##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 For the Quarterly Period Ended June 30, 2007
 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 
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 121 South 17th Street
Mattoon, Illinois 61938-3987
  Yes þ No o
 o þ o
 Yes o No þ




---



##### 



PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    30PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 6. Exhibits
    
    
    31Signatures
    
    
    32Exhibit Index
    
    
    33Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Income  (Amounts in thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    80,944
    
    
    $
    79,340
    
    
    $
    163,924
    
    
    $
    158,766Operating expenses:Cost of services and products
(exclusive of depreciation and
amortization shown separately below)
    
    
    25,788
    
    
    
    23,951
    
    
    
    51,417
    
    
    
    48,624Selling, general and administrative expenses
    
    
    22,296
    
    
    
    24,671
    
    
    
    44,595
    
    
    
    47,183Depreciation and amortization
    
    
    16,606
    
    
    
    16,844
    
    
    
    33,235
    
    
    
    33,915Income from operations
    
    
    16,254
    
    
    
    13,874
    
    
    
    34,677
    
    
    
    29,044Other income (expense):Interest income
    
    
    227
    
    
    
    429
    
    
    
    441
    
    
    
    615Interest expense
    
    
    (11,688
    )
    
    
    (10,553
    )
    
    
    (23,302
    )
    
    
    (20,781
    )Investment income
    
    
    1,611
    
    
    
    1,398
    
    
    
    3,054
    
    
    
    2,983Minority interest
    
    
    (118
    )
    
    
    (115
    )
    
    
    (290
    )
    
    
    (296
    )Other, net
    
    
    264
    
    
    
    103
    
    
    
    276
    
    
    
    47Income before income taxes
    
    
    6,550
    
    
    
    5,136
    
    
    
    14,856
    
    
    
    11,612Income tax (benefit) expense
    
    
    1,057
    
    
    
    (3,089
    )
    
    
    4,744
    
    
    
    (161
    )Net income
    
    
    5,493
    
    
    
    8,225
    
    
    
    10,112
    
    
    
    11,773Net income per common share -
Basic & Diluted
    
    $
    0.21
    
    
    $
    0.28
    
    
    $
    0.39
    
    
    $
    0.40Cash dividends declared per common share
    
    $
    0.38
    
    
    $
    0.38
    
    
    $
    0.77
    
    
    $
    0.77
   3




---



##### Table of Contents



Consolidated Communications Holdings, Inc.
Condensed Consolidated Balance Sheets  (Amounts in thousands, except share and per share amounts)
 June 30,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    16,082
    
    
    $
    26,672Marketable securities
    
    
    10,625
    
    
    
    Accounts receivable, net of allowance of $1,808
and $2,110, respectively
    
    
    34,276
    
    
    
    34,396Inventories
    
    
    4,014
    
    
    
    4,170Deferred income taxes
    
    
    2,081
    
    
    
    2,081Prepaid expenses and other current assets
    
    
    8,772
    
    
    
    6,898Total current assets
    
    
    75,850
    
    
    
    74,217Property, plant and equipment, net
    
    
    304,076
    
    
    
    314,381Intangibles and other assets:Investments
    
    
    40,343
    
    
    
    40,314Goodwill
    
    
    316,034
    
    
    
    316,034Customer lists, net
    
    
    103,830
    
    
    
    110,273Tradenames
    
    
    14,291
    
    
    
    14,291Deferred financing costs and other assets
    
    
    22,277
    
    
    
    20,069Total assets
    
    $
    876,701
    
    
    $
    889,579LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    10,210
    
    
    $
    11,004Advance billings and customer deposits
    
    
    16,391
    
    
    
    15,303Dividends payable
    
    
    10,048
    
    
    
    10,040Accrued expenses
    
    
    21,328
    
    
    
    29,399Total current liabilities
    
    
    57,977
    
    
    
    65,746Long-term debt
    
    
    594,000
    
    
    
    594,000Deferred income taxes
    
    
    56,996
    
    
    
    55,893Pension and postretirement benefit obligations
    
    
    53,947
    
    
    
    54,187Other liabilities
    
    
    1,256
    
    
    
    1,100Total liabilities
    
    
    764,176
    
    
    
    770,926Minority interest
    
    
    3,985
    
    
    
    3,695Stockholders equityCommon stock, $0.01 par value, 100,000,000 shares,
authorized, 26,130,618 and 26,001,872 issued and
outstanding, respectively
    
