wachovia Bank, National
Association, as Administrative Agent (incorporated by
reference to Exhibit 10.3 to Form 10-K for the period
ended December 31, 2007).10.4
    
    
    Lease Agreement, dated December 31, 2002, between LATEL,
LLC and Consolidated Market Response, Inc. (incorporated
by reference to Exhibit 10.11 to Form S-4 dated October
26, 2004).10.5
    
    
    Lease Agreement, dated December 31, 2002, between LATEL,
LLC and Illinois Consolidated Telephone Company
(incorporated by reference to Exhibit 10.12 to Form S-4
dated October 26, 2004).10.6
    
    
    Master Lease Agreement, dated February 25, 2002, between
General Electric Capital Corporation and TXU
Communications Ventures Company (incorporated by
reference to Exhibit 10.13 to Form S-4 dated October 26,
2004).10.6.1
    
    
    Amendment No. 1 to Master Lease Agreement, dated
February 25, 2002, between General Electric Capital
Corporation and TXU Communications Ventures Company,
dated March 18, 2002 (incorporated by reference to
Exhibit 10.14 to Form S-4 dated October 26, 2004).10.8
    
    
    Amended and Restated Consolidated Communications
Holdings, Inc. Restricted Share Plan (incorporated by
reference to Exhibit 10.11 to Amendment No. 7 to Form
S-1 dated July 19, 2005).
  83




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##### Table of Contents



ExhibitNumber
    
    Description10.9
    *
    
    Consolidated Communications Holdings, Inc. 2005
Long-Term Incentive Plan (As Amended and Restated
Effective May 5, 2009) (incorporated by reference to
Exhibit A to the Companys 2009 Proxy Statement for the
Annual Meeting held on May 5, 2009).10.10
    
    
    Stock Repurchase Agreement, dated July 13, 2006, by and
among Consolidated Communications Holdings, Inc.,
Providence Equity Partners IV L.P. and Providence Equity
Operating Partners IV L.P. (incorporated by reference to
Exhibit 10.1 to Form 8-K dated July 17, 2006).10.11
    *
    
    Form of Employment Security Agreement with Robert J.
Currey (incorporated by reference to Exhibit 10.1 to
Form 8-K dated December 4, 2009).10.12
    *
    
    Form of Employment Security Agreement with certain of
the Companys other executive officers (incorporated by
reference to Exhibit 10.2 to Form 8-K dated December 4,
2009).10.13
    *
    
    Form of Employment Security Agreement with the Companys
and its subsidiaries vice president and director level
employees (incorporated by reference to Exhibit 10.12 to
Form 10-K for the period ended December 31, 2007).10.14
    *
    
    Executive Long-Term Incentive Program, as revised March
12, 2007 (incorporated by reference to Exhibit 10.1 to
Form 8-K dated March 12, 2007).10.15
    
    
    Form of 2005 Long-Term Incentive Plan Performance Stock
Grant Certificate (incorporated by reference to Exhibit
10.2 to Form 8-K dated March 12, 2007).10.16
    
    
    Form of 2005 Long-Term Incentive Plan Restricted Stock
Grant Certificate (incorporated by reference to Exhibit
10.3 to Form 8-K dated March 12, 2007).10.17

    *
    
    Form of 2005 Long-Term Incentive Plan Restricted Stock
Grant Certificate for Directors (incorporated by
reference to Exhibit 10.4 to Form 8-K dated March 12,
2007).10.18
    *
    
    Description of the Consolidated Communications Holdings,
Inc. Bonus Plan (incorporated by reference to Exhibit
10.5 to Form 8-K dated March 12, 2007).10.19
    
    
    Letter Agreement, dated March 31, 2008, by Wachovia
Bank, National Association, and agreed to and
acknowledged by Consolidated Communications Holdings,
Inc., Consolidated Communications, Inc., Consolidated
Communications Acquisition Texas, Inc. and North
Pittsburgh Systems, Inc. (formerly known as Fort Pitt
Acquisition Sub Inc.) (incorporated by reference to
Exhibit 10.1 to Form 8-K dated March 31, 2008).10.20
    
    
    Letter Agreement dated August 6, 2008 by Wachovia Bank,
National Association, and agreed to and acknowledged by
Consolidated Communications Holdings, Inc., Consolidated
Communications, Inc., Consolidated Communications
Acquisition Texas, Inc. and North Pittsburgh Systems,
Inc. (formerly known as Fort Pitt Acquisition Sub Inc.)
(incorporated by reference to Exhibit 10.1 to Form 10-Q
for the period ended June 30, 2008).21.1
    
    
    List of subsidiaries of the Registrant23.1
    
    
    Consent of Ernst & Young LLP23.2
    
    
    Consent of Deloitte & Touché LLP31.1
    
    
    Certificate of Chief Executive Officer of Consolidated
Communications Holdings, Inc. pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 193431.2
    
    
    Certificate of Chief Financial Officer of Consolidated
Communications Holdings, Inc. pursuant to Rule
13(a)-14(a) under the Securities Exchange Act of 193432.1
    
    
    Certification of the Chief Executive
Officer and Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 *
    
    Compensatory plan or arrangement.  84




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##### Table of Contents



SIGNATURES
  CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.By:
    /s/ Robert J. CurreyName:
    Robert J. CurreyTitle:
    President and Chief Executive Officer  Signature
    
    Title
    
    DateBy:
    
    /s/ Robert J. Currey

Robert J. Currey
    
    President and Chief Executive
Officer and Director
(Principal Executive Officer)
    
    March 8, 2010By:
    
    /s/ Steven L. Childers

Steven L. Childers
    
    Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
    
    March 8, 2010By:
    
    /s/ Richard A. Lumpkin

Richard A. Lumpkin
    
    Non-Executive Chairman of
the Board and Director
    
    March 8, 2010By:
    
    /s/ Jack W. Blumenstein

Jack W. Blumenstein
    
    Director
    
    March 8, 2010By:
    
    /s/ Roger H. Moore

Roger H. Moore
    
    Director
    
    March 8, 2010By:
    
    /s/ Maribeth S. Rahe

Maribeth S. Rahe
    
    Director
    
    March 8, 2010
  85




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    .
 Internal Control  Integrated
Framework,
  
  F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
         F-2




---



##### Table of Contents



Consolidated Communications Holdings, Inc. and Subsidiaries
 
 Consolidated Statements of Operations
 Year ended December 31,(In thousands except per share amounts)
    
    2009
    
    
    2008
    
    
    2007Net revenues
    
    $
    406,167
    
    
    $
    418,424
    
    
    $
    329,248Operating expense:Cost of services and products (exclusive of
depreciation and amortization shown separately below)
    
    
    145,460
    
    
    
    143,563
    
    
    
    107,290Selling, general and administrative expenses
    
    
    104,774
    
    
    
    108,769
    
    
    
    89,662Intangible asset impairment
    
    
    
    
    
    
    6,050
    
    
    
    Depreciation and amortization
    
    
    85,227
    
    
    
    91,678
    
    
    
    65,659Operating income
    
    
    70,706
    
    
    
    68,364
    
    
    
    66,637Other income (expense):Interest income
    
    
    56
    
    
    
    367
    
    
    
    893Interest expense
    
    
    (57,991
    )
    
    
    (66,659
    )
    
    
    (47,350
    )Investment income
    
    
    25,770
    
    
    
    20,495
    
    
    
    7,034Loss on early extinguishment of debt
    
    
    
    
    
    
    (9,224
    )
    
    
    (10,323
    )Other, net
    
    
    (207
    )
    
    
    (577
    )
    
    
    (167
    )Income before income taxes and extraordinary item
    
    
    38,334
    
    
    
    12,766
    
    
    
    16,724Income tax expense
    
    
    12,399
    
    
    
    6,639
    
    
    
    4,674Income before extraordinary item
    
    
    25,935
    
    
    
    6,127
    
    
    
    12,050Extraordinary item (net of income tax of $4,154)
    
    
    
    
    
    
    7,240
    
    
    
    Net income
    
    
    25,935
    
    
    
    13,367
    
    
    
    12,050Less: Net income attributable to noncontrolling interest
    
    
    1,030
    
    
    
    863
    
    
    
    627Net income attributable to common stockholders
    
    $
    24,905
    
    
    $
    12,504
    
    
    $
    11,423Net income per common share attributable to common stockholdersbasic:Income per common share before extraordinary item
    
    $
    0.84
    
    
    $
    0.18
    
    
    $
    0.43Extraordinary item per share
    
    
    
    
    
    
    0.24
    
    
    
    Net income per common share attributable to common stockholdersbasic
    
    $
    0.84
    
    
    $
    0.42
    
    
    $
    0.43Net income per common share attributable to common stockholdersdiluted:Income per common share before extraordinary item
    
    $
    0.84
    
    
    $
    0.18
    
    
    $
    0.43Extraordinary item per share
    
    
    
    
    
    
    0.24
    
    
    
    Net income per common share attributable to common stockholdersdiluted
    
    $
    0.84
    
    
    $
    0.42
    
    
    $
    0.43Cash dividends per common share
    
    $
    1.55
    
    
    $
    1.55
    
    
    $
    1.55
 The accompanying notes are an integral part of the consolidated financial statements.
  F-3




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##### Table of Contents



Consolidated Communications Holdings, Inc. and Subsidiaries
 
 Consolidated Balance Sheets
 December 31,(In thousands except share and per share amounts)
    
    2009
    
    
    2008AssetsCurrent assets:Cash and equivalents
    
    $
    42,758
    
    
    $
    15,471Accounts receivable, net of allowance for doubtful accounts of
$1,796 in 2009 and $1,908 in 2008
    
    
    42,125
    
    
    
    45,092Inventories
    
    
    6,874
    
    
    
    7,482Deferred income taxes
    
    
    5,970
    
    
    
    3,600Prepaid expenses and other current assets
    
    
    6,639
    
    
    
    6,931Total current assets
    
    
    104,366
    
    
    
    78,576Property, plant and equipment, net
    
    
    377,200
    
    
    
    400,286Investments
    
    
    98,748
    
    
    
    95,657Goodwill
    
    
    520,562
    
    
    
    520,562Customer lists, net
    
    
    102,088
    
    
    
    124,249Tradenames
    
    
    13,446
    
    
    
    14,291Deferred debt issuance costs, net and other assets
    
    
    6,633
    
    
    
    8,005Total assets
    
    $
    1,223,043
    
    
    $
    1,241,626Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    13,482
    
    
    $
    12,336Advance billings and customer deposits
    
    
    20,025
    
    
    
    19,102Dividends payable
    
    
    11,476
    
    
    
    11,388Accrued expense
    
    
    26,268
    
    
    
    24,584Current portion of capital lease obligations
    
    
    344
    
    
    
    922Current portion of derivative liability
    
    
    6,074
    
    
    
    4,443Current portion of pension and postretirement benefit obligations
    
    
    2,908
    
    
    
    2,960Total current liabilities
    
    
    80,577
    
    
    
    75,735Long-term portion of capital lease obligation
    
    
    
    
    
    
    344Senior secured long-term debt
    
    
    880,000
    
    
    
    880,000Deferred income taxes
    
    
    74,711
    
    
    
    58,134Pension and other postretirement obligations
    
    
    80,298
    
    
    
    107,741Other long-term liabilities
    
    
    26,740
    
    
    
    44,387Total liabilities
    
    
    1,142,326
    
    
    
    1,166,341Stockholders equity:Common stock, par value $0.01 per share; 100,000,000 shares
authorized, 29,608,653 and 29,488,408, shares outstanding as
of December 31, 2009 and 2008, respectively
    
    
    296
    
    
    
    295Additional paid-in capital
    
    
    109,746
    
    
    
    129,284Retained earnings
    
    
    
    
    
    
    Accumulated other comprehensive loss, net
    
    
    (35,540
    )
    
    
    (59,479
    )Noncontrolling interest
    
    
    6,215
    
    
    
    5,185Total stockholders equity
    
    
    80,717
    
    
    
    75,285Total liabilities and stockholders equity
    
    $
    1,223,043
    
    
    $
    1,241,626
 The accompanying notes are an integral part of the consolidated financial statements.
  F-4




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##### Table of Contents



Consolidated Communications Holdings, Inc. and Subsidiaries
 
 Consolidated Statement of Changes in Stockholders Equity
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    Non-Common Stock
    
    
    Paid in
    
    
    Retained
    
    
    Comprehensive
    
    
    controllingShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income (loss)
    
    
    Interest
    
    
    TotalBalance, January 1, 2007
    
    
    26,001,872
    
    
    $
    260
    
    
    $
    112,496
    
    
    $
    
    
    
    $
    2,202
    
    
    $
    3,695
    
    
    $
    118,653Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    (30,090
    )
    
    
    (11,423
    )
    
    
    
    
    
    
    
    
    
    
    (41,513
    )Issuance of common stock
    
    
    3,319,142
    
    
    
    34
    
    
    
    74,376
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,410Shares issued under employee plan, net
of forfeitures
    
    
    126,834Non-cash, stock-based compensation
    
    
    
    
    
    
    
    
    
    
    4.034
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,034Purchase and retirement of common stock
    
    
    (7,261
    )
    
    
    
    
    
    
    (131
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (131
    )Tax on restricted stock vesting
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38Comprehensive income:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,423
    
    
    
    
    
    
    
    627
    
    
    
    12,050Recognition of funded status of
pension and other postretirement
plans, net of tax of $1,606
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,785
    
    
    
    
    
    
    
    2,785Change in fair value of cash flow
hedges, net of tax of $(6,139)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,638
    )
    
    
    
    
    
    
    (10,638
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,197Balance, December 31, 2007
    
    
    29,440,587
    
    
    $
    294
    
    
    $
    160,723
    
    
    $
    
    
    
    $
    (5,651
    )
    
    $
    4,322
    
    
    $
    159,688Effects of accounting change regarding
postretirement plan measurement dates
pursuant to accounting guidance:Service cost, interest cost and
expected return on plan assets for
October 1, 2007 through December 31,
2007, net of tax of $(88)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (154
    )
    
    
    
    
    
    
    
    
    
    
    (154
    )Amortization of prior service costs
and net loss for October 1, 2007
through December 31, 2007, net of tax
of $(9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    15
    
    
    
    
    
    
    
    Balance, January 1, 2008
    
    
    29,440,587
    
    
    $
    294
    
    
    $
    160,723
    
    
    $
    (169
    )
    
    $
    (5,636
    )
    
    $
    4,322
    
    
    $
    159,534Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    (33,141
    )
    
    
    (12,335
    )
    
    
    
    
    
    
    
    
    
