##### 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 September 30, 2008
 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 17 th Street
Mattoon, Illinois 61938-3987
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    37PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    38Item 1A. Risk Factors
    
    
    38Item 6. Exhibits
    
    
    38Signatures
    
    
    39Exhibit Index
    
    
    40Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### 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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    103,824
    
    
    $
    80,320
    
    
    $
    315,682
    
    
    $
    244,244Operating expenses:Cost of services and products

(exclusive of depreciation and
amortization shown separately below)
    
    
    37,778
    
    
    
    27,698
    
    
    
    107,749
    
    
    
    79,115Selling, general and administrative
expenses
    
    
    26,162
    
    
    
    21,800
    
    
    
    81,217
    
    
    
    66,395Depreciation and amortization
    
    
    22,841
    
    
    
    16,350
    
    
    
    68,062
    
    
    
    49,585Income from operations
    
    
    17,043
    
    
    
    14,472
    
    
    
    58,654
    
    
    
    49,149Other income (expense):Interest income
    
    
    41
    
    
    
    253
    
    
    
    329
    
    
    
    694Interest expense
    
    
    (13,637
    )
    
    
    (12,118
    )
    
    
    (47,963
    )
    
    
    (35,420
    )Investment income
    
    
    5,918
    
    
    
    1,987
    
    
    
    15,125
    
    
    
    5,041Minority interest
    
    
    (145
    )
    
    
    (251
    )
    
    
    (550
    )
    
    
    (541
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (9,224
    )
    
    
    Other, net
    
    
    13
    
    
    
    10
    
    
    
    (101
    )
    
    
    286Income before income taxes
    
    
    9,233
    
    
    
    4,353
    
    
    
    16,270
    
    
    
    19,209Income tax expense
    
    
    4,262
    
    
    
    2,012
    
    
    
    7,410
    
    
    
    6,756Net income
    
    $
    4,971
    
    
    $
    2,341
    
    
    $
    8,860
    
    
    $
    12,453Net income per common share Basic and Diluted
    
    $
    0.17
    
    
    $
    0.09
    
    
    $
    0.30
    
    
    $
    0.48Cash dividends declared per common share
    
    $
    0.39
    
    
    $
    0.39
    
    
    $
    1.16
    
    
    $
    1.16
   3




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##### Table of Contents



Consolidated Communications Holdings, Inc.
Condensed Consolidated Balance Sheets  (Amounts in thousands, except share and per share amounts)
 September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,435
    
    
    $
    34,341Accounts receivable, net of allowance of $1,895
and $2,440, respectively
    
    
    46,325
    
    
    
    44,001Inventories
    
    
    7,094
    
    
    
    6,364Deferred income taxes
    
    
    4,632
    
    
    
    4,551Prepaid expenses and other current assets
    
    
    11,797
    
    
    
    10,358Total current assets
    
    
    82,283
    
    
    
    99,615Property, plant and equipment, net
    
    
    396,438
    
    
    
    411,647Intangibles and other assets:Investments
    
    
    94,935
    
    
    
    94,142Goodwill
    
    
    527,913
    
    
    
    526,439Customer lists, net
    
    
    129,788
    
    
    
    146,411Tradenames
    
    
    14,291
    
    
    
    14,291Deferred financing costs and other assets
    
    
    8,432
    
    
    
    12,046Total assets
    
    $
    1,254,080
    
    
    $
    1,304,591LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of capital lease obligations
    
    $
    906
    
    
    $
    1,010Current portion of pension and postretirement
benefit obligations
    
    
    2,895
    
    
    
    8,765Accounts payable
    
    
    10,721
    
    
    
    17,386Advance billings and customer deposits
    
    
    19,728
    
    
    
    18,167Dividends payable
    
    
    11,366
    
    
    
    11,361Accrued expenses
    
    
    23,595
    
    
    
    28,254Total current liabilities
    
    
    69,211
    
    
    
    84,943Capital lease obligations less current portion
    
    
    581
    
    
    
    1,636Long-term debt
    
    
    880,000
    
    
    
    890,000Deferred income taxes
    
    
    98,488
    
    
    
    97,289Pension and postretirement benefit obligations
    
    
    57,397
    
    
    
    56,729Other liabilities
    
    
    14,479
    
    
    
    14,306Total liabilities
    
    
    1,120,156
    
    
    
    1,144,903Minority interest
    
    
    4,872
    
    
    
    4,322Stockholders equityCommon stock, $0.01 par value, 100,000,000 shares

authorized, 29,511,519 and 29,440,587 issued and
outstanding, respectively
    
    
    295
    
    
    
    294Additional paid in capital
    
    
    279,568
    
    
    
    278,175Accumulated deficit
    
    
    (142,852
    )
    
    
    (117,452
    )Accumulated other comprehensive loss
    
    
    (7,959
    )
    
    
    (5,651
    )Total stockholders equity
    
    
    129,052
    
    
    
    155,366Total liabilities and stockholders equity
    
    $
    1,254,080
    
    
    $
    1,304,591
   4




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##### Table of Contents



Consolidated Communications Holdings, Inc.
Consolidated Statements of Cash Flows  (Amounts in thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2008
    