    
    261
    
    
    
    260Additional paid in capital
    
    
    201,575
    
    
    
    199,858Accumulated deficit
    
    
    (97,351
    )
    
    
    (87,362
    )Accumulated other comprehensive income
    
    
    4,055
    
    
    
    2,202Total stockholders equity
    
    
    108,540
    
    
    
    114,958Total liabilities and stockholders equity
    
    $
    876,701
    
    
    $
    889,579
   4




---



##### Table of Contents



Consolidated Communications Holdings, Inc.
Consolidated Statements of Cash Flows  (Amounts in thousands)
(Unaudited)
 Six Months Ended June 30,2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    10,112
    
    
    $
    11,773Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    33,235
    
    
    
    33,915Provision for bad debt losses
    
    
    1,858
    
    
    
    2,499Deferred income tax
    
    
    1,103
    
    
    
    (1,687
    )Partnership income
    
    
    (882
    )
    
    
    (2,828
    )Non-cash stock compensation
    
    
    1,706
    
    
    
    1,250Minority interest in net income of subsidiary
    
    
    290
    
    
    
    296Amortization of deferred financing costs
    
    
    1,668
    
    
    
    1,619Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,738
    )
    
    
    (6
    )Inventories
    
    
    156
    
    
    
    (333
    )Other assets
    
    
    (2,538
    )
    
    
    (2,987
    )Accounts payable
    
    
    (794
    )
    
    
    (4,658
    )Accrued expenses and other liabilities
    
    
    (7,067
    )
    
    
    (5,474
    )Net cash provided by operating activities
    
    
    37,109
    
    
    
    33,379INVESTING ACTIVITIESProceeds from sale of investments
    
    
    
    
    
    
    5,921Securities purchased
    
    
    (10,625
    )
    
    
    Capital expenditures
    
    
    (16,673
    )
    
    
    (17,221
    )Net cash used in investing activities
    
    
    (27,298
    )
    
    
    (11,300
    )FINANCING ACTIVITIESProceeds from issuance of stock
    
    
    12
    
    
    
    Payment of deferred financing costs
    
    
    (320
    )
    
    
    Dividends on common stock
    
    
    (20,093
    )
    
    
    (23,046
    )Net cash used in financing activities
    
    
    (20,401
    )
    
    
    (23,046
    )Net decrease in cash and cash equivalents
    
    
    (10,590
    )
    
    
    (967
    )Cash and cash equivalents at beginning of period
    
    
    26,672
    
    
    
    31,409Cash and cash equivalents at end of period
    
    $
    16,082
    
    
    $
    30,442
   5




---



##### Table of Contents



Consolidated Communications Holdings, Inc.
Condensed Consolidated Statement of Changes in Stockholders Equity
Six Months Ended June 30, 2007  (Amounts in thousands, except share amounts)
(Unaudited)
 AccumulatedOtherCommon Stock
    
    
    Additional
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Paid in Capital
    
    
    Deficit
    
    
    Income
    
    
    TotalBalance, January 1, 2007
    
    
    26,001,872
    
    
    $
    260
    
    
    $
    199,858
    
    
    $
    (87,362
    )
    
    $
    2,202
    
    
    $
    114,958Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,112
    
    
    
    
    
    
    
    10,112Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,101
    )
    
    
    
    
    
    
    (20,101
    )Issuance of common stock
    
    
    662
    
    
    
    1
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    12Shares issued under employee
plan, net of forfeitures
    
    
    128,084
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-cash stock compensation
    
    
    
    
    
    
    
    
    
    
    1,706
    
    
    
    
    
    
    
    
    
    
    
    1,706Change in fair value of cash flow
hedges, net of $1,298 of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,853
    
    
    
    1,853Balance, June 30, 2007
    
    
    26,130,618
    
    
    $
    261
    
    
    $
    201,575
    
    
    $
    (97,351
    )
    
    $
    4,055
    
    
    $
    108,540
   6




---



##### Table of Contents



CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three months ended June 30, 2007 and 2006  (Amounts in thousands, except share and per share amounts)
 1. Description of Business
  2. Presentation of Interim Financial Statements
  3. Recent Accounting Pronouncements
 Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109
 Fair
Value Measurements
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
  7