    
    (45,476
    )Shares issued under employee plan, net
of forfeitures
    
    
    71,467
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-cash, stock-based compensation
    
    
    
    
    
    
    1
    
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,901Purchase and retirement of common stock
    
    
    (23,646
    )
    
    
    
    
    
    
    (257
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (257
    )Tax on restricted stock vesting
    
    
    
    
    
    
    
    
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38
    )Pension tax adjustment
    
    
    
    
    
    
    
    
    
    
    97
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97Comprehensive (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,504
    
    
    
    
    
    
    
    863
    
    
    
    13,367Change in prior service cost and
net loss, net of tax of $(18,730)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,765
    )
    
    
    
    
    
    
    (31,765
    )Change in fair value of cash flow
hedges, net of tax of $(12,666)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,078
    )
    
    
    
    
    
    
    (22,078
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,476
    )Balance, December 31, 2008
    
    
    29,488,408
    
    
    $
    295
    
    
    $
    129,284
    
    
    $
    
    
    
    $
    (59,479
    )
    
    $
    5,185
    
    
    $
    75,285Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    (21,021
    )
    
    
    (24,905
    )
    
    
    
    
    
    
    
    
    
    
    (45,926
    )Shares issued under employee plan, net
of forfeitures
    
    
    154,752
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Non-cash, stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,927
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,927Purchase and retirement of common stock
    
    
    (34,507
    )
    
    
    
    
    
    
    (545
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (545
    )Tax on restricted stock vesting
    
    
    
    
    
    
    
    
    
    
    198
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198Pension tax adjustment
    
    
    
    
    
    
    
    
    
    
    (97
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (97
    )Comprehensive income (loss):Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,905
    
    
    
    
    
    
    
    1,030
    
    
    
    25,935Change in prior service cost and
net loss, net of tax of $8,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,022
    
    
    
    
    
    
    
    14,022Change in fair value of cash flow
hedges, net of tax of $5,707
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,917
    
    
    
    
    
    
    
    9,917Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,874Balance, December 31, 2009
    
    
    29,608,653
    
    
    $
    296
    
    
    $
    109,746
    
    
    $
    
    
    
    $
    (35,540
    )
    
    $
    6,215
    
    
    $
    80,717
  F-5




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##### Table of Contents



Consolidated Communications Holdings, Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows
 Year ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Operating ActivitiesNet income
    
    $
    25,935
    
    
    $
    13,367
    
    
    $
    12,050Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    85,227
    
    
    
    91,678
    
    
    
    65,659Loss on extinguishment of debt
    
    
    
    
    
    
    9,224
    
    
    
    10,323Deferred income taxes
    
    
    57
    
    
    
    (12,032
    )
    
    
    (4,271
    )Intangible asset impairment
    
    
    
    
    
    
    6,050
    
    
    
    Extraordinary item, net of tax
    
    
    
    
    
    
    (7,240
    )
    
    
    Loss on disposal of assets
    
    
    2,491
    
    
    
    
    
    
    
    Non-cash partnership income
    
    
    (3,091
    )
    
    
    (2,056
    )
    
    
    (333
    )Stock-based compensation expense
    
    
    1,927
    
    
    
    1,901
    
    
    
    4,034Amortization of deferred financing costs
    
    
    1,301
    
    
    
    1,431
    
    
    
    3,128Changes in operating assets and liabilities:Accounts receivable, net
    
    
    2,967
    
    
    
    (1,091
    )
    
    
    171Inventories
    
    
    608
    
    
    
    (1,118
    )
    
    
    (228
    )Other assets
    
    
    363
    
    
    
    5,083
    
    
    
    5,544Accounts payable
    
    
    1,146
    
    
    
    (5,050
    )
    
    
    1,258Accrued expenses and other liabilities
    
    
    (2,624
    )
    
    
    (7,736
    )
    
    
    (15,266
    )Net cash provided by operating activities
    
    
    116,307
    
    
    
    92,411
    
    
    
    82,069Investing ActivitiesAdditions to property, plant and equipment, net
    
    
    (42,352
    )
    
    
    (48,027
    )
    
    
    (33,495
    )Proceeds from the sale of investments
    
    
    725
    
    
    
    
    
    
    
    10,625Securities purchased
    
    
    
    
    
    
    
    
    
    
    (10,625
    )Acquisition, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (271,780
    )Net cash used for investing activities
    
    
    (41,627
    )
    
    
    (48,027
    )
    
    
    (305,275
    )Financing ActivitiesProceeds from issuance of stock
    
    
    
    
    
    
    
    
    
    
    12Proceeds from long-term obligations
    
    
    
    
    
    
    120,000
    
    
    
    760,000Payments made on long-term obligations
    
    
    
    
    
    
    (136,337
    )
    
    
    (464,000
    )Repayment of North Pittsburgh long-term obligations
    
    
    
    
    
    
    
    
    
    
    (15,426
    )Costs paid to issue common stock
    
    
    
    
    
    
    
    
    
    
    (400
    )Payment of deferred financing costs
    
    
    
    
    
    
    (240
    )
    
    
    (8,988
    )Payment of capital lease obligation
    
    
    (922
    )
    
    
    (971
    )
    
    
    Repurchase and retirement of common stock
    
    
    (545
    )
    
    
    (257
    )
    
    
    (131
    )Dividends on common stock
    
    
    (45,926
    )
    
    
    (45,449
    )
    
    
    (40,192
    )Net cash provided by (used for) financing activities
    
    
    (47,393
    )
    
    
    (63,254
    )
    
    
    230,875Net increase (decrease) in cash and equivalents
    
    
    27,287
    
    
    
    (18,870
    )
    
    
    7,669Cash and equivalents at beginning of year
    
    
    15,471
    
    
    
    34,341
    
    
    
    26,672Cash and equivalents at end of year
    
    $
    42,758
    
    
    $
    15,471
    
    
    $
    34,341Supplemental disclosure of cash flow:Interest paid
    
    $
    56,026
    
    
    $
    65,061
    
    
    $
    44,343Income taxes paid
    
    $
    10,996
    
    
    $
    13,540
    
    
    $
    13,976
  F-6




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##### Table of Contents



Consolidated Communications Holdings, Inc and Subsidiaries
 
 Notes to Consolidated Financial Statements
 1. Nature of Operations
       2. Summary of Significant Accounting Policies
 Principles of consolidation
   F-7




---



##### Table of Contents



Use of estimates
  Industry Segments
  Discontinuance of Accounting for the Effects of Certain Types of Regulation
   Cash equivalents
   F-8




---



##### Table of Contents



Investments
   Accounts receivable and allowance for doubtful accounts
  Inventories
  Goodwill and other intangible assets
    F-9




---



##### Table of Contents



Fair Values of Financial Instruments
    Derivatives and Hedging Activities
  Property, plant and equipment
     F-10




---



##### Table of Contents



YearsBuildings
    
    
    1840Network and outside plant facilities
    
    
    350Furniture, fixtures and equipment
    
    
    315Capital leases
    
    
    11
 Employment-Related Benefits
    Revenue recognition
       F-11




---



##### Table of Contents



Advertising costs
  Income taxes
     Stock-based compensation
   F-12




---



##### Table of Contents



Earnings per Common Share
  Noncontrolling Interest
  Reclassifications
  Adoption of Recent Accounting Pronouncements
 Generally Accepted
Accounting Principles,
     F-13




---



##### Table of Contents



F-14




---



##### Table of Contents



3. Acquisition
   (In thousands)Current assets
    
    $
    17,729Property, plant and equipment
    
    
    116,308Customer lists
    
    
    49,000Goodwill
    
    
    214,562Investments and other assets
    
    
    53,360Liabilities assumed
    
    
    (103,933
    )Net purchase price
    
    $
    347,026
  F-15




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##### Table of Contents



December 31,(in thousands, except per share amounts)
    
    2007Total revenues
    
    $
    424,917Income from operations
    
    
    59,752Pro forma net income
    
    
    5,592Income per share  basic
    
    
    0.19Income per share  diluted
    
    
    0.19
 4. Affiliated Transactions
      F-16




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##### Table of Contents



(In thousands)
    
    2009
    
    
    2008
    
    
    2007Fees charged from First Mid-Illinois for:Banking services
    
    $
    10
    
    
    $
    11
    
    
    $
    10401K plan administration
    
    
    11
    
    
    
    65
    
    
    
    81Interest income earned on deposits at First Mid-Illinois
    
    
    6
    
    
    
    48
    
    
    
    174Fees charged to first Mid-Illinois for
telecommunication services
    
    
    456
    
    
    
    482
    
    
    
    465
  5. Prepaid and other current assets
  (in thousands)
    
    2009
    
    
    2008Prepaid expenses
    
    $
    5,866
    
    
    $
    5,913Deferred charges
    
    
    718
    
    
    
    981Other current assets
    
    
    55
    
    
    
    37Total
    
    $
    6,639
    
    
    $
    6,931
 6. Property, plant and equipment
  (in thousands)
    
    2009
    
    
    2008Land and buildings
    
    $
    66,700
    
    
    $
    65,840Network and outside plant facilities
    
    
    833,879
    
    
    
    808,886Furniture, fixtures and equipment
    
    
    80,315
    
    
    
    83,889Assets under capital lease
    
    
    5,144
    
    
    
    5,144Less: accumulated depreciation
    
    
    (617,141
    )
    
    
    (574,013
    )368,897
    
    
    
    389,746Construction in progress
    
    
    8,303
    
    
    
    10,540Totals
    
    $
    377,200
    
    
    $
    400,286
    F-17




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##### Table of Contents



7. Investments
  (in thousands)
    
    2009
    
    
    2008Cash surrender value of life insurance policies
    
    $
    1,797
    
    
    $
    1,779Cost method investments:GTE Mobilnet of South Texas Limited Partnership (2.34%)
    
    
    21,450
    
    
    
    21,450Pittsburgh SMSA Limited Partnership (3.60%)
    
    
    22,950
    
    
    
    22,950CoBank, ACB Stock
    
    
    2,917
    
    
    
    2,651Other
    
    
    45
    
    
    
    10Equity method investments:GTE Mobilnet of Texas RSA #17 Limited Partnership (17.02%
interest)
    
    
    19,080
    
    
    
    17,116Pennsylvania RSA 6(I) Limited Partnership (16.6725% interest)
    
    
    7,301
    
    
    
    7,276Pennsylvania RSA 6(II) Limited Partnership (23.67% interest)
    
    
    23,049
    
    
    
    22,267Boulevard Communications, LLP (50% interest)
    
    
    159
    
    
    
    158Total
    
    $
    98,748
    
    
    $
    95,657
     F-18




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##### Table of Contents



(in thousands)
    
    2009
    
    
    2008
    
    
    2007Total revenues
    
    $
    236,835
    
    
    $
    212,498
    
    
    $
    180,412Income from operations
    
    
    65,565
    
    
    
    50,479
    
    
    
    41,682Income before taxes
    
    
    66,832
    
    
    
    50,479
    
    
    
    42,680Net income
    
    
    66,501
    
    
    
    50,619
    
    
    
    42,680Current assets
    
    
    47,894
    
    
    
    33,586
    
    
    
    31,049Non-current assets
    
    
    76,906
    
    
    
    74,521
    
    
    
    64,172Current liabilities
    
    
    11,035
    
    
    
    8,937
    
    
    
    8,869Non-current liabilities
    
    
    623
    
    
    
    567
    
    
    
    468Partnership equity
    
    
    113,260
    
    
    
    98,603
    
    
    
    85,885
 8. Fair Value Measurements
   Fair Value Measurements at Reporting Date UsingQuoted Prices
    
    
    SignificantIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    December 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest rate swaps
    
    $
    32,179
    
    
    $
    
    
    
    $
    32,179
    
    
    $
    
  Fair ValueMeasurementsUsing SignificantUnobservable(In thousands)
    
    Inputs (Level 3)Balance at December 31, 2008
    
    $
    47,908Settlements
    
    
    (14,852
    )Unrealized gain included in earnings
    
    
    (62
    )Unrealized gain included in other comprehensive income from basis swap
    
    
    (1,361
    )Unrealized loss included in other comprehensive income
    
    
    5,693Transfers out of Level 3
    
    
    (37,326
    )Balance at December 31, 2009
    
    $
    Gain arising from ineffectiveness included in interest expense
    
    $
    107
  F-19




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##### Table of Contents



As of December 31, 2009
    
    
    As of December 31, 2008(In thousands)
    
    Carrying Value
    
    
    Fair Value
    
    
    Carrying Value
    
    
    Fair ValueInvestments, equity basis
    
    $
    49,589
    
    
    
    n/a
    
    
    $
    46,817
    
    
    
    n/aInvestments, at cost
    
    $
    47,362
    
    
    
    n/a
    
    
    $
    47,061
    
    
    
    n/aLong-term debt
    
    $
    880,000
    
    
    $
    880,000
    
    
    $
    880,000
    
    
    $
    880,000
   9. Goodwill and Other Intangible Assets
     F-20




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##### Table of Contents



Telephone
    
    
    Other(In thousands)
    
    Operations
    
    
    Operations
    
    
    TotalBalance at December 31, 2007
    
    $
    519,355
    
    
    $
    7,084
    
    
    $
    526,439Adjustment to purchase of North Pittsburgh
    
    
    173
    
    
    
    
    
    
    
    173Impairment
    
    
    
    
    
    
    (6,050
    )
    
    
    (6,050
    )Balance at December 31, 2008
    
    $
    519,528
    
    
    $
    1,034
    
    
    $
    520,562Balance at December 31, 2009
    
    $
    519,528
    
    
    $
    1,034
    
    
    $
    520,562
   Telephone Operations
    
    
    Other Operations(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Gross carrying amount
    
    $
    193,124
    
    
    $
    193,124
    
    
    $
    11,712
    
    
    $
    12,524Less: accumulated amortization
    
    
    (92,358
    )
    
    
    (70,660
    )
    
    
    (10,390
    )
    
    
    (10,739
    )Net carrying amount
    
    $
    100,766
    
    
    $
    122,464
    
    
    $
    1,322
    
    
    $
    1,785
  F-21




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##### Table of Contents



(in thousands)2010
    
    $
    22,1392011
    
    
    22,1392012
    
    
    22,1392013
    
    
    8,3232014
    
    
    8,3232015
    
    
    8,3232016
    
    
    8,3232017
    
    
    2,379Total
    
    $
    102,088
 10. Deferred Debt Issuance Costs, Net and Other Assets
  (in thousands)
    
    2009
    
    
    2008Deferred debt issuance costs, net
    
    $
    6,464
    
    
    $
    7,765Other assets
    
    
    169
    
    
    