    
    2007OPERATING ACTIVITIESNet income
    
    $
    8,860
    
    
    $
    12,453Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    68,062
    
    
    
    49,585Provision for bad debt losses
    
    
    3,350
    
    
    
    3,194Loss on extinguishment of debt
    
    
    9,224
    
    
    
    Deferred income tax
    
    
    (2,961
    )
    
    
    (4,114
    )Partnership income
    
    
    (7,650
    )
    
    
    (1,667
    )Non-cash stock compensation
    
    
    1,402
    
    
    
    2,942Minority interest in net income of subsidiary
    
    
    550
    
    
    
    541Amortization of deferred financing costs
    
    
    1,119
    
    
    
    2,507Changes in operating assets and liabilities:Accounts receivable
    
    
    (5,674
    )
    
    
    (5,865
    )Inventories
    
    
    (730
    )
    
    
    (359
    )Other assets
    
    
    4,612
    
    
    
    (400
    )Accounts payable
    
    
    (6,665
    )
    
    
    (3,874
    )Accrued expenses and other liabilities
    
    
    (6,853
    )
    
    
    (2,164
    )Net cash provided by operating activities
    
    
    66,646
    
    
    
    52,779INVESTING ACTIVITIESProceeds
from sale of investments
    
    
    
    
    
    
    10,625Securities purchased
    
    
    
    
    
    
    (10,625
    )Capital expenditures
    
    
    (37,131
    )
    
    
    (24,648
    )Net cash used in investing activities
    
    
    (37,131
    )
    
    
    (24,648
    )FINANCING ACTIVITIESProceeds from issuance of stock
    
    
    
    
    
    
    12Proceeds from long-term obligations
    
    
    120,000
    
    
    
    Payments made on long-term obligations
    
    
    (136,337
    )Payment of deferred financing costs
    
    
    (240
    )
    
    
    (320
    )Payment of capital lease obligation
    
    
    (750
    )
    
    
    Purchase and retirement of common stock
    
    
    (8
    )
    
    
    Dividends on common stock
    
    
    (34,086
    )
    
    
    (30,140
    )Net cash used in financing activities
    
    
    (51,421
    )
    
    
    (30,448
    )Net decrease in cash and cash equivalents
    
    
    (21,906
    )
    
    
    (2,317
    )Cash and cash equivalents at beginning of period
    
    
    34,341
    
    
    
    26,672Cash and cash equivalents at end of period
    
    $
    12,435
    
    
    $
    24,355
   5




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##### Table of Contents



Consolidated Communications Holdings, Inc.
Condensed Consolidated Statement of Changes in Stockholders Equity
Nine Months Ended September 30, 2008  (Amounts in thousands, except share amounts)
(Unaudited)
 AccumulatedOtherCommon Stock
    
    
    Additional
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Paid in Capital
    
    
    Deficit
    
    
    Loss
    
    
    TotalBalance, January 1, 2008


    29,440,587
    
    
    $
    294
    
    
    $
    278,175
    
    
    $
    (117,452
    )
    
    $
    (5,651
    )
    
    $
    155,366Effects of accounting change regarding
postretirement plan measurement dates
pursuant to SFAS No. 158:Service cost, interest cost, and expected
return on plan assets for October 1, 2007
through December 31, 2007, net of ($88)
of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (154
    )
    
    
    
    
    
    
    (154
    )Amortization of prior service cost and
net loss for October 1, 2007 through
December 31, 2007, net of ($9) of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (169
    )
    
    
    15
    
    
    
    (154
    )Balance, January 1, 2008 as adjusted
    
    
    29,440,587
    
    
    
    294
    
    
    
    278,175
    
    
    
    (117,621
    )
    
    
    (5,636
    )
    
    
    155,212Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,860
    
    
    
    
    
    
    
    8,860Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,091
    )
    
    
    
    
    
    
    (34,091
    )Shares issued under employee
plan, net of forfeitures
    
    
    71,467
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-cash stock compensation
    
    
    
    
    
    
    1
    
    
    
    1,401
    
    
    
    
    
    
    
    
    
    
    
    1,402Purchase and retirement of common stock
    
    
    (535
    )
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (8
    )Prior service cost and net loss, net of
($169) of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (295
    )
    
    
    (295
    )Change in fair value of cash flow
hedges, net of ($1,164) of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,028
    )
    
    
    (2,028
    )Balance, September 30, 2008
    
    
    29,511,519
    
    
    $
    295
    
    
    $
    279,568
    
    
    $
    (142,852
    )
    
    $
    (7,959
    )
    
    $
    129,052
   6




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##### Table of Contents



CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2008 and 2007  (Dollars in thousands, except share and per share amounts)
 1. Description of Business
  2. Presentation of Interim Financial Statements
  3. Recent Accounting Pronouncements
 Determining Whether Instruments Granted in Share-Based Payment
Transactions are Participating Securities.
 Disclosure about Derivative Instruments and Hedging Activities  an Amendment of FASB
Statement No. 133. Accounting for Derivative Instruments and Hedging Activities
  7




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##### Table of Contents



Noncontrolling Interests in Consolidated Financial Statements  an Amendment of ARB No.
51
 Business Combinations.
 4. Marketable Securities
  5. Acquisition