---



##### Table of Contents



4. Marketable Securities
  5. Goodwill and Customer Lists
  June 30,
    
    
    December 31,2007
    
    
    2006Telephone Operations
    
    $
    308,850
    
    
    $
    308,850Other Operations
    
    
    7,184
    
    
    
    7,184$
    316,034
    
    
    $
    316,034
  June 30,
    
    
    December 31,2007
    
    
    2006Gross carrying amount
    
    $
    156,648
    
    
    $
    156,648Less: accumulated amortization
    
    
    (52,818
    )
    
    
    (46,375
    )Net carrying amount
    
    $
    103,830
    
    
    $
    110,273
  6. Pension Costs and Other Postretirement Benefits
    8




---



##### Table of Contents



Pension Benefits
    
    
    Other Benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Three months ended June 30,Service cost
    
    $
    345
    
    
    $
    463
    
    
    $
    219
    
    
    $
    258Interest cost
    
    
    1,168
    
    
    
    1,871
    
    
    
    385
    
    
    
    541Expected return on plan assets
    
    
    (1,231
    )
    
    
    (2,182
    )
    
    
    
    
    
    
    46Other, net
    
    
    40
    
    
    
    310
    
    
    
    (248
    )
    
    
    (469
    )Net periodic benefit cost
    
    $
    322
    
    
    $
    462
    
    
    $
    356
    
    
    $
    376Six months ended June 30,Service cost
    
    $
    690
    
    
    $
    1,020
    
    
    $
    439
    
    
    $
    374Interest cost
    
    
    2,340
    
    
    
    3,367
    
    
    
    770
    
    
    
    773Expected return on plan assets
    
    
    (2,467
    )
    
    
    (3,805
    )
    
    
    
    
    
    
    10Other, net
    
    
    81
    
    
    
    319
    
    
    
    (495
    )
    
    
    (454
    )Net periodic benefit cost
    
    $
    644
    
    
    $
    901
    
    
    $
    714
    
    
    $
    703
 7. Long-Term Debt
  June 30,
    
    
    December 31,2007
    
    
    2006Senior Secured Credit FacilityRevolving loan
    
    $
    
    
    
    $
    Term loan D
    
    
    464,000
    
    
    
    464,000Senior notes
    
    
    130,000
    
    
    
    130,000594,000
    
    
    
    594,000Less: current portion
    
    
    
    
    
    
    $
    594,000
    
    
    $
    594,000
  8. Derivative Instruments
   9




---



##### Table of Contents



9. Restricted Share Plan
  Restricted shares outstanding, December 31, 2006
    
    
    248,745Shares granted
    
    
    135,584Shares vested
    
    
    (4,500
    )Shares forfeited or retired
    
    
    (7,500
    )Restricted shares outstanding, June 30, 2007
    
    
    372,329
  10. Income Taxes
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Income before income taxes
    
    $
    6,550
    
    
    $
    5,136
    
    
    $
    14,856
    
    
    $
    11,612Income tax (benefit) expense
    
    $
    1,057
    
    
    $
    (3,089
    )
    
    $
    4,744
    
    
    $
    (161
    )Effective tax rate
    
    
    16.1
    %
    
    
    -60.1
    %
    
    
    31.9
    %
    
    
    -1.4
    %
   10




---



##### Table of Contents



11. Net Income per Common Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic:Net income
    
    $
    5,493
    
    
    $
    8,225
    
    
    $
    10,112
    
    
    $
    11,773Weighted average number of common
shares outstanding
    
    
    25,758,289
    
    
    
    29,353,106
    
    
    
    25,757,471
    
    
    
    29,353,106Net income per common share
    
    $
    0.21
    
    
    $
    0.28
    
    
    $
    0.39
    
    
    $
    0.40Diluted:Net income
    
    $
    5,493
    
    
    $
    8,225
    
    
    $
    10,112
    
    
    $
    11,773Weighted average number of common
shares outstanding
    
    
    26,130,618
    
    
    
    29,788,851
    
    
    
    26,080,203
    
    
    
    29,788,685Net income per common share
    
    $
    0.21
    
    
    $
    0.28
    
    
    $
    0.39
    
    
    $
    0.40
  12. Other Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    5,493
    
    
    $
    8,225
    
    
    $
    10,112
    
    
    $
    11,773Other comprehensive income:Unrealized gain on marketable securities,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49Change in fair value of cash flow hedges,
net of tax
    
    
    3,335
    
    
    
    1,690
    
    
    
    1,853
    
    
    