    240Total
    
    $
    6,633
    
    
    $
    8,005
  11. Accrued Expenses
  (In thousands)
    
    2009
    
    
    2008Salaries and employee benefits
    
    $
    11,727
    
    
    $
    9,453Taxes payable
    
    
    7,766
    
    
    
    6,004Accrued interest
    
    
    1,177
    
    
    
    785Other accrued expenses
    
    
    5,598
    
    
    
    8,342Totals
    
    $
    26,268
    
    
    $
    24,584
  F-22




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##### Table of Contents



12. Debt
  (In thousands)
    
    2009
    
    
    2008Senior secured credit facility  revolving loan
    
    $
    
    
    
    $
    Senior secured credit facility  term loan
    
    
    880,000
    
    
    
    880,000Obligations under capital lease
    
    
    344
    
    
    
    1,266880,344
    
    
    
    881,266Less: current portion
    
    
    (344
    )
    
    
    (922
    )Total long-term debt
    
    $
    880,000
    
    
    $
    880,344
  (In thousands)2010
    
    $
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    880,000$
    880,000
 Credit Agreement
      F-23




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##### Table of Contents



Covenant Compliance
    Senior notes
  Capital lease
   F-24




---



##### Table of Contents



13. Derivatives
    Fair ValueDecember 31,(In thousands)
    
    2009
    
    
    2008Current portion of derivative liability
    
    $
    6,074
    
    
    $
    4,443Other liabilities
    
    
    26,105
    
    
    
    43,465
  For the Twelve MonthsEnded December 31,(In thousands)
    
    2009
    
    
    2008Loss reclassified from OCI into interest expense (effective portion)
    
    $
    11,050
    
    
    $
    6,377Loss (gain) arising from ineffectiveness included in interest expense
    
    
    (107
    )
    
    
    395
   F-25




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##### Table of Contents



14. Interest Expense
  Year Ended December 31,(in thousands)
    
    2009
    
    
    2008
    
    
    2007Interest expense  credit facility
    
    $
    25,443
    
    
    $
    49,656
    
    
    $
    33,488Interest expense  high-yield debt
    
    
    
    
    
    
    3,204
    
    
    
    12,675Payments on swap liabilities, net
    
    
    29,918
    
    
    
    10,524
    
    
    
    (2,624
    )Other interest
    
    
    1,475
    
    
    
    2,072
    
    
    
    804Amortization of deferred financing fees
    
    
    1,273
    
    
    
    1,431
    
    
    
    3,128Capitalized interest
    
    
    (118
    )
    
    
    (228
    )
    
    
    (121
    )Total interest expense
    
    $
    57,991
    
    
    $
    66,659
    
    
    $
    47,350
 15. Retirement and Pension Plans
  Qualified Retirement Plan
   2009
    
    
    2008Equity securities
    
    
    61.8
    %
    
    
    52.2
    %Debt securities
    
    
    35.0
    
    
    
    44.2Cash and equivalents
    
    
    3.2
    
    
    
    3.6Total
    
    
    100.0
    %
    
    
    100.0
    %
  F-26




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##### Table of Contents



Fair Value Measurements at Reporting Date UsingQuoted Prices
    
    
    SignificantIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs(in thousands)
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash equivalents:Money market
    
    $
    4,508
    
    
    $
    4,508
    
    
    
    
    
    
    
    Equities:U.S. common stocks
    
    
    51,864
    
    
    
    51,864
    
    
    
    
    
    
    
    International stocks
    
    
    25,003
    
    
    
    25,003
    
    
    
    
    
    
    
    Stock funds
    
    
    10,843
    
    
    
    
    
    
    
    10,843
    
    
    
    Fixed Income:Government agency
    
    
    8,729
    
    
    
    8,729
    
    
    
    
    
    
    
    U.S. corporate bonds
    
    
    41,034
    
    
    
    41,034
    
    
    
    
    
    
    
    Total
    
    $
    141,981
    
    
    $
    131,138
    
    
    
    10,843
    
    
    
    
   (In thousands)
    
    2009
    
    
    2008Funded (Unfunded) status
    
    $
    (42,924
    )
    
    $
    (68,616
    )Amounts recognized inLong-term liabilities
    
    
    (42,924
    )
    
    
    (68,616
    )Deferred taxes
    
    
    10,458
    
    
    
    18,625Accumulated other comprehensive loss:Unamortized prior service credit
    
    
    (260
    )
    
    
    (288
    )Unamortized net actuarial loss
    
    
    17,821
    
    
    
    31,596
  F-27




---



##### Table of Contents



(In thousands)
    
    2009
    
    
    2008
    
    
    2007Service cost
    
    $
    2,109
    
    
    $
    2,120
    
    
    $
    1,802Interest cost
    
    
    11,099
    
    
    
    11,004
    
    
    
    7,324Expected return on plan assets
    
    
    (9,422
    )
    
    
    (12,690
    )
    
    
    (8,035
    )Net amortization loss
    
    
    2,673
    
    
    
    
    
    
    
    Prior service credit amortization
    
    
    (43
    )
    
    
    (13
    )
    
    
    (13
    )Net periodic pension cost
    
    $
    6,416
    
    
    $
    421
    
    
    $
    1,078
  2009
    
    
    2008
    
    
    2007Discount rate
    
    
    6.23
    %
    
    
    6.12
    %
    
    
    6.30
    %Expected long-term rate of return on plan
assets
    
    
    7.70
    %
    
    
    8.00
    %
    
    
    8.00
    %Rate of compensation/salary increase
    
    
    3.16
    %
    
    
    3.73
    %
    
    
    3.50
    %
  (In thousands)
    
    2009
    
    
    2008Benefit obligation at the beginning of the year
    
    $
    187,065
    
    
    $
    181,197Service costs
    
    
    2,109
    
    
    
    2,120Interest costs
    
    
    11,099
    
    
    
    11,004Actuarial (gain) loss
    
    
    (3,183
    )
    
    
    3,448Termination benefits and settlements
    
    
    
    
    
    
    49Service cost adjustment to retained earnings
    
    
    
    
    
    
    202Interest cost adjustment to retained earnings
    
    
    
    
    
    
    976Plan amendments
    
    
    
    
    
    
    (320
    )Benefits paid
    
    
    (12,186
    )
    
    
    (11,611
    )Benefit obligation at the end of the year
    
    $
    184,904
    
    
    $
    187,065
    F-28




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##### Table of Contents



(In thousands)
    
    2009
    
    
    2008Fair value of plan assets at the beginning of the year
    
    $
    118,449
    
    
    $
    166,639Employer contributions
    
    
    10,447
    
    
    
    215Actual return on plan assets
    
    
    25,271
    
    
    
    (36,794
    )Benefits paid
    
    
    (12,186
    )
    
    
    (11,611
    )Fair value of plan assets at the end of the year
    
    $
    141,981
    
    
    $
    118,449
   (in thousands)2010
    
    $
    12,4042011
    
    
    12,4722012
    
    
    12,6372013
    
    
    12,6562014
    
    
    12,6462015  2019
    
    
    64,791
 Non-qualified Pension Plan
     (In thousands)
    
    2009
    
    
    2008Funded (Unfunded) status
    
    $
    (954
    )
    
    $
    (967
    )Amounts recognized inCurrent liabilities
    
    
    (53
    )
    
    
    (52
    )Long-term liabilities
    
    
    (901
    )
    
    
    (915
    )Deferred taxes
    
    
    151
    
    
    
    169Accumulated other comprehensive loss:Unamortized net actuarial loss
    
    
    261
    
    
    
    293
  F-29




---



##### Table of Contents



(In thousands)
    
    2009
    
    
    2008
    
    
    2007Service cost
    
    $
    
    
    
    $
    
    
    
    $
    Interest cost
    
    
    57
    
    
    
    210
    
    
    
    55Special termination benefits charge
    
    
    
    
    
    
    2
    
    
    
    Net amortization loss
    
    
    33
    
    
    
    32
    
    
    
    34Net periodic pension cost
    
    $
    90
    
    
    $
    244
    
    
    $
    89
  2009
    
    
    2008
    
    
    2007Discount rate
    
    
    6.23
    %
    
    
    6.08
    %
    
    
    6.30
    %
  (In thousands)
    
    2009
    
    
    2008Benefit obligation at the beginning of the year
    
    $
    967
    
    
    $
    6,654Service costs
    
    
    
    
    
    
    Interest costs
    
    
    57
    
    
    
    210Actuarial (gain) loss
    
    
    (17
    )
    
    
    26Benefits paid
    
    
    (53
    )
    
    
    (5,923
    )Benefit obligation at the end of the year
    
    $
    954
    
    
    $
    967
    (In thousands)
    
    2009
    
    
    2008Fair value of plan assets at the beginning of the year
    
    $
    
    
    
    $
    Employer contributions
    
    
    53
    
    
    
    5,923Benefits paid
    
    
    (53
    )
    
    
    (5,923
    )Fair value of plan assets at the end of the year
    
    $
    
    
    
    $
    
   F-30




---



##### Table of Contents



(in thousands)2010
    
    $
    532011
    
    
    532012
    
    
    532013
    
    
    532014
    
    
    532015  2019
    
    
    270
 Other Non-qualified Deferred Compensation Agreements
   16. Postretirement Benefit Obligation
    F-31




---



##### Table of Contents



(In thousands)
    
    2009
    
    
    2008Unfunded status
    
    $
    (36,214
    )
    
    $
    (37,723
    )Amounts recognized in:Current liabilities
    
    
    (2,856
    )
    
    
    (2,908
    )Long-term liabilities
    
    
    (33,358
    )
    
    
    (34,815
    )Deferred taxes
    
    
    1,645
    
    
    
    1,485Accumulated other comprehensive (income) loss:Unamortized prior service credit
    
    
    (1,430
    )
    
    
    (2,043
    )Unamortized net actuarial gain
    
    
    (1,128
    )
    
    
    (107
    )
   (In thousands)
    
    2009
    
    
    2008
    
    
    2007Service cost
    
    $
    813
    
    
    $
    900
    
    
    $
    809Interest cost
    
    
    2,146
    
    
    
    2,421
    
    
    
    1,527Net prior service cost amortization
    
    
    (963
    )
    
    
    (638
    )
    
    
    (711
    )Special termination benefits charge
    
    
    
    
    
    
    40
    
    
    
    Net loss (gain) amortization
    
    
    (22
    )
    
    
    
    
    
    
    44Net periodic postretirement benefit cost
    
    $
    1,974
    
    
    $
    2,723
    
    
    $
    1,669
  (In thousands)
    
    2009
    
    
    2008Benefit obligation at the beginning of the year
    
    $
    37,723
    
    
    $
    40,895Service cost
    
    
    813
    
    
    
    900Interest cost
    
    
    2,146
    
    
    
    2,420Service cost adjustment to retained earnings
    
    
    
    
    
    
    72Interest cost adjustment to retained earnings
    
    
    
    
    
    
    163Post-measurement date contributions
    
    
    
    
    
    
    (339
    )Plan participant contributions
    
    
    500
    
    
    
    375Special termination benefits and settlements
    
    
    
    
    
    
    41Plan amendments
    
    
    
    
    
    
    (3,724
    )Actuarial loss (gain)
    
    
    (1,642
    )
    
    
    (207
    )Benefits paid
    
    
    (3,326
    )
    
    
    (2,873
    )Benefit obligation at the end of the year
    
    $
    36,214
    
    
    $
    37,723
   F-32




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##### Table of Contents



(in thousands)2010
    
    $
    2,9422011
    
    
    3,1162012
    
    
    3,0962013
    
    
    2,9862014
    
    
    3,0312015  2019
    
    
    14,590
  (In thousands)
    
    1% Increase
    
    
    1% DecreaseEffect on total of service and interest cost components
    
    $
    251
    
    
    $
    (313
    )Effect on postretirement benefit obligation
    
    $
    3,097
    
    
    $
    (2,702
    )
 17. Stock-based Compensation Plans
    Year Ended December 31,(in millions)
    
    2009
    
    
    2008
    
    
    2007Restricted stock
    
    $
    1.1
    
    
    $
    1.1
    
    
    $
    3.6Performance shares
    
    
    0.8
    
    
    
    0.8
    
    
    
    0.4Total
    
    $
    1.9
    
    
    $
    1.9
    
    
    $
    4.0
  F-33




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##### Table of Contents



Average RemainingNon-recognized
    
    
    Recognition Period(in millions)
    
    Compensation
    
    
    (years)Restricted stock
    
    $
    0.9
    
    
    
    1.4Performance shares
    
    
    0.9
    
    
    
    2.5Total
    
    $
    1.8
    
    
    
    1.8
  2009
    
    
    2008
    
    
    2007# of
    
    
    
    
    
    
    # of
    
    
    
    
    
    
    # ofShares
    
    
    Price(1)
    
    
    Shares
    
    
    Price(1)
    
    
    Shares
    
    
    Price(1)Non-vested restricted shares outstanding  January 1
    
    
    74,391
    
    
    $
    16.62
    
    
    
    122,367
    
    
    $
    17.07
    
    
    
    248,745
    
    
    $
    12.95Shares granted
    
    
    96,447
    
    
    
    9.05
    
    
    
    14,750
    
    
    
    14.92
    
    
    
    127,334
    
    
    
    19.99Shares vested
    
    
    (64,499
    )
    
    
    12.65
    
    
    
    (48,016
    )
    
    
    16.95
    
    
    
    (237,792
    )
    
    
    18.08Shares forfeited, cancelled or retired
    
    
    (23,964
    )
    
    
    12.44
    
    
    
    (14,710
    )
    
    
    17.57
    
    
    
    (15,920
    )
    
    
    13.66Non-vested restricted shares outstanding  December
31
    
    
    82,375
    
    
    $
    12.08
    
    
    
    74,391
    
    
    $
    16.62
    
    
    
    122,367
    
    
    $
    17.07
 (1)
    
    Represents the weightedaverage fair value on date of grant.  2009
    
    
    2008
    
    
    2007# of
    
    
    
    
    
    
    # of
    
    
    
    
    
    
    # ofShares
    
    
    Price(1)
    
    
    Shares
    
    
    Price(1)
    
    
    Shares
    
    
    Price(1)Non-vested performance shares outstanding  January 1
    
    
    31,137
    
    
    $
    15.68
    
    
    
    6,935
    
    
    $
    20.01
    
    
    
    
    
    
    $
    Shares granted
    
    
    61,544
    
    
    
    9.05
    
    
    
    56,717
    
    
    
    14.92
    
    
    
    9,250
    
    
    