    4,124Total comprehensive income
    
    $
    8,828
    
    
    $
    9,915
    
    
    $
    11,965
    
    
    $
    15,946
 13. Business Segments
   11




---



##### Table of Contents



Telephone
    
    
    OtherOperations
    
    
    Operations
    
    
    TotalThree months ended June 30, 2007:Operating revenues
    
    $
    71,006
    
    
    $
    9,938
    
    
    $
    80,944Cost of services and products
    
    
    19,157
    
    
    
    6,631
    
    
    
    25,78851,849
    
    
    
    3,307
    
    
    
    55,156Operating expenses
    
    
    18,849
    
    
    
    3,447
    
    
    
    22,296Depreciation and amortization
    
    
    15,980
    
    
    
    626
    
    
    
    16,606Operating income (loss)
    
    $
    17,020
    
    
    $
    (766
    )
    
    $
    16,254Three months ended June 30, 2006:Operating revenues
    
    $
    69,672
    
    
    $
    9,668
    
    
    $
    79,340Cost of services and products
    
    
    17,823
    
    
    
    6,128
    
    
    
    23,95151,849
    
    
    
    3,540
    
    
    
    55,389Operating expenses
    
    
    20,921
    
    
    
    3,750
    
    
    
    24,671Depreciation and amortization
    
    
    15,506
    
    
    
    1,338
    
    
    
    16,844Operating income (loss)
    
    $
    15,422
    
    
    $
    (1,548
    )
    
    $
    13,874
 Telephone
    
    
    OtherOperations
    
    
    Operations
    
    
    TotalSix months ended June 30, 2007:Operating revenues
    
    $
    143,518
    
    
    $
    20,406
    
    
    $
    163,924Cost of services and products
    
    
    37,501
    
    
    
    13,916
    
    
    
    51,417106,017
    
    
    
    6,490
    
    
    
    112,507Operating expenses
    
    
    37,787
    
    
    
    6,808
    
    
    
    44,595Depreciation and amortization
    
    
    31,992
    
    
    
    1,243
    
    
    
    33,235Operating income (loss)
    
    $
    36,238
    
    
    $
    (1,561
    )
    
    $
    34,677Six months ended June 30, 2006:Operating revenues
    
    $
    139,029
    
    
    $
    19,737
    
    
    $
    158,766Cost of services and products
    
    
    35,985
    
    
    
    12,639
    
    
    
    48,624103,044
    
    
    
    7,098
    
    
    
    110,142Operating expenses
    
    
    39,903
    
    
    
    7,280
    
    
    
    47,183Depreciation and amortization
    
    
    31,203
    
    
    
    2,712
    
    
    
    33,915Operating income (loss)
    
    $
    31,938
    
    
    $
    (2,894
    )
    
    $
    29,044
  12




---



##### Table of Contents



14. Subsequent event
    13




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 We present below Managements Discussion and Analysis of Financial Condition and Results of
Operations of Consolidated Communications Holdings, Inc. and its subsidiaries on a consolidated
basis. The following discussion should be read in conjunction with our historical financial
statements and related notes contained elsewhere in this Report.
 Forward-Looking Statements
  
    
    various risks to stockholders of not receiving dividends and risks to our ability to
pursue growth opportunities if we continue to pay dividends according to our current
dividend policy;
 
    
    various risks to the price and volatility of our common stock;
 
    
    our substantial amount of debt and our ability to incur additional debt in the future;
 
    
    our need for a significant amount of cash to service and repay our debt and to pay
dividends on our common stock;
 
    
    restrictions contained in our debt agreements that limit the discretion of our
management in operating our business;
 
    
    the ability to refinance our existing debt as necessary;
 
    
    rapid development and introduction of new technologies and intense competition in the
telecommunications industry;
 
    
    risks associated with our possible pursuit of acquisitions;
 
    
    economic conditions in our service areas in Illinois and Texas;
 
    
    system failures;
 
    
    loss of large customers or government contracts;
 
    
    risks associated with the rights-of-way for our network;
 
    
    disruptions in our relationship with third party vendors;
 
    
    loss of key management personnel and the inability to attract and retain highly
qualified management and personnel in the future;
 
    
    changes in the extensive governmental legislation and regulations governing
telecommunications providers and the provision of telecommunications services and
subsidies;
 
    
    telecommunications carriers disputing and/or avoiding their obligations to pay network
access changes for use of our network;
 
    
    high costs of regulatory compliance;
 
    
    the competitive impact of legislation and regulatory changes in the telecommunications industry;
  14




---



##### Table of Contents




    
    liability and compliance costs regarding environmental regulations;
 
    
    the integration of the Company and North Pittsburgh following the merger;
    
    the ability to obtain required approvals and satisfy closing conditions may delay or
prevent completion of the merger;
    
    transaction, integration and restructuring costs in connection with the proposed
merger, whether or not the merger is completed;
    
    disruptions in our business caused by the pendency of the merger transaction; and
 
    
    the additional risk factors outlined in Part II  Other Information  Item 1A  Risk Factors herein
and Part I  Item 1A  Risk Factors incorporated
by reference from our Annual Report on Form 10-K for the fiscal year ended December 31,
2006, as well as the other documents that we file with the SEC from time to time that could
cause our actual results to differ from our current expectations and from the
forward-looking statements discussed in this Report.
  Overview
  Acquisition
    Share Repurchase and Credit Facility Amendments
   15




---



##### Table of Contents




    
    reduction in our annual dividend obligation of $5.9 million;
 
    
    an increase in our after tax net cash interest of $2.9 million due to the increased
borrowings incurred, an increase in the interest rate on our credit facility of 25 basis
points and a decrease of cash on hand.
  Factors Affecting Results of Operations
 Revenues
 Telephone Operations and Other Operations
 Local Access Lines and Bundled Services.
   
    
    aggressively promoting DSL service with a variety of speeds and price points to
meet customer demands;
    
    bundling our triple play offering of DSL, IPTV and voice services;
 
    
    maintaining excellent customer service standards while actively promoting new
services to our customers; and
    
    keeping a strong local presence in the communities we serve.
  16




---



##### Table of Contents




    
    hosted VoIP, which was launched in certain Texas markets in 2005 to meet the needs of
small to medium sized business customers who want robust function without having to
purchase a traditional key or PBX phone system;
 
    
    DSL service which has been made available to users who to not have our access line.
This expands our customer base and creates additional revenue generating opportunities;
 
    
    a DSL tier with speeds up to 10 Mbps is now being offered for those customers desiring
greater Internet speed; and
 
    
    Hi Definition video service, which was introduced in Texas in May and will be launched
in Illinois in the third quarter of 2007.
      17




---



##### Table of Contents



June 30,
    
    
    December 31,
    
    
    June 30,2007
    
    
    2006
    
    
    2006Local access lines in service:Residential
    
    
    151,645
    
    
    
    155,354
    
    
    
    159,295Business
    
    
    77,362
    
    
    
    78,335
    
    
    
    79,609Total local access lines
    
    
    229,007
    
    
    
    233,689
    
    
    
    238,904IPTV subscribers
    
    
    9,577
    
    
    
    6,954
    
    
    
    4,516DSL subscribers
    
    
    58,225
    
    
    
    52,732
    
    
    
    45,948Total connections
    
    
    296,809
    
    
    
    293,375
    
    
    
    289,368Long distance lines (1)
    
    
    150,863
    
    
    
    149,358
    
    
    
    146,953Dial-up subscribers
    
    
    10,223
    
    
    
    11,942
    
    
    
    13,731Service bundles
    
    
    45,209
    
    
    
    43,175
    
    
    
    40,901
 (1)
    
    Reflects the inclusion of long distance services provided as part of the VOIP offering.
 Expenses
  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
  
    
    selling and marketing expenses;
    
    expenses associated with customer care;
    
    billing and other operating support systems; and
    
    corporate expenses, including professional service fees and non-cash stock compensation.
  18




---



##### Table of Contents



Depreciation and Amortization Expenses
  YearsBuildings
    
    
    15-35Network and outside plant facilities
    
    
    5-30Furniture, fixtures and equipment
    
    
    3-17
 Goodwill and Other Intangible Assets
  19




---



##### Table of Contents



Results of Operations
 Three months ended June 30, 2007 compared to three months ended June 30, 2006
  Three Months Ended June 30,2007
    
    
    2006% of Total
    
    
    
    
    
    
    % of Total$ (millions)
    
    
    Revenues
    
    
    $ (millions)
    
    
    RevenuesRevenuesTelephone OperationsLocal calling services
    
    $
    21.0
    
    
    
    26.0
    %
    
    $
    21.5
    
    
    