    20.01Shares vested
    
    
    (32,321
    )
    
    
    10.89
    
    
    
    (23,579
    )
    
    
    15.33
    
    
    
    (1,886
    )
    
    
    20.01Shares forfeited, cancelled or retired
    
    
    (13,782
    )
    
    
    10.67
    
    
    
    (8,936
    )
    
    
    15.15
    
    
    
    (429
    )
    
    
    20.01Non-vested performance shares outstanding  December
31
    
    
    46,578
    
    
    $
    11.72
    
    
    
    31,137
    
    
    $
    15.68
    
    
    
    6,935
    
    
    $
    20.01
 (1)
    
    Represents the weightedaverage fair value on date of grant. 18. Income Taxes
  (In thousands)
    
    2009
    
    
    2008
    
    
    2007Current:Federal
    
    $
    9,778
    
    
    $
    12,519
    
    
    $
    7,790State
    
    
    2,564
    
    
    
    6,152
    
    
    
    1,155Deferred:Federal
    
    
    2,266
    
    
    
    (9,650
    )
    
    
    (1,523
    )State
    
    
    (2,209
    )
    
    
    (2,382
    )
    
    
    (2,748
    )Total income tax expense
    
    $
    12,399
    
    
    $
    6,639
    
    
    $
    4,674
  F-34




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##### Table of Contents



(In percentages)
    
    2009
    
    
    2008
    
    
    2007Statutory federal income tax rate
    
    
    35.0
    
    
    
    35.0
    
    
    
    35.0State income taxes, net of federal benefit
    
    
    2.9
    
    
    
    27.0
    
    
    
    2.5Other permanent differences
    
    
    0.1
    
    
    
    4.3
    
    
    
    1.9Change in tax law
    
    
    
    
    
    
    
    
    
    
    (10.7
    )Change in deferred rate
    
    
    (2.7
    )
    
    
    (9.9
    )
    
    
    (5.4
    )Other
    
    
    (2.9
    )
    
    
    (4.4
    )
    
    
    4.632.4
    
    
    
    52.0
    
    
    
    27.9
  Deferred Taxes
  (In thousands)
    
    2009
    
    
    2008Current deferred tax assets:Reserve for uncollectible accounts
    
    $
    765
    
    
    $
    862Accrued vacation pay deducted when paid
    
    
    1,160
    
    
    
    1,200Accrued expenses and deferred revenue
    
    
    4,045
    
    
    
    1,5385,970
    
    
    
    3,600Non-current deferred tax assets:Net operating loss carryforwards
    
    
    1,720
    
    
    
    1,998Pension and postretirement obligations
    
    
    30,952
    
    
    
    40,184Stock-based compensation expense
    
    
    297
    
    
    
    251Derivative instruments
    
    
    11,649
    
    
    
    17,321State tax credit carryforwards
    
    
    2,327
    
    
    
    2,45046,945
    
    
    
    62,204Non-current deferred tax liabilities:Goodwill and other intangibles
    
    
    (39,822
    )
    
    
    (44,487
    )Partnership investments
    
    
    (22,142
    )
    
    
    (22,203
    )Property, plant and equipment
    
    
    (59,692
    )
    
    
    (53,648
    )(121,656
    )
    
    
    (120,338
    )Net non-current deferred taxes
    
    
    (74,711
    )
    
    
    (58,134
    )Net deferred income tax liabilities
    
    $
    (68,741
    )
    
    $
    (54,534
    )
  F-35




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##### Table of Contents



Unrecognized Tax Benefits
      F-36




---



##### Table of Contents



Liability forUnrecognized(In thousands)
    
    Tax BenefitsBalance at January 1, 2008
    
    $
    5,740Additions (reductions) for tax positions in the current year
    
    
    Additions for tax positions of prior years
    
    
    Additions (reductions) relating to settlements with taxing authorities
    
    
    Reduction for lapse of federal statute of limitations
    
    
    Reductions for lapse of 2004 state statute of limitations
    
    
    (81
    )Balance at December 31, 2009
    
    $
    5,659
 19. Accumulated Other Comprehensive Loss
  (In thousands)
    
    2009
    
    
    2008Fair value of cash flow hedges
    
    $
    (31,891
    )
    
    $
    (47,513
    )Prior service credits and net losses on postretirement plans
    
    
    (24,229
    )
    
    
    (46,598
    )(56,120
    )
    
    
    (94,111
    )Deferred taxes
    
    
    20,580
    
    
    
    34,632Totals
    
    $
    (35,540
    )
    
    $
    (59,479
    )
 20. Environmental Remediation Liabilities
   F-37




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##### Table of Contents



21. Commitments and Contingencies
 Legal proceedings
    Operating leases
  Other commitments
   F-38




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##### Table of Contents



22. Net Income per Common Share
  (In thousands, except per share amounts)
    
    2009
    
    
    2008
    
    
    2007Basic Earnings Per Share Using Two-class Method:Net income
    
    $
    25,935
    
    
    $
    13,367
    
    
    $
    12,050Less: net income attributable to noncontrolling interest
    
    
    1,030
    
    
    
    863
    
    
    
    627Net income attributable to common shareholders before
allocation of earnings to participating securities
    
    
    24,905
    
    
    
    12,504
    
    
    
    11,423Less: earnings allocated to participating securities
    
    
    309
    
    
    
    241
    
    
    
    264Net income attributable to common stockholders
    
    $
    24,596
    
    
    $
    12,263
    
    
    $
    11,159Weighted-average number of common shares outstanding
    
    
    29,396
    
    
    
    29,321
    
    
    
    25,764Net income per common share attributable to common
stockholders  basic
    
    $
    0.84
    
    
    $
    0.42
    
    
    $
    0.43Diluted Earnings Per Share Using Two-class Method:Net income
    
    $
    25,935
    
    
    $
    13,367
    
    
    $
    12,050Less: net income attributable to noncontrolling interest
    
    
    1,030
    
    
    
    863
    
    
    
    627Net income attributable to common shareholders before
allocation of earnings to participating securities
    
    
    24,905
    
    
    
    12,504
    
    
    
    11,423Less: earnings allocated to participating securities
    
    
    309
    
    
    
    241
    
    
    
    264Net income attributable to common stockholders
    
    $
    24,596
    
    
    $
    12,263
    
    
    $
    11,159Weighted-average number of common shares outstanding (1)
    
    
    29,396
    
    
    
    29,321
    
    
    
    25,764Net income per common share attributable to common
stockholders  diluted
    
    $
    0.84
    
    
    $
    0.42
    
    
    $
    0.43
 (1)
    
    to the extent that restricted shares are anti-dilutive, they have been excluded from the
calculation of diluted earnings per share in accordance with the applicable accounting guidance.   F-39




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##### Table of Contents



23. Business Segments
  (In thousands)
    
    2009
    
    
    2008
    
    
    2007Telephone operations
    
    $
    364,548
    
    
    $
    379,027
    
    
    $
    288,174Other operations
    
    
    41,619
    
    
    
    39,397
    
    
    
    41,074Total net revenue
    
    
    406,167
    
    
    
    418,424
    
    
    
    329,248Operating expense  telephone operations
    
    
    211,068
    
    
    
    214,519
    
    
    
    154,999Operating expense  other operations
    
    
    39,166
    
    
    
    37,813
    
    
    
    41,953Operating expense  impairment charge
    
    
    
    
    
    
    6,050
    
    
    
    Total operating expense
    
    
    250,234
    
    
    
    258,382
    
    
    
    196,952Depreciation and amortization expense  telephone
operations
    
    
    84,018
    
    
    
    90,394
    
    
    
    63,213Depreciation and amortization expense  other operations
    
    
    1,209
    
    
    
    1,284
    
    
    
    2,446Total depreciation expense
    
    
    85,227
    
    
    
    91,678
    
    
    
    65,659Operating income  telephone operations
    
    
    69,462
    
    
    
    74,114
    
    
    
    68,562Operating income  other operations
    
    
    1,244
    
    
    
    (5,750
    )
    
    
    (1,925
    )Total operating income
    
    
    70,706
    
    
    
    68,364
    
    
    
    66,637Interest income
    
    
    56
    
    
    
    367
    
    
    
    893Interest expense
    
    
    (57,991
    )
    
    
    (66,659
    )
    
    
    (47,350
    )Investment income
    
    
    25,770
    
    
    
    20,495
    
    
    
    7,034Loss on extinguishment of debt
    
    
    
    
    
    
    (9,224
    )
    
    
    (10,323
    )Other, net
    
    
    (207
    )
    
    
    (577
    )
    
    
    (167
    )Income before taxes and extraordinary item
    
    $
    38,334
    
    
    $
    12,766
    
    
    
    16,724Capital expenditures:Telephone operations
    
    $
    41,853
    
    
    $
    47,181
    
    
    $
    32,245Other operations
    
    
    499
    
    
    
    846
    
    
    
    1,250Total
    
    $
    42,352
    
    
    $
    48,027
    
    
    $
    33,495Goodwill:Telephone operations
    
    $
    519,428
    
    
    $
    519,428
    
    
    $
    519,255Other operations
    
    
    1,134
    
    
    
    1,134
    
    
    
    7,184Total
    
    $
    520,562
    
    
    $
    520,562
    
    
    $
    526,439Total assets:Telephone operations (1)
    
    $
    1,210,765
    
    
    $
    1,227,320
    
    
    $
    1,281,011Other operations
    
    
    12,278
    
    
    
    14,306
    
    
    
    23,580Total
    
    $
    1,223,043
    
    
    $
    1,241,626
    
    
    $
    1,304,591
 (1)
    
    Included within the telephone operations segment assets are our equity method investments
totaling $49.6 million, $46.8 million and $44.8 million at December 31, 2009, 2008 and 2007,
respectively.  F-40




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##### Table of Contents



24. Quarterly Financial Information (unaudited)
 (In thousands, except per share amounts)
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 312009:Net revenues
    
    $
    101,710
    
    
    $
    102,042
    
    
    $
    101,590
    
    
    $
    100,825Operating expenses:Cost of services and products
    
    
    36,100
    
    
    
    36,344
    
    
    
    36,151
    
    
    
    36,865Selling, general and administrative expenses
    
    
    27,877
    
    
    
    25,850
    
    
    
    25,600
    
    
    
    25,447Depreciation and amortization
    
    
    21,677
    
    
    
    20,981
    
    
    
    21,341
    
    
    
    21,228Total operating expense
    
    
    85,654
    
    
    
    83,175
    
    
    
    83,092
    
    
    
    83,540Operating income
    
    
    16,056
    
    
    
    18,867
    
    
    
    18,498
    
    
    
    17,285Other expenses, net
    
    
    9,973
    
    
    
    6,022
    
    
    
    8,721
    
    
    
    7,656Income before income taxes
    
    
    6,083
    
    
    
    12,845
    
    
    
    9,777
    
    
    
    9,629Income tax expense
    
    
    2,386
    
    
    
    5,186
    
    
    
    2,494
    
    
    
    2,333Net Income
    
    
    3,697
    
    
    
    7,659
    
    
    
    7,283
    
    
    
    7,296Less: Income attributable to noncontrolling interest
    
    
    407
    
    
    
    136
    
    
    
    226
    
    
    
    261Net income attributable to common stockholders
    
    $
    3,290
    
    
    $
    7,523
    
    
    $
    7,057
    
    
    $
    7,035Net income per share attributable to Consolidated
Communications Holdings, Inc. common stockholdersBasic
    
    $
    0.11
    
    
    $
    0.25
    
    
    $
    0.24
    
    
    $
    0.24Diluted
    
    $
    0.11
    
    
    $
    0.25
    
    
    $
    0.24
    
    
    $
    0.242008:Revenues
    
    $
    105,414
    
    
    $
    106,444
    
    
    $
    103,824
    
    
    $
    102,742Operating expenses:Cost of services and products
    
    
    33,863
    
    
    
    36,108
    
    
    
    37,778
    
    
    
    35,814Selling, general and administrative expenses
    
    
    28,144
    
    
    
    26,911
    
    
    
    26,162
    
    
    
    27,552Intangible asset impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,050Depreciation and amortization
    
    
    22,871
    
    
    
    22,350
    
    
    
    22,841
    
    
    
    23,616Total operating expense
    
    
    84,878
    
    
    
    85,369
    
    
    
    86,781
    
    
    
    93,032Income from operations
    
    
    20,536
    
    
    
    21,075
    
    
    
    17,043
    
    
    
    9,710Other expenses, net
    
    
    13,677
    
    
    
    11,268
    
    
    
    7,665
    
    
    
    13,764Loss on extinguishment of debt
    
    
    
    
    
    
    9,224
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    6,859
    
    
    
    583
    
    
    
    9,378
    
    
    
    (4,054
    )Income tax expense (benefit)
    
    
    2,878
    
    
    
    270
    
    
    
    4,262
    
    
    
    (771
    )Net Income before extraordinary item
    
    
    3,981
    
    
    
    313
    
    
    
    5,116
    
    
    
    (3,283
    )Extraordinary item ( net of income tax of $4,154)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,240Net income
    
    
    3,981
    
    
    
    313
    
    
    
    5,116
    
    
    
    3,957Less: Income attributable to noncontrolling interest
    
    
    272
    
    
    
    133
    
    
    
    145
    
    
    
    313Net income attributable to common shareholders
    
    $
    3,709
    
    
    $
    180
    
    
    $
    4,971
    
    
    $
    3,644Net income per share attributable to Consolidated
Communications Holdings, Inc. common stockholdersIncome per common share before extraordinary item
    
    $
    0.13
    
    
    $
    0.01
    
    
    $
    0.17
    
    
    $
    (0.13
    )Extraordinary item per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.24Net income per common share  basic
    
    $
    0.13
    
    
    $
    0.01
    
    
    $
    0.17
    
    
    $
    0.11Income per common share before extraordinary item
    
    $
    0.13
    
    
    $
    0.01
    
    
    $
    0.17
    
    
    $
    (0.13
    )Extraordinary item per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.24Net income per common share  diluted
    
    $
    0.13
    
    
    $
    0.01
    
    
    $
    0.17
    
    
    $
    0.11
  F-41




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##### Table of Contents



25. Subsequent Events
     F-42




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##### Table of Contents



Schedule IIValuation Reserves is set forth below.
 (In thousands)
    
    2009
    
    
    2008
    
    
    2007Allowance for doubtful accounts:Balance at beginning of year
    
    $
    1,908
    
    
    $
    2,440
    
    
    $
    2,110North Pittsburgh acquisition
    
    
    
    
    
    
    
    
    
    
    471Provision charged to expense
    
    
    4,812
    
    
    