    27.1
    %Network access services
    
    
    17.5
    
    
    
    21.6
    
    
    
    17.0
    
    
    
    21.4Subsidies
    
    
    11.1
    
    
    
    13.7
    
    
    
    11.8
    
    
    
    14.9Long distance services
    
    
    3.6
    
    
    
    4.4
    
    
    
    3.8
    
    
    
    4.8Data and internet services
    
    
    9.1
    
    
    
    11.2
    
    
    
    7.4
    
    
    
    9.3Other services
    
    
    8.7
    
    
    
    10.8
    
    
    
    8.2
    
    
    
    10.3Total Telephone Operations
    
    
    71.0
    
    
    
    87.8
    
    
    
    69.7
    
    
    
    87.9Other Operations
    
    
    9.9
    
    
    
    12.2
    
    
    
    9.6
    
    
    
    12.1Total operating revenues
    
    
    80.9
    
    
    
    100.0
    
    
    
    79.3
    
    
    
    100.0ExpensesOperating expensesTelephone Operations
    
    
    37.9
    
    
    
    46.8
    
    
    
    38.8
    
    
    
    48.9Other Operations
    
    
    10.1
    
    
    
    12.5
    
    
    
    9.9
    
    
    
    12.5Depreciation and amortization
    
    
    16.6
    
    
    
    20.5
    
    
    
    16.8
    
    
    
    21.2Total operating expenses
    
    
    64.6
    
    
    
    79.9
    
    
    
    65.5
    
    
    
    82.6Income from operations
    
    
    16.3
    
    
    
    20.1
    
    
    
    13.8
    
    
    
    17.4Interest expense, net
    
    
    (11.5
    )
    
    
    (14.2
    )
    
    
    (10.2
    )
    
    
    (12.9
    )Other income, net
    
    
    1.7
    
    
    
    2.1
    
    
    
    1.5
    
    
    
    1.9Income tax benefit (expense)
    
    
    (1.0
    )
    
    
    (1.2
    )
    
    
    3.1
    
    
    
    3.9Net income
    
    $
    5.5
    
    
    
    6.8
    %
    
    $
    8.2
    
    
    
    10.3
    %
 Segments
 Disclosure about Segments of an
Enterprise and Related Information
 Results of Operations
 Revenues
  Telephone Operations Revenues
 Local calling services
  20




---



##### Table of Contents



Network access services
 Subsidies
 Long distance services
 Data and Internet
 Other Services
 Other Operations Revenue
  Operating Expenses
  Telephone Operations Operating Expense
  Other Operations Operating Expenses
  Depreciation and Amortization
   21




---



##### Table of Contents



Non-Operating Income (Expense)
 Interest Expense, Net
  Other Income (Expense)
  Income Taxes
   22




---



##### Table of Contents



Six months ended June 30, 2007 compared to six months ended June 30, 2006
  Six Months Ended June 30,2007
    
    
    2006% of Total
    
    
    
    
    
    
    % of Total$ (millions)
    
    
    Revenues
    
    
    $ (millions)
    
    
    RevenuesRevenuesTelephone OperationsLocal calling services
    
    $
    42.3
    
    
    
    25.8
    %
    
    $
    42.9
    
    
    
    27.0
    %Network access services
    
    
    35.8
    
    
    
    21.8
    
    
    
    34.0
    
    
    
    21.4Subsidies
    
    
    22.7
    
    
    
    13.8
    
    
    
    24.0
    
    
    
    15.1Long distance services
    
    
    7.2
    
    
    
    4.4
    
    
    
    7.5
    
    
    
    4.7Data and internet services
    
    
    17.7
    
    
    
    10.8
    
    
    
    14.6
    
    
    
    9.2Other services
    
    
    17.8
    
    
    
    10.9
    
    
    
    16.1
    
    
    
    10.1Total Telephone Operations
    
    
    143.5
    
    
    
    87.6
    
    
    
    139.1
    
    
    
    87.6Other Operations
    
    
    20.4
    
    
    
    12.4
    
    
    
    19.7
    
    
    
    12.4Total operating revenues
    
    
    163.9
    
    
    
    100.0
    
    
    
    158.8
    
    
    
    100.0ExpensesOperating expensesTelephone Operations
    
    
    75.3
    
    
    
    45.9
    
    
    
    75.9
    
    
    
    47.8Other Operations
    
    
    20.7
    
    
    
    12.6
    
    
    
    19.9
    
    
    
    12.5Depreciation and amortization
    
    
    33.2
    
    
    
    20.3
    
    
    
    33.9
    
    
    
    21.3Total operating expenses
    
    
    129.2
    
    
    
    78.8
    
    
    
    129.7
    
    
    
    81.7Income from operations
    
    
    34.7
    
    
    
    21.2
    
    
    
    29.1
    
    
    
    18.3Interest expense, net
    
    
    (22.9
    )
    
    
    (14.0
    )
    
    
    (20.2
    )
    
    
    (12.7
    )Other income, net
    
    
    3.0
    
    
    
    1.8
    
    
    
    2.7
    
    
    
    1.7Income tax benefit (expense)
    
    
    (4.7
    )
    
    
    (2.9
    )
    
    
    0.2
    
    
    
    0.1Net income
    
    $
    10.1
    
    
    
    6.2
    %
    
    $
    11.8
    
    
    
    7.4
    %
 Revenues
  Telephone Operations Revenues
 Local calling services
 Network access services
 Subsidies
  23




---



##### Table of Contents



Long distance services
 Data and Internet
 Other Services
 Other Operations Revenue
  Operating Expenses
  Telephone Operations Operating Expense
  Other Operations Operating Expenses
  Depreciation and Amortization
   24




---



##### Table of Contents



Non-Operating Income (Expense)
 Interest Expense, Net
  Other Income (Expense)
  Income Taxes
  Liquidity and Capital Resources
  Six Months EndedJune 30,2007
    
    
    2006(In millions)Net Cash Provided by (Used for):Operating activities
    
    $
    37.1
    
    
    $
    33.4Investing activities
    
    
    (27.3
    )
    
    
    (11.3
    )Financing activities
    
    
    (20.4
    )
    
    
    (23.0
    )
 Operating Activities
    25




---



##### Table of Contents



Investing Activities
  Financing Activities
  Debt
  Indebtedness as of June 30, 2007
 Balance
    
    Maturity Date
    
    Rate (1)(in millions)Revolving credit facility
    
    $
    
    
    
    April 14 ,2010
    
    LIBOR + 2.25%Term loan D
    
    
    464.0
    
    
    October 14, 2011
    
    LIBOR + 1.75%Senior notes
    
    
    130.0
    
    
    April 1, 2012
    
    9.75%
 
 (1)
    
    As of June 30, 2007, the 90-day LIBOR rate was 5.36%.
 Credit Facilities
   Derivative Instruments
   26




---



##### Table of Contents



Senior Notes
  Covenant Compliance
    
    
    our senior secured leverage ratio, as of the end of any fiscal quarter is greater than 4.00 to 1.00; or
    
    our fixed charge coverage ratio as of the end of any fiscal quarter is not at least 1.75 to 1.00.
  Total net leverage ratio
    
    
    4.03:1.00Senior secured leverage ratio
    
    
    3.23:1.00Fixed charge coverage ratio
    
    
    2.63:1.00
   27




---



##### Table of Contents



Surety Bonds
  Table of Contractual Obligations and Commitments
  Payments Due by PeriodTotal
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter(In millions)Long-term debt (a)
    
    $
    594.0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    464.0
    
    
    $
    130.0Operating leases
    
    
    9.6
    
    
    
    1.6
    
    
    
    2.3
    
    
    
    1.9
    
    
    
    1.7
    
    
    
    1.1
    
    
    
    1.0Pension and other post
retirement obligations (b)
    
    
    48.1
    
    
    
    1.6
    
    
    
    5.2
    
    
    
    5.4
    
    
    
    5.7
    
    
    
    6.0
    
    
    
    24.2$
    651.7
    
    
    $
    3.2
    
    
    $
    7.5
    
    
    $
    7.3
    
    
    $
    7.4
    
    
    $
    471.1
    
    
    $
    155.2
 
 (a)
    
    This item consists of loans outstanding under our credit facilities totaling $464.0
million and our senior notes totaling $130.0 million. The credit facilities consist of a
$464.0 million term loan D facility maturing on October 14, 2011 and a $30.0 million
revolving credit facility, which was fully available but undrawn as June 30, 2007.(b)
    