    4,819
    
    
    
    4,734Write-offs, less recoveries
    
    
    (4,924
    )
    
    
    (5,351
    )
    
    
    (4,875
    )Balance at end of year
    
    $
    1,796
    
    
    $
    1,908
    
    
    $
    2,440Inventory reserve:Balance at beginning of year
    
    $
    878
    
    
    $
    400
    
    
    $
    429North Pittsburgh acquisition
    
    
    
    
    
    
    
    
    
    
    171Provision charged to expense
    
    
    542
    
    
    
    597
    
    
    
    125Write-offs, less recoveries
    
    
    (719
    )
    
    
    (119
    )
    
    
    (325
    )Balance at end of year
    
    $
    701
    
    
    $
    878
    
    
    $
    400Income tax valuation allowance:Balance at beginning of year
    
    $
    
    
    
    $
    2,871
    
    
    $
    5,349North Pittsburgh acquisition
    
    
    
    
    
    
    
    
    
    
    1,530North Pittsburgh adjustment to goodwill
    
    
    
    
    
    
    (1,530
    )
    
    
    Reduction of related deferred tax asset
    
    
    
    
    
    
    (1,341
    )
    
    
    (3,984
    )Provision charged to expense
    
    
    
    
    
    
    
    
    
    
    (24
    )Release of valuation allowance
    
    
    
    
    
    
    
    
    
    
    Balance at end of year
    
    $
    
    
    
    $
    
    
    
    $
    2,871
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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      
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PENNSYLVANIA RSA 6 (II) LIMITED PARTNERSHIP
 
 BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
(Dollars in Thousands)
 2009
    
    
    2008ASSETSCURRENT ASSETS:Accounts receivable, net of allowance of $184 and $225
    
    $
    8,627
    
    
    $
    7,964Unbilled revenue
    
    
    873
    
    
    
    784Due from affiliate
    
    
    9,741
    
    
    
    6,412Prepaid expenses and other current assets
    
    
    20
    
    
    
    17Total current assets
    
    
    19,261
    
    
    
    15,177PROPERTY, PLANT AND EQUIPMENTNet
    
    
    11,993
    
    
    
    12,418OTHER ASSETS
    
    
    108
    
    
    
    140TOTAL ASSETS
    
    $
    31,362
    
    
    $
    27,735LIABILITIES AND PARTNERS CAPITALCURRENT LIABILITIES:Accounts payable and accrued liabilities
    
    $
    2,372
    
    
    $
    2,173Advance billings and customer deposits
    
    
    2,509
    
    
    
    2,392Total current liabilities
    
    
    4,881
    
    
    
    4,565LONG TERM LIABILITIES
    
    
    203
    
    
    
    187Total liabilities
    
    
    5,084
    
    
    
    4,752COMMITMENTS AND CONTINGENCIES (see Notes 6 and 7)PARTNERS CAPITAL
    
    
    26,278
    
    
    
    22,983TOTAL LIABILITIES AND PARTNERS CAPITAL
    
    $
    31,362
    
    
    $
    27,735
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##### Table of Contents



PENNSYLVANIA RSA 6 (II) LIMITED PARTNERSHIP
 
 STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(Dollars in Thousands)
 2009
    
    
    2008
    
    
    2007OPERATING REVENUESService revenues, net
    
    $
    92,054
    
    
    $
    83,807
    
    
    $
    72,777Equipment, net and other revenues
    
    
    23,616
    
    
    
    24,652
    
    
    
    23,332Total operating revenues
    
    
    115,670
    
    
    
    108,459
    
    
    
    96,109OPERATING COSTS AND EXPENSES:Cost of service (excluding depreciation and amortization
related to network assets included below)
    
    
    32,875
    
    
    
    31,276
    
    
    
    26,726Cost of equipment
    
    
    23,183
    
    
    
    25,329
    
    
    
    22,718Selling, general and administrative
    
    
    28,396
    
    
    
    26,566
    
    
    
    24,645Depreciation and amortization
    
    
    2,376
    
    
    
    2,177
    
    
    
    2,356Total operating costs and expenses
    
    
    86,830
    
    
    
    85,348
    
    
    
    76,445OPERATING INCOME
    
    
    28,840
    
    
    
    23,111
    
    
    
    19,664INTEREST INCOME, NET
    
    
    455
    
    
    
    235
    
    
    
    270NET INCOME
    
    $
    29,295
    
    
    $
    23,346
    
    
    $
    19,934Allocation of Net Income:Limited Partners
    
    $
    11,817
    
    
    $
    9,417
    
    
    $
    8,042General Partner
    
    $
    17,478
    
    
    $
    13,929
    
    
    $
    11,892
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##### Table of Contents



PENNSYLVANIA RSA 6 (II) LIMITED PARTNERSHIP
 
 STATEMENTS OF CHANGES IN PARTNERS CAPITAL
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(Dollars in Thousands)
 GeneralPartner
    
    
    Limited PartnersConsolidated
    
    
    VenusCommunications
    
    
    Cellularof Pennsylvania
    
    
    Telephone
    
    
    TotalCellco
    
    
    Company
    
    
    Services,
    
    
    PartnersPartnership
    
    
    (Note 1)
    
    
    Inc.
    
    
    CapitalBALANCEJanuary 1, 2007
    
    $
    10,562
    
    
    $
    4,190
    
    
    $
    2,951
    
    
    $
    17,703Distributions
    
    
    (9,546
    )
    
    
    (3,787
    )
    
    
    (2,667
    )
    
    
    (16,000
    )Net income
    
    
    11,892
    
    
    
    4,719
    
    
    
    3,323
    
    
    
    19,934BALANCEDecember 31, 2007
    
    
    12,908
    
    
    
    5,122
    
    
    
    3,607
    
    
    
    21,637Distributions
    
    
    (13,125
    )
    
    
    (5,207
    )
    
    
    (3,668
    )
    
    
    (22,000
    )Net income
    
    
    13,929
    
    
    
    5,525
    
    
    
    3,892
    
    
    
    23,346BALANCEDecember 31, 2008
    
    
    13,712
    
    
    
    5,440
    
    
    
    3,831
    
    
    
    22,983Distributions
    
    
    (15,512
    )
    
    
    (6,154
    )
    
    
    (4,334
    )
    
    
    (26,000
    )Net income
    
    
    17,478
    
    
    
    6,934
    
    
    
    4,883
    
    
    
    29,295BALANCEDecember 31, 2009
    
    $
    15,678
    
    
    $
    6,220
    
    
    $
    4,380
    
    
    $
    26,278
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PENNSYLVANIA RSA 6 (II) LIMITED PARTNERSHIP
 
 STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(Dollars in Thousands)
 2009
    
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    29,295
    
    
    $
    23,346
    
    
    $
    19,934Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    2,376
    
    
    
    2,177
    
    
    
    2,356Provision for losses on accounts receivable
    
    
    391
    
    
    
    483
    
    
    
    278Changes in certain assets and liabilities:Accounts receivable
    
    
    (1,054
    )
    
    
    (1,809
    )
    
    
    (1,149
    )Unbilled revenue
    
    
    (89
    )
    
    
    (57
    )
    
    
    409Prepaid expenses and other current assets
    
    
    (3
    )
    
    
    
    
    
    
    (1
    )Accounts payable and accrued liabilities
    
    
    212
    
    
    
    58
    
    
    
    (390
    )Advance billings and customer deposits
    
    
    117
    
    
    
    295
    
    
    
    302Other long term liabilities
    
    
    16
    
    
    
    27
    
    
    
    11Net cash provided by operating activities
    
    
    31,261
    
    
    
    24,520
    
    
    
    21,750CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures from affiliates, net
    
    
    (1,932
    )
    
    
    (2,453
    )
    
    
    (3,206
    )Purchase of Customers from an affiliate
    
    
    
    
    
    
    (182
    )
    
    
    Change in due from affiliate, net
    
    
    (3,329
    )
    
    
    115
    
    
    
    (2,544
    )Net cash used in investing activities
    
    
    (5,261
    )
    
    
    (2,520
    )
    
    
    (5,750
    )CASH FLOWS FROM FINANCING ACTIVITIES:Distributions to partners
    
    
    (26,000
    )
    
    
    (22,000
    )
    
    
    (16,000
    )Net cash used in financing activities
    
    
    (26,000
    )
    
    
    (22,000
    )
    
    
    (16,000
    )CHANGE IN CASH
    
    
    
    
    
    
    
    
    
    
    CASHBeginning of year
    
    
    
    
    
    
    
    
    
    
    CASHEnd of year
    
    $
    
    
    
    $
    
    
    
    $
    NONCASH TRANSACTIONS FROM INVESTING AND FINANCING ACTIVITIES:Accruals for capital expenditures
    
    $
    2
    
    
    $
    15
    
    
    $
    14
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NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(Dollars in Thousands)
 1.
    
    ORGANIZATION AND MANAGEMENT
 Pennsylvania RSA 6 (II) Limited PartnershipPennsylvania RSA 6 (II) Limited Partnership
(the Partnership) was formed on January 31, 1991. The principal activity of the Partnership is
providing cellular service in the Pennsylvania 6 (II) rural service area. Under the terms of the
partnership agreement, the partnership expires on January 1, 2091.
 The partners and their respective ownership percentages as of December 31, 2009, 2008 and 2007
are as follows:
 General Partner:Cellco Partnership* (General Partner)
    
    
    59.66
    %Limited Partners:Consolidated Communications of Pennsylvania Company**
    
    
    23.67
    %Venus Cellular Telephone Services, Inc
    
    
    16.67
    %
 *
    
    Cellco Partnership (Cellco) doing business as Verizon Wireless.**
    
    On January 1, 2008 North Pittsburgh Telephone Company changed its name to Consolidated Communications of Pennsylvania Company. 2.
    