    Pension funding is an estimate of our minimum funding requirements to provide pension
benefits for employees based on service through June 30, 2007. Obligations relating to
other post retirement benefits are based on estimated future benefit payments. Our
estimates are based on forecasts of future benefit payments which may change over time due
to a number of factors, including life expectancy, medical costs and trends and on the
actual rate of return on the plan assets, discount rates, discretionary pension
contributions and regulatory rules.
  Recent Accounting Pronouncements
     28




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
     29




---



##### Table of Contents



Item 4. Controls and Procedures
   30




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 The Company believes
that the following additional Risk Factors have become relevant as a result of
the Company’s agreement to acquire North Pittsburgh Systems, Inc.,
announced July 2, 2007. The integration of
the Company and North Pittsburgh following the merger may present significant
challenges.The Company may face significant challenges in combining North
Pittsburgh’s operations into the Company’s operations in a timely
and efficient manner and in retaining key North Pittsburgh personnel. The
failure to integrate successfully the Company and North Pittsburgh and to
manage successfully the challenges presented by the integration process may
result in the Company not achieving the anticipated benefits of the merger,
including operational and financial synergies. The Company will
have a substantial additional amount of debt outstanding after giving effect to
the merger, and may incur additional indebtedness in the future, which could
restrict the Company’s ability to pay dividends and have other
consequences.The Company has a significant amount of debt
outstanding, and after consummation of the merger will have even greater
leverage. The degree to which the Company is leveraged could have important
consequences, including those identified in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2006. Obtaining required
approvals and satisfying closing conditions may delay or prevent completion of
the merger. Completion of the merger is conditioned upon the receipt of
certain governmental consents and approvals, including approval by the Federal
Communications Commission and the Pennsylvania Public Utility Commission. These
consents and approvals may impose conditions on the Company or North
Pittsburgh. Such conditions may jeopardize or delay completion of the merger or
may reduce the anticipated benefits of the merger. Further, no assurance can be
given that the required consents and approvals will be obtained or that the
required conditions to closing will be satisfied. Even if all such consents and
approvals are obtained, no assurance can be given as to the terms, conditions
and timing of the consents and approvals or that they will satisfy the terms of
the Agreement and Plan of Merger. Whether or not the
merger is completed, the Company will incur transaction, integration and
restructuring costs in connection with the proposed merger.The Company has
incurred and will continue to incur significant costs in connection with the
proposed merger, including fees of the Company’s attorneys, accountants
and financial advisor. If the emerge is not completed, these will need to be
recognized as expenses rather than being recorded as a component of the
purchase price. If the merger is consummated, the Company and North Pittsburgh
expect to incur additional costs associated with transaction fees and other
costs related to the merger. The Company will incur integration and
restructuring costs following the completion of the merger as it integrates the
businesses of North Pittsburgh with those of the Company. Although the Company
expects that the realization of efficiencies related to the integration of the
businesses will offset incremental transaction, integration and restructuring
costs over time, the Company cannot give any assurance that this net benefit
will be achieved in the near term. Whether or not the
merger is completed, the pendency of the transaction could cause disruptions in
the business of the Company, which could have an adverse effect on the
Company’s business and financial results.These disruptions could
include the following: •
  
  current and prospective employees may
experience uncertainty about their future roles with the combined company,
which might adversely affect North Pittsburgh’s and the Company’s
ability to retain or attract key managers and other employees;
 •
  
  current and prospective customers of North
Pittsburgh or the Company may experience variations in levels of services as
the companies prepare for integration and may, as a result, choose to
discontinue their service with either company or choose another provider;
and
 •
  
  the attention of management of each of North
Pittsburgh and the Company may be diverted from the operation of the businesses
toward the completion of the merger.
 
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 6. Exhibits
   31




---



##### Table of Contents



SIGNATURES
  Consolidated Communications Holdings, Inc.
(Registrant)Date:  August 9, 2007
    By:
    /s/ Robert J. CurreyRobert J. CurreyPresident and Chief Executive Officer
(Principal Executive Officer)Date: August 9, 2007
    By:
    /s/ Steven L. ChildersSteven L. ChildersChief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)  32




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    Commitment Letter, dated June 30, 2007, from Wachovia Bank, National Association and Wachovia
Capital Markets, LLC, and agreed and accepted by Consolidated Communications Holdings, Inc.,
Consolidated Communications, Inc. and Consolidated Communications Acquisition Texas, Inc.
(incorporated by reference to Exhibit 10.1 to the Companys Form 8-K dated June 30, 2007).31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
  33