    SIGNIFICANT ACCOUNTING POLICIES
 Use of EstimatesThe preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results may differ
from those estimates. Estimates are used for, but not limited to, the accounting for:
allocations, allowance for uncollectible accounts receivable, unbilled revenue, depreciation and
amortization, useful lives and impairment of assets, accrued expenses, and contingencies.
Estimates and assumptions are periodically reviewed and the effects of any material revisions
are reflected in the financial statements in the period that they are determined to be
necessary.
 Revenue Recognition The Partnership earns revenue by providing access to our network (access
revenue) and for usage of our network (usage revenue), which includes voice and data revenue.
Customers are associated with the partnership based upon mobile identification number. In
general, access revenue is billed one month in advance and is recognized when earned; the
unearned portion is classified in advance billings in the balance sheet. Usage revenue is
recognized when service is rendered and included in unbilled revenue until billed. Equipment
sales revenue associated with the sale of wireless devices is recognized when the products are
delivered to and accepted by the customer, as this is considered to be a separate earnings
process from the sale of wireless services. Customer activation fees are considered additional
consideration, and to the extent that we incur costs in excess of fees, these fees are recorded
as equipment and other revenue at the time of customer acceptance. For agreements involving the
resale of third-party services in which we are considered the primary obligor in the
arrangements, we record revenue gross. The roaming rates charged by the Partnership to Cellco do
not necessarily reflect current market rates. The Partnership will continue to re-evaluate the
rates on a periodic basis (See Note 5).
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The Partnership reports, on a
gross basis, taxes imposed by governmental authorities on revenue-producing
transactions between us and our customers that are within the scope of the accounting standard
related to how taxes collected from customers and remitted to governmental authorities should be
presented in the statement of operations in the financial statements.
 Cellular service revenues and expenses resulting from cell site agreements with affiliates of
Cellco are recognized based upon a rate per minute of use. See note 5.
 Operating Costs and ExpensesOperating expenses include expenses incurred directly by the
Partnership, as well as an allocation of certain selling, general and administrative, and
operating costs incurred by Cellco or its affiliates on behalf of the Partnership. Employees of
Cellco provide services performed on behalf of the Partnership. These employees are not
employees of the Partnership and therefore, operating expenses include direct and allocated
charges of salary and employee benefit costs for the services provided to the Partnership.
Cellco believes such allocations, principally based on the Partnerships percentage of total
customers, customer gross additions or minutes of use, are reasonable. The roaming rates charged
to the Partnership by Cellco do not necessarily reflect current market rates. The Partnership
will continue to re-evaluate the rates on a periodic basis (see Note 5).
 Retail StoresThe daily operations of all retail stores located within the Partnerships
operating area are managed by Cellco. However all income and expenses incurred by and fixed
assets and liabilities related to these retail stores are recorded on the books of the
Partnership.
 Income TaxesThe Partnership is not a taxable entity for federal and state income tax purposes.
Any taxable income or loss is apportioned to the partners based on their respective partnership
interests and is reported by them individually.
 InventoryInventory is owned by Cellco and is not recorded on the Partnerships financial
statements. Upon sale, the related cost of the inventory is transferred to the Partnership at
Cellcos cost basis and included in the accompanying statements of operations.
 Allowance for Doubtful AccountsThe Partnership maintains allowances for uncollectible accounts
receivable for estimated losses resulting from the inability of customers to make required
payments. Estimates are based on the aging of the accounts receivable balances and the
historical write-off experience, net of recoveries.
 Property, Plant and EquipmentProperty, plant and equipment primarily represents costs incurred
to construct and expand capacity and network coverage on mobile telephone switching offices and
cell sites. The cost of property, plant and equipment is depreciated over its estimated useful
life using the straight-line method of accounting. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the term of the related lease. Major improvements to
existing plant and equipment are capitalized. Routine maintenance and repairs that do not extend
the life of the plant and equipment are charged to expense as incurred.
 Upon the sale or retirement of property, plant and equipment, the cost and related accumulated
depreciation or amortization is eliminated from the accounts and any related gain or loss is
reflected in the statements of operations. All property, plant and equipment purchases are made
through an affiliate of Cellco. Transfers of property, plant and equipment between Cellco and
affiliates are recorded at net book value.
 Network engineering and interest costs incurred during the construction phase of the
Partnerships network and real estate properties under development are capitalized as part of
property, plant and equipment and recorded as construction-in-progress until the projects are
completed and placed into service.
 Other Assets Other assets consist of a customer list acquired in 2008. The Partnership
amortizes the customer list over its expected useful life of 6 years using a method consistent
with historical customer turnover rates. As of December 31, 2009, the gross carrying value is
$182 and the accumulated amortization is $74. As of December 31, 2009, the scheduled
amortization of the customer list for the next four years is $27 for the years 2010 through
2013.
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FCC Licenses The Federal Communications Commission (FCC) issues licenses that
authorize cellular carriers to provide service in specific cellular geographic service areas.
The FCC grants
licenses for terms of up to ten years. In 1993, the FCC adopted specific standards to apply to
cellular renewals, concluding it will reward a license renewal to a cellular licensee that
meets certain standards of past performance. Historically, the FCC has granted license renewals
routinely and at nominal costs, which are expensed as incurred. All wireless licenses issued by
the FCC that authorize the Partnership to provide cellular services are recorded on the books
of Cellco. The current term of the Partnerships FCC license expires in October 2010 and April
2017. Cellco believes it will be able to meet all requirements necessary to secure renewal of
the Partnerships cellular license.
 Valuation of Assets Long-lived assets, including property, plant and equipment and
intangible assets with finite lives, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be recoverable. The
carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual disposition of the asset.
The impairment loss, if determined to be necessary, would be measured as the amount by which the
carrying amount of the asset exceeds the fair value of the asset.
 Cellco re-evaluates the useful life determination for wireless licenses at least annually
to determine whether events and circumstances continue to support an indefinite useful life.
Moreover, Cellco has determined that there are currently no legal, regulatory, contractual,
competitive, economic or other factors that limit the useful life of the Partnerships wireless
licenses.
 Cellco tests its wireless licenses for potential impairment annually, and more frequently if
indications of impairment exist. Cellco evaluates its licenses on an aggregate basis, using a
direct income-based value approach. This approach estimates fair value using a discounted cash
flow analysis to estimate what a marketplace participant would be willing to pay to purchase
the aggregated wireless licenses as of the valuation date. If the fair value of the aggregated
wireless licenses is less than the aggregated carrying amount of the wireless licenses, an
impairment is recognized. In addition, Cellco believes that under the Partnership agreement it
has the right to allocate, based on a reasonable methodology, any impairment loss recognized by
Cellco for all licenses included in Cellcos national footprint. Cellco does not charge the
Partnership for the use of any FCC license recorded on its books (except for the annual cost of
$30 related to the spectrum lease, as discussed in Note 5).Cellco evaluated its wireless
licenses for potential impairment as of December 15, 2009 and December 15, 2008. These
evaluations resulted in no impairment of wireless licenses.
 Fair Value Measurements  In accordance with the accounting standard regarding fair value
measurements, fair value is defined as an exit price, representing the amount that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants. This accounting standard also establishes a three-tier hierarchy for inputs
used in measuring fair value, which prioritizes the inputs used in the valuation methodologies
in measuring fair value:
 Level 1  Quoted prices in active markets for identical assets or liabilities
 Level 2  Observable inputs other than quoted prices in active markets for identical assets and
liabilities
 Level 3  No observable pricing inputs in the market
 Financial assets and financial liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurements. Our assessment of the
significance of a particular input to the fair
value measurements requires judgment, and may affect the valuation of the assets and liabilities
being measured and their placement within the fair value hierarchy.
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ConcentrationsTo the extent the Partnerships customer receivables become delinquent,
collection activities commence. No single customer is large enough to present a significant
financial risk to the Partnership. The Partnership maintains an allowance for losses based on
the expected collectibility of accounts receivable.
 Cellco and the Partnership rely on local and long-distance telephone companies, some of whom are
related parties, and other companies to provide certain communication services. Although
management believes alternative telecommunications facilities could be found in a timely manner,
any disruption of these services could potentially have an adverse impact on the Partnerships
operating results.
 Although Cellco attempts to maintain multiple vendors for its network assets and inventory,
which are important components of its operations, they are currently acquired from only a few
sources. Certain of these products are in turn utilized by the Partnership and are important
components of the Partnerships operations. If the suppliers are unable to meet Cellcos needs
as it builds out its network infrastructure and sells service and equipment, delays and
increased costs in the expansion of the Partnerships network infrastructure or losses of
potential customers could result, which would adversely affect operating results.
 Financial InstrumentsThe Partnerships trade receivables and payables are short-term in
nature, and accordingly, their carrying value approximates fair value.
 Due from affiliateDue from affiliate principally represents the Partnerships cash position.
Cellco manages, on behalf of the Partnership, all cash, inventory, investing and financing
activities of the Partnership. As such, the change in due from affiliate is reflected as an
investing activity or a financing activity in the statements of cash flows depending on whether
it represents a net asset or net liability for the Partnership.
 Additionally, administrative and operating costs incurred by Cellco on behalf of the
Partnership, as well as property, plant and equipment transactions with affiliates, are charged
to the Partnership through this account. Interest income or interest expense is based on the
average monthly outstanding balance in this account and is calculated by applying the Cellcos
average cost of borrowing from Verizon Global Funding, a wholly-owned subsidiary of Verizon
Communications, Inc., which was approximately 5.8%, 4.0%, and 5.4% for the years ended December
31, 2009, 2008 and 2007, respectively. Included in net interest income is interest income of
$460, $240, and $273 for the years ended December 31, 2009, 2008 and 2007, respectively, related
to the due from affiliate.
 Distributions Distributions are made to partners at the discretion of the General Partner
based upon the Partnerships operating results, cash availability and financing needs as
determined by the General Partner at the date of distribution.
 Recently Adopted Accounting Pronouncements The adoption of the following accounting
standards and updates during 2009 did not result in a significant impact to the Partnership
financial statements:
 On January 1, 2009, the Partnership adopted the accounting standard regarding the determination
of the useful life of intangible assets that removes the requirement to consider whether an
intangible asset can be renewed without substantial cost or material modifications to the
existing terms and conditions, and replaces it with a requirement that an entity consider its
own historical experience in renewing similar arrangements, or a consideration of market
participant assumptions in the absence of historical experience. This standard also requires
entities to disclose information that enables users of financial statements to assess the
extent to which the expected future cash flows associated with the asset are affected by the
entitys intent and/or ability to renew or extend the arrangements.
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On June 15, 2009, the Partnership adopted the accounting standard regarding the general
standards of accounting for, and disclosure of, events that occur after the balance sheet date
but before the financial statements are issued. This standard was effective prospectively for
all annual reporting periods ending after June 15, 2009.
 On June 15, 2009, the Partnership adopted the accounting standard that amends the requirements
for disclosures about fair value of financial instruments This standard was effective
prospectively for all annual reporting periods ending after June 15, 2009.
 On June 15, 2009, the Partnership adopted the accounting standard regarding estimating fair
value measurements when the volume and level of activity for the asset or liability has
significantly decreased which also provides guidance for identifying transactions that are not
orderly. This standard was effective prospectively for all annual reporting periods ending
after June 15, 2009.
 On August 28, 2009, the Partnership adopted the accounting standard update regarding the
measurement of liabilities at fair value. This standard update provides techniques to use in
measuring fair value of a liability in circumstances in which a quoted price in an active
market for the identical liability is not available. This standard update is effective
prospectively for all annual reporting periods upon issuance.
 Other Recent Accounting Standard In September 2009, the accounting standard regarding
multiple deliverable arrangements was updated to require the use of the relative selling price
method when allocating revenue in these types of arrangements. This method allows a vendor to
use its best estimate of selling price if neither vendor specific objective evidence nor third
party evidence of selling price exists when evaluating multiple deliverable arrangements. This
standard update is effective January 1, 2011 and may be adopted prospectively for revenue
arrangements entered into or materially modified after the date of adoption or retrospectively
for all revenue arrangements for all period presented. The Partnership is currently evaluating
the impact this standard update will have on our consolidated financial statements.
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3.
    
    PROPERTY, PLANT AND EQUIPMENT
 Property, plant and equipment consist of the following as of December 31, 2009 and 2008:
 Useful Lives
    
    2009
    
    
    2008Buildings and improvements
    
    10-40 years
    
    $
    6,321
    
    
    $
    5,915Cellular plant equipment
    
    3-15 years
    
    
    20,401
    
    
    
    22,043Furniture, fixtures and equipment
    
    2-5 years
    
    
    550
    
    
    
    346Leasehold improvements
    
    5 years
    
    
    1,383
    
    
    
    1,06828,655
    
    
    
    29,372Less accumulated depreciation and amortization
    
    
    
    
    16,662
    
    
    
    16,954Property, plant and equipment, net
    
    
    
    $
    11,993
    
    
    $
    12,418
 Capitalized network engineering costs of $89 and $126 were recorded during the years ended
December 31, 2009 and 2008 respectively. Construction-in-progress included in certain of the
classifications shown above, principally cellular plant equipment, amounted to $207 and $154 at
December 31, 2009 and 2008 respectively.
 4.
    
    CURRENT LIABILITIES
 Accounts payable and accrued liabilities consist of the following as of December 31, 2009
and 2008:
 2009
    
    
    2008Accounts payable
    
    $
    1,983
    
    
    $
    1,784Accrued liabilities
    
    
    389
    
    
    
    389Accounts payable and accrued libilities
    
    $
    2,372
    
    
    $
    2,173
 Advance billings and customer deposits consist of the following as of December 31, 2009 and
2008:
 2009
    
    
    2008Advance billings
    
    $
    2,357
    
    
    $
    2,220Customer deposits
    
    
    152
    
    
    
    172Advance billings and customer deposits
    
    $
    2,509
    
    
    $
    2,392
 5.
    
    TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
 Affiliate transactions include, but are not limited to, allocations, intra-company roaming,
the salaries and related expenses of employees of Cellco, PCS spectrum lease payments and direct
payments to a related party of the Partnership, such as rent or commissions. Revenues and
expenses were allocated based on the
Partnerships percentage of customers or gross customer additions or minutes of use, where
applicable. Cellco believes the allocations are reasonable. The affiliate transactions are not
necessarily conducted at arms length.
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Significant transactions with affiliates (Cellco and its related entities) and other related
parties, including allocations and direct charges, are summarized as follows for the years ended
December 31, 2009, 2008 and 2007:
 2009
    
    
    2008
    
    
    2007Service revenues (a)
    
    $
    17,610
    
    
    $
    15,720
    
    
    $
    13,707Equipment and other revenues (b)
    
    
    350
    
    
    
    1,066
    
    
    
    1,084Cost of service (c)
    
    
    31,513
    
    
    
    29,439
    
    
    
    25,803Cost of equipment (d)
    
    
    1,358
    
    
    
    1,354
    
    
    
    1,089Selling, general and administrative (e)
    
    
    19,384
    
    
    
    17,040
    
    
    
    15,889
 (a)
    
    Service revenues include roaming revenues relating to customers of other affiliated
markets, long-distance, data and allocated contra-revenues including revenue concessions.(b)
    
    Equipment and other revenues include cell sharing revenues, sales of handsets and
accessories and allocated contra-revenues including equipment concessions and coupon
rebates.(c)
    
    Cost of service includes roaming costs relating to customers roaming in other
affiliated markets, switch costs, cell sharing costs and allocated cost of telecom,
long-distance, and handset applications.(d)
    
    Cost of equipment includes allocated handsets, accessories, warehousing and
freight.(e)
    
    Selling, general and administrative expenses include salaries, commissions and
billing, and allocated office telecom, customer care, sales and marketing, advertising,
and commissions. On January 1, 2008, the Partnership purchased 318 customers from an affiliate for $182.
 The Partnership is involved in several cell sharing agreements with related affiliates in
which the Partnership receives revenues from affiliates for the use of the Partnerships cell
sites and incurs costs for the use of affiliates cell sites. Cell sharing revenues were
$1,126, $1,419 and $1,447 for the years ended December 31, 2009, 2008 and 2007, respectively.
Cell sharing costs were $1,794, $2,240 and $1,880 for the years ended December 31, 2009, 2008
and 2007 respectively.
 On January 1, 2007, the Partnership entered into lease agreements for the right to use
additional spectrum owned by Cellco. The initial term of these agreements is ten years. The
2009, 2008 and 2007 annual lease commitment of $30, $30 and $29 respectively represents the
costs of financing the spectrum, and does not necessarily reflect the economic value of the
services received. No additional spectrum purchases or lease commitments have been entered
into by the Partnership as of December 31, 2009.
 6.
    
    COMMITMENTS
 Cellco, on behalf of the Partnership, and the Partnership itself have entered into
operating leases for facilities, equipment and spectrum used in its operations. Lease contracts
include renewal options that include rent expense adjustments based on the Consumer Price Index
as well as annual and end-of-lease term adjustments. Rent expense is recorded on a straight-line
basis. The noncancelable lease term used to calculate the amount of the straight-line rent
expense is generally determined to be the initial lease term, including any optional renewal
terms that are reasonably assured. Leasehold improvements related to these operating leases are
amortized over the shorter of their estimated useful lives or the noncancelable lease term. For
the years ended
December 31, 2009, 2008 and 2007, the Partnership recognized a total of $1,188, $1,100 and $853,
respectively, as rent expense related to payments under these operating leases, which was
included in cost of service and general and administrative expenses in the accompanying
statements of operations.
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Aggregate future minimum rental commitments under noncancelable operating leases, excluding
renewal options that are not reasonably assured, for the years shown are as follows:
 Years
    
    Amount2010
    
    $
    1,1132011
    
    
    1,0652012
    
    
    9902013
    
    
    9422014
    
    
    7902015 and thereafter
    
    
    7,790Total minimum payments
    
    $
    12,690
 From time to time Cellco enters into purchase commitments, primarily for network equipment, on
behalf of the Partnership.
 7.
    
    CONTINGENCIES
 Cellco is subject to various lawsuits and other claims including class actions, product
liability, patent infringement, antitrust, partnership disputes, and claims involving relations
with resellers and agents. Cellco is also defending lawsuits filed against itself and other
participants in the wireless industry alleging various adverse effects as a result of wireless
phone usage. Various consumer class action lawsuits allege that Cellco breached contracts with
consumers, violated certain state consumer protection laws and other statutes and defrauded
customers through concealed or misleading billing practices. Certain of these lawsuits and other
claims may impact the Partnership. These litigation matters may involve indemnification
obligations by third parties and/or affiliated parties covering all or part of any potential
damage awards against Cellco and the Partnership and/or insurance coverage. All of the above
matters are subject to many uncertainties, and outcomes are not predictable with assurance.
 The Partnership may be allocated a portion of the damages that may result upon adjudication of
these matters if the claimants prevail in their actions. Consequently, the ultimate liability
with respect to these matters at December 31, 2009 cannot be ascertained. The potential effect,
if any, on the financial statements of the Partnership, in the period in which these matters are
resolved, may be material.
 In addition to the aforementioned matters, Cellco is subject to various other legal actions and
claims in the normal course of business. While Cellcos legal counsel cannot give assurance as
to the outcome of each of these matters, in managements opinion, based on the advice of such
legal counsel, the ultimate liability with respect to any of these actions, or all of them
combined, will not materially affect the financial statements of the Partnership.
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8.
    
    RECONCILIATION OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
 Balance at
    
    
    Additions
    
    
    Write-offs
    
    
    Balance atBeginning
    
    
    Charged to
    
    
    Net of
    
    
    Endof the Year
    
    
    Operations
    
    
    Recoveries
    
    
    of the YearAccounts Receivable Allowances:2009
    
    $
    225
    
    
    $
    391
    
    
    $
    (432
    )
    
    $
    1842008
    
    
    154
    
    
    
    483
    
    
    
    (412
    )
    
    
    2252007
    
    
    202
    
    
    
    278
    
    
    
    (326
    )
    
    
    154
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      
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GTE MOBILNET OF TEXAS #17 LIMITED PARTNERSHIP
 
 BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
(Dollars in Thousands)
 2009
    
    
    2008ASSETSCURRENT ASSETS:Accounts receivable, net of allowance of $480 and $385
    
    $
    3,735
    
    
    $
    3,388Unbilled revenue
    
    
    1,521
    
    
    
    1,051Due from affiliate
    
    
    14,469
    
    
    
    6,320Prepaid expenses and other current assets
    
    
    16
    
    
    
    20Total current assets
    
    
    19,741
    
    
    
    10,779PROPERTY, PLANT AND EQUIPMENTNet
    
    
    54,672
    
    
    
    50,719TOTAL ASSETS
    
    $
    74,413
    
    
    $
    61,498LIABILITIES AND PARTNERS CAPITALCURRENT LIABILITIES:Accounts payable and accrued liabilities
    
    $
    2,589
    
    
    $
    1,896Advance billings and customer deposits
    
    
    997
    
    
    
    940Total current liabilities
    
    
    3,586
    
    
    
    2,836LONG TERM LIABILITIES
    
    
    370
    
    
    
    335Total liabilities
    
    
    3,956
    
    
    
    3,171COMMITMENTS AND CONTINGENCIES (see Notes 6 and 7)PARTNERS CAPITAL
    
    
    70,457
    
    
    
    58,327TOTAL LIABILITIES AND PARTNERS CAPITAL
    
    $
    74,413
    
    
    $
    61,498
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GTE MOBILNET OF TEXAS #17 LIMITED PARTNERSHIP
 
 STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(Dollars in Thousands)
 2009
    
    
    2008
    
    
    2007OPERATING REVENUESService
revenues, net
    
    $
    69,844
    
    
    $
    55,376
    
    
    $
    48,096Equipment,
net and other revenues
    
    
    4,381
    
    
    
    5,081
    
    
    
    4,341Total operating revenues
    
    
    74,225
    
    
    
    60,457
    
    
    
    52,437OPERATING COSTS AND EXPENSESCost of service (excluding depreciation and amortization related
to network assets included below)
    
    
    18,908
    
    
    
    17,327
    
    
    
    15,028Cost of equipment
    
    
    7,537
    
    
    
    6,609
    
    
    
    5,085Selling, general and administrative
    
    
    16,925
    
    
    
    16,132
    
    
    
    14,142Depreciation and amortization
    
    
    7,362
    
    
    
    6,013
    
    
    
    5,020Total operating costs and expenses
    
    
    50,732
    
    
    
    46,081
    
    
    
    39,275OPERATING INCOME
    
    
    23,493
    
    
    
    14,376
    
    
    
    13,162OTHER INCOME:Interest income, net
    
    
    637
    
    
    
    142
    
    
    
    550Total other income
    
    
    637
    
    
    
    142
    
    
    
    550NET INCOME
    
    $
    24,130
    
    
    $
    14,518
    
    
    $
    13,712Allocation of Net Income:Limited partners
    
    $
    19,303
    
    
    $
    11,614
    
    
    $
    10,970General Partner
    
    $
    4,827
    
    
    $
    2,904
    
    
    $
    2,742
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GTE MOBILNET OF TEXAS #17 LIMITED PARTNERSHIP
 
 STATEMENTS OF CHANGES IN PARTNERS CAPITAL
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(Dollars in Thousands)
 GeneralPartner
    
    
    Limited PartnersSan
    
    
    Eastex
    
    
    
    
    
    
    Consolidated
    
    
    ALLTEL
    
    
    SanAntonio
    
    
    Telecom
    
    
    Telecom
    
    
    Communications
    
    
    Communications
    
    
    Antonio
    
    
    TotalMTA,
    
    
    Investments,
    
    
    Supply,
    
    
    Transport
    
    
    Investments,
    
    
    MTA,
    
    
    PartnersL.P.
    
    
    L.P.
    
    
    Inc.
    
    
    Company
    
    
    Inc.
    
    
    L.P.
    
    
    CapitalBALANCEJanuary 1, 2007
    
    $
    9,220
    
    
    $
    7,846
    
    
    $
    7,846
    
    
    $
    7,846
    
    
    $
    7,846
    
    
    $
    5,493
    
    
    $
    46,097Distributions
    
    
    (2,200
    )
    
    
    (1,872
    )
    
    
    (1,872
    )
    
    
    (1,872
    )
    
    
    (1,872
    )
    
    
    (1,312
    )
    
    
    (11,000
    )Net income
    
    
    2,742
    
    
    
    2,334
    
    
    
    2,334
    
    
    
    2,334
    
    
    
    2,334
    
    
    
    1,634
    
    
    
    13,712BALANCEDecember 31, 2007
    
    
    9,762
    
    
    
    8,308
    
    
    
    8,308
    
    
    
    8,308
    
    
    
    8,308
    
    
    
    5,815
    
    
    
    48,809Distributions
    
    
    (1,000
    )
    
    
    (851
    )
    
    
    (851
    )
    
    
    (851
    )
    
    
    (851
    )
    
    
    (596
    )
    
    
    (5,000
    )Net income
    
    
    2,904
    
    
    
    2,471
    
    
    
    2,471
    
    
    
    2,471
    
    
    
    2,471
    
    
    
    1,730
    
    
    
    14,518BALANCEDecember 31, 2008
    
    
    11,666
    
    
    
    9,928
    
    
    
    9,928
    
    
    
    9,928
    
    
    
    9,928
    
    
    
    6,949
    
    
    
    58,327Distributions
    
    
    (2,401
    )
    
    
    (2,042
    )
    
    
    (2,042
    )
    
    
    (2,042
    )
    
    
    (2,042
    )
    
    
    (1,431
    )
    
    
    (12,000
    )Net income
    
    
    4,827
    
    
    
    4,107
    
    
    
    4,107
    
    
    
    4,107
    
    
    
    4,107
    
    
    
    2,875
    
    
    
    24,130BALANCEDecember 31, 2009
    
    $
    14,092
    
    
    $
    11,993
    
    
    $
    11,993
    
    
    $
    11,993
    
    
    $
    11,993
    
    
    $
    8,393
    
    
    $
    70,457
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GTE MOBILNET OF TEXAS #17 LIMITED PARTNERSHIP
 
 STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(Dollars in Thousands)
 2009
    
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    24,130
    
    
    $
    14,518
    
    
    $
    13,712Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    7,362
    
    
    
    6,013
    
    
    
    5,020Provision for losses on accounts receivable
    
    
    1,014
    
    
    
    936
    
    
    
    887Changes in certain assets and liabilities:Accounts receivable
    
    
    (1,361
    )
    
    
    (1,318
    )
    
    
    (1,291
    )Unbilled revenue
    
    
    (470
    )
    
    
    (99
    )
    
    
    95Prepaid expenses and other current assets
    
    
    4
    
    
    
    (12
    )
    
    
    5Accounts payable and accrued liabilities
    
    
    645
    
    
    
    542
    
    
    
    (149
    )Advance billings and customer deposits
    
    
    57
    
    
    
    167
    
    
    
    152Long term liabilities
    
    
    35
    
    
    
    65
    
    
    
    24Net cash provided by operating activities
    
    
    31,416
    
    
    
    20,812
    
    
    
    18,455CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures from affiliates, net
    
    
    (11,267
    )
    
    
    (16,895
    )
    
    
    (10,799
    )Change in due from affiliate, net
    
    
    (8,149
    )
    
    
    1,083
    
    
    
    3,344Net cash used in investing activities
    
    
    (19,416
    )
    
    
    (15,812
    )
    
    
    (7,455
    )CASH FLOWS FROM FINANCING ACTIVITIES:Distributions to partners
    
    
    (12,000
    )
    
    
    (5,000
    )
    
    
    (11,000
    )Net cash used in financing activities
    
    
    (12,000
    )
    
    
    (5,000
    )
    
    
    (11,000
    )CHANGE IN CASH
    
    
    
    
    
    
    
    
    
    
    CASHBeginning of year
    
    
    
    
    
    
    
    
    
    
    CASHEnd of year
    
    $
    
    
    
    $
    
    
    
    $
    NONCASH TRANSACTIONS FROM INVESTING AND FINANCING ACTIVITIES:Accruals for capital expenditures
    
    $
    249
    
    
    $
    178
    
    
    $
    242
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GTE MOBILNET OF TEXAS #17 LIMITED PARTNERSHIP
 
 NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(Dollars in Thousands)
 1.
    
    ORGANIZATION AND MANAGEMENT
 GTE Mobilnet of Texas #17 Limited PartnershipGTE Mobilnet of Texas #17 Limited
Partnership (the Partnership) was formed on June 13, 1989. The principal activity of the
Partnership is providing cellular service in the Texas #17 rural service area.
 The partners and their respective ownership percentages as of December 31, 2009, 2008 and 2007
are as follows:
 General Partner:San Antonio MTA, L.P.*
    
    
    20.0000
    %Limited Partners:Eastex Telecom Investments, L.P.
    
    
    17.0213
    %Telecom Supply, Inc.
    
    
    17.0213
    %Consolidated Communications Transport Company
    
    
    17.0213
    %ALLTEL Communications Investments, Inc.*
    
    
    17.0213
    %San Antonio MTA, L.P.*
    
    
    11.9148
    %
 *
    
    San Antonio MTA, L.P. (General Partner) and ALLTEL Communications Investments, Inc. are
wholly-owned subsidiaries of Cellco Partnership (Cellco) doing business as Verizon Wireless. 2.
    
    SIGNIFICANT ACCOUNTING POLICIES
 Use of EstimatesThe preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results may differ
from those estimates. Estimates are used for, but not limited to, the accounting for:
allocations, allowance for uncollectible accounts receivable, unbilled revenue, depreciation and
amortization, useful lives and impairment of assets, accrued expenses, and contingencies.
Estimates and assumptions are periodically reviewed and the effects of any material revisions
are reflected in the financial statements in the period that they are determined to be
necessary.
 Revenue Recognition The Partnership earns revenue by providing access to our network (access
revenue) and for usage of our network (usage revenue), which includes voice and data revenue.
Customers are associated with the Partnership based upon mobile identification number. In
general, access revenue is billed one month in advance and is recognized when earned; the
unearned portion is classified in advance billings in the balance sheet. Usage revenue is
recognized when service is rendered and included in unbilled revenue until billed. Equipment
sales revenue associated with the sale of wireless devices is recognized when the products are
delivered to and accepted by the customer, as this is considered to be a separate earnings
process from the sale of wireless services. Customer activation fees are considered additional
consideration, and to the extent that we incur costs in excess of fees, these fees are recorded
as equipment and other revenue at the time of customer acceptance. For agreements involving the
resale of third-party services in which we are considered the primary obligor in the
arrangements, we record revenue gross. The roaming rates charged by the Partnership to Cellco do
not necessarily reflect current market rates. The Partnership will continue to re-evaluate the
rates on a periodic basis (See Note 5).
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The Partnership reports, on
a gross basis, taxes imposed by governmental authorities on revenue-producing
transactions between us and our customers that are within the scope of the accounting standard
related to how taxes collected from customers and remitted to governmental authorities should be
presented in the statement of operations in the financial statements.
 Operating Costs and ExpensesOperating expenses include expenses incurred directly by the
Partnership, as well as an allocation of certain selling, general and administrative and
operating costs incurred by Cellco or its affiliates on behalf of the Partnership. Employees of
Cellco provide services performed on behalf of the Partnership. These employees are not
employees of the Partnership and therefore, operating expenses include direct and allocated
charges of salary and employee benefit costs for the services provided to the Partnership.
Cellco believes such allocations, principally based on the Partnerships percentage of total
customers, customer gross additions or minutes-of-use, are reasonable. The roaming rates
charged to the Partnership by Cellco do not necessarily reflect current market rates. The
Partnership will continue to re-evaluate the rates on a periodic basis (see Note 5).
 Income TaxesExcept for the Texas Franchise Tax the Partnership is not subject to any domestic
federal, state or local taxes based on income. Any taxable income or loss is apportioned to the
partners based on their respective partnership interests and is reported by them individually.
 InventoryInventory is owned by Cellco and is not recorded on the Partnerships financial
statements. Upon sale, the related cost of the inventory is transferred to the Partnership at
Cellcos cost basis and included in the accompanying statements of operations.
 Allowance for Doubtful AccountsThe Partnership maintains allowances for uncollectible accounts
receivable for estimated losses resulting from the inability of customers to make required
payments. Estimates are based on the aging of the accounts receivable balances and the
historical write-off experience, net of recoveries.
 Property, Plant and EquipmentProperty, plant and equipment primarily represents costs incurred
to construct and expand capacity and network coverage on mobile telephone switching offices and
cell sites. The cost of property, plant and equipment is depreciated over its estimated useful
life using the straight-line method of accounting. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the term of the related lease. Major improvements to
existing plant and equipment are capitalized. Routine maintenance and repairs that do not extend
the life of the plant and equipment are charged to expense as incurred.
 Upon the sale or retirement of property, plant and equipment, the cost and related accumulated
depreciation or amortization is eliminated from the accounts and any related gain or loss is
reflected in the statements of operations. All property and equipment purchases are made
through an affiliate of Cellco. Transfers of property, plant and equipment between Cellco and
affiliates are recorded at net book value.
 Network engineering and interest costs incurred during the construction phase of the
Partnerships network and real estate properties under development are capitalized as part of
property, plant and equipment and recorded as construction-in-progress until the projects are
completed and placed into service.
 FCC Licenses The Federal Communications Commission (FCC) issues licenses that authorize
cellular carriers to provide service in specific cellular geographic service areas. The FCC
grants licenses for terms of up to ten years. In 1993, the FCC adopted specific standards to
apply to cellular renewals, concluding it will reward a license renewal to a cellular licensee
that meets certain standards of past performance. Historically, the FCC has granted license
renewals routinely and at nominal costs, which are expensed as incurred. All wireless licenses
issued by the FCC that authorize the Partnership to provide cellular services are recorded on
the books of Cellco. The current term of the Partnerships FCC license expires
in December 2019. Cellco believes it will be able to meet all requirements necessary to secure
renewal of the Partnerships cellular license.
 Valuation of Assets Long-lived assets, including property, plant and equipment and intangible
assets with finite lives, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be recoverable. The
carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual disposition of the asset.
The impairment loss, if determined to be necessary, would be measured as the amount by which
the carrying amount of the asset exceeds the fair value of the asset.
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Cellco reevaluates the useful life determination for wireless licenses at least annually to
determine whether events and circumstances continue to support an indefinite useful life.
Moreover, Cellco has determined that there are currently no legal, regulatory, contractual,
competitive, economic or other factors that limit the useful life of the Partnerships wireless
licenses.
 Cellco tests its wireless licenses for potential impairment annually, and more frequently if
indications of impairment exist. Cellco evaluates its licenses on an aggregate basis, using a
direct income-based value approach. This approach estimates fair value using a discounted cash
flow analysis to estimate what a marketplace participant would be willing to pay to purchase
the aggregated wireless licenses as of the valuation date. If the fair value of the aggregated
wireless licenses is less than the aggregated carrying amount of the wireless licenses, an
impairment is recognized. In addition, Cellco believes that under the Partnership agreement it
has the right to allocate, based on a reasonable methodology, any impairment loss recognized by
Cellco for all licenses included in Cellcos national footprint. Cellco does not charge the
Partnership for the use of any FCC license recorded on its books (except for the annual cost of
$76 related to the spectrum lease, as discussed in Note 5). Cellco evaluated its wireless
licenses for potential impairment as of December 15, 2009 and December 15, 2008. These
evaluations resulted in no impairment of wireless licenses.
 Fair Value Measurements  In accordance with the accounting standard regarding fair value
measurements, fair value is defined as an exit price, representing the amount that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants. This accounting standard also establishes a three-tier hierarchy for
inputs used in measuring fair value, which prioritizes the inputs used in the valuation
methodologies in measuring fair value:
 Level 1  Quoted prices in active markets for identical assets or liabilities
 Level 2  Observable inputs other than quoted prices in active markets for identical assets and
liabilities
 Level 3  No observable pricing inputs in the market
 Financial assets and financial liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurements. Our assessment of the
significance of a particular input to the fair value measurements requires judgment, and may
affect the valuation of the assets and liabilities being measured and their placement within the
fair value hierarchy.
 ConcentrationsTo the extent the Partnerships customer receivables become delinquent,
collection activities commence. No single customer is large enough to present a significant
financial risk to the Partnership. The Partnership maintains an allowance for losses based on
the expected collectibility of accounts receivable.
 Cellco and the Partnership rely on local and long-distance telephone companies, some of whom are
related parties, and other companies to provide certain communication services. Although
management believes alternative telecommunications facilities could be found in a timely manner,
any disruption of these services could potentially have an adverse impact on the Partnerships
operating results.
 Although Cellco attempts to maintain multiple vendors for its network assets and inventory,
which are important components of its operations, they are currently acquired from only a few
sources. Certain of these products are in turn utilized by the Partnership and are important
components of the Partnerships operations. If the suppliers are unable to meet Cellcos needs
as it builds out its network infrastructure and sells service and equipment, delays and
increased costs in the expansion of the Partnerships network infrastructure or losses of
potential customers could result, which would adversely affect operating results.
 Financial InstrumentsThe Partnerships trade receivables and payables are short-term in
nature, and accordingly, their carrying value approximates fair value.
 Due from affiliateDue from affiliate principally represents the Partnerships cash position.
Cellco manages, on behalf of the Partnership, all cash, inventory, investing and financing
activities. As such, the change in due from affiliate is reflected as an investing activity or a
financing activity in the statements of cash flows depending on whether it represents a net
asset or net liability for the Partnership.
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Additionally, administrative and operating costs incurred by Cellco on behalf of the
Partnership, as well as
property, plant, and equipment transactions with affiliates, are charged to the Partnership
through this account. Interest income or interest expense is based on the average monthly
outstanding balance in this account and is calculated by applying Cellcos average cost of
borrowing from Verizon Global Funding, a wholly-owned subsidiary of Verizon Communications,
Inc., which was approximately 5.8%, 4.0% and 5.4% for the years ended December 31, 2009, 2008
and 2007, respectively. Included in net interest income is interest income of $644, $148 and
$554 for the years ended December 31, 2009, 2008 and 2007, respectively, related to the due from
affiliate.
 Distributions The Partnership is required to make distributions to its partners based upon
the Partnerships operating results, cash availability and financing needs as determined by the
General Partner at the date of the distribution.
 Recently Adopted Accounting PronouncementsThe adoption of the following accounting
standards and updates during 2009 did not result in a significant impact to the Partnerships
financial statements:
 On January 1, 2009, the Partnership adopted the accounting standard regarding the determination
of the useful life of intangible assets that removes the requirement to consider whether an
intangible asset can be renewed without substantial cost or material modifications to the
existing terms and conditions, and replaces it with a requirement that an entity consider its
own historical experience in renewing similar arrangements, or a consideration of market
participant assumptions in the absence of historical experience. This standard also requires
entities to disclose information that enables users of financial statements to assess the
extent to which the expected future cash flows associated with the asset are affected by the
entitys intent and/or ability to renew or extend the arrangements.
 On June 15, 2009, the Partnership adopted the accounting standard regarding the general
standards of accounting for, and disclosure of, events that occur after the balance sheet date
but before the financial statements are issued. This standard was effective prospectively for
all annual reporting periods ending after June 15, 2009.
 On June 15, 2009, the Partnership adopted the accounting standard that amends the requirements
for disclosures about fair value of financial instruments. This standard was effective
prospectively for all annual reporting periods ending after June 15, 2009.
 On June 15, 2009, the Partnership adopted the accounting standard regarding estimating fair
value measurements when the volume and level of activity for the asset or liability has
significantly decreased which also provides guidance for identifying transactions that are not
orderly. This standard was effective prospectively for all annual reporting periods ending
after June 15, 2009.
 On August 28, 2009, the Partnership adopted the accounting standard update regarding the
measurement of liabilities at fair value. This standard update provides techniques to use in
measuring fair value of a liability in circumstances in which a quoted price in an active
market for the identical liability is not available. This standard update is effective
prospectively for all annual reporting periods upon issuance.
 Other Recent Accounting Standard  In September 2009, the accounting standard regarding multiple
deliverable arrangements was updated to require the use of the relative selling price method
when allocating revenue in these types of arrangements. This method allows a vendor to use its
best estimate of selling price if neither vendor specific objective evidence nor third party
evidence of selling price exists when evaluating multiple deliverable arrangements. This
standard update is effective January 1, 2011 and may be adopted prospectively for revenue
arrangements entered into or materially modified after the date of adoption or retrospectively
for all revenue arrangements for
all period presented. The Partnership is currently evaluating the impact this standard update
will have on the financial statements.
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3.
    
    PROPERTY, PLANT AND EQUIPMENT
 Property, plant and equipment consist of the following as of December 31, 2009 and 2008:
 Useful lives
    
    2009
    
    
    2008Buildings and improvements
    
    10-40 years
    
    $
    20,327
    
    
    $
    18,790Cellular plant equipment
    
    3-15 years
    
    
    62,324
    
    
    
    54,396Furniture, fixtures and equipment
    
    2-10 years
    
    
    76
    
    
    
    75Leasehold improvements
    
    5 years
    
    
    3,717
    
    
    
    3,56386,444
    
    
    
    76,824Less accumulated depreciation and amortization
    
    
    
    
    31,772
    
    
    
    26,105Property, plant and equipment, net
    
    
    
    $
    54,672
    
    
    $
    50,719
 Capitalized network engineering costs of $641 and $565 were recorded during the years ended
December 31, 2009 and 2008, respectively. Construction-in-progress included in certain of
the classifications shown above, principally cellular plant equipment, amounted to $5,096 and
$3,570 at December 31, 2009 and 2008, respectively.
 4.
    
    CURRENT LIABILITIES
 Accounts payable and accrued liabilities consist of the following as of December 31, 2009
and 2008:
 2009
    
    
    2008Accounts payable
    
    $
    787
    
    
    $
    551Non-income based taxes and regulatory fees
    
    
    1,081
    
    
    
    600Texas margin tax payable
    
    
    370
    
    
    
    520Accrued commissions
    
    
    351
    
    
    
    225Accounts payable and accrued liabilities
    
    $
    2,589
    
    
    $
    1,896
 Advance billings and customer deposits consist of the following as of December 31, 2009 and
2008:
 2009
    
    
    2008Advance billings
    
    $
    819
    
    
    $
    732Customer deposits
    
    
    178
    
    
    
    208Advance billings and customer deposits
    
    $
    997
    
    
    $
    940
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5.
    
    TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
 Affiliate transactions include, but are not limited to, allocations, intra-company roaming,
the salaries and related expenses of employees of Cellco, PCS spectrum lease payments and direct
payments to a related party of the Partnership, such as rent or commissions. Revenues and
expenses were allocated based on the Partnerships percentage of customers or gross customer
additions or minutes of use, where applicable. Cellco believes the allocations are reasonable.
The affiliate transactions are not necessarily conducted at arms length.
 Significant transactions with affiliates (Cellco and its related entities) and other related
parties, including allocations and direct charges, are summarized as follows for the years ended
December 31, 2009, 2008 and 2007:
 2009
    
    
    2008
    
    
    2007Service revenues (a)
    
    $
    26,920
    
    
    $
    15,459
    
    
    $
    13,035Equipment and other revenues (b)
    
    
    (816
    )
    
    
    (289
    )
    
    
    (259
    )Cost of service (c)
    
    
    16,017
    
    
    
    13,517
    
    
    
    11,909Cost of equipment (d)
    
    
    1,489
    
    
    
    1,140
    
    
    
    1,037Selling, general and administrative (e)
    
    
    10,611
    
    
    
    9,180
    
    
    
    8,330
 (f)
    
    Service revenues include roaming revenues relating to customers of other affiliated
markets, long-distance, paging, data and allocated contra-revenues including revenue
concessions.(g)
    
    Equipment and other revenues include sales of handsets and accessories and
allocated contra-revenues including equipment concessions and coupon rebates.(h)
    
    Cost of service includes roaming costs relating to customers roaming in other
affiliated markets, paging, switch usage and allocated cost of telecom, long-distance and
handset applications.(i)
    
    Cost of equipment includes allocated handsets, accessories, warehousing and
freight.(j)
    
    Selling, general and administrative expenses include commissions and billing, and
allocated office telecom, customer care, salaries, sales and marketing, advertising, and
commissions. On January 1, 2005, the Partnership entered into a lease agreement for the right to use
additional spectrum owned by Cellco. The initial term of this agreement was one year, with
annual renewal terms. The Partnership renewed the lease through June 23, 2015. The annual
lease commitment of $76 represents the costs of financing the spectrum, and does not
necessarily reflect the economic value of the services received. No additional spectrum
purchases or lease commitments have been entered into by the Partnership as of December 31,
2009.
 6.
    
    COMMITMENTS
 Cellco, on behalf of the Partnership, and the Partnership itself have entered into
operating leases for facilities, equipment and spectrum used in its operations. Lease contracts
include renewal options that include rent expense adjustments based on the Consumer Price Index
as well as annual and end-of-lease term adjustments. Rent expense is recorded on a
straight-line basis. The noncancelable lease term used to calculate the amount of the
straight-line rent expense is generally determined to be the initial lease term, including any
optional renewal terms that are reasonably assured. Leasehold improvements related to these
operating leases are amortized over
the shorter of their estimated useful lives or the noncancelable lease term. For the years
ended December 31, 2009, 2008 and 2007, the Partnership
recognized a total of $2,563, $2,511 and
$1,811, respectively, as rent expense related to payments under these operating leases, which
was included in cost of service in the accompanying statements of operations.
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Aggregate future minimum rental commitments under noncancelable operating leases, excluding
renewal options that are not reasonably assured, for the years shown are as follows:
 Years
    
    Amount2010
    
    $
    2,4162011
    
    
    2,1882012
    
    
    2,1442013
    
    
    2,0992014
    
    
    2,0132015 and thereafter
    
    
    17,693Total minimum payments
    
    $
    28,553
 From time to time Cellco enters into purchase commitments, primarily for network equipment,
on behalf of the Partnership.
 7.
    
    CONTINGENCIES
 Cellco is subject to various lawsuits and other claims including class actions, product
liability, patent infringement, antitrust, partnership disputes, and claims involving relations
with resellers and agents. Cellco is also defending lawsuits filed against itself and other
participants in the wireless industry alleging various adverse effects as a result of wireless
phone usage. Various consumer class action lawsuits allege that Cellco breached contracts with
consumers, violated certain state consumer protection laws and other statutes and defrauded
customers through concealed or misleading billing practices. Certain of these lawsuits and other
claims may impact the Partnership. These litigation matters may involve indemnification
obligations by third parties and/or affiliated parties covering all or part of any potential
damage awards against Cellco and the Partnership and/or insurance coverage. All of the above
matters are subject to many uncertainties, and outcomes are not predictable with assurance.
 The Partnership may be allocated a portion of the damages that may result upon adjudication of
these matters if the claimants prevail in their actions. Consequently, the ultimate liability
with respect to these matters at December 31, 2009 cannot be ascertained. The potential effect,
if any, on the financial statements of the Partnership, in the period in which these matters are
resolved, may be material.
 In addition to the aforementioned matters, Cellco is subject to various other legal actions and
claims in the normal course of business. While Cellcos legal counsel cannot give assurance as
to the outcome of each of these matters, in managements opinion, based on the advice of such
legal counsel, the ultimate liability with respect to any of these actions, or all of them
combined, will not materially affect the financial statements of the Partnership.
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8.
    
    RECONCILIATION OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
 Balance at
    
    
    Additions
    
    
    Write-offs
    
    
    Balance atBeginning
    
    
    Charged to
    
    
    Net of
    
    
    Endof the Year
    
    
    Operations
    
    
    Recoveries
    
    
    of the YearAccounts Receivable Allowances:2009
    
    $
    385
    
    
    $
    1,014
    
    
    $
    (919
    )
    
    $
    4802008
    
    $
    373
    
    
    $
    936
    
    
    $
    (924
    )
    
    $
    3852007
    
    $
    329
    
    
    $
    887
    
    
    $
    (843
    )
    
    
    373
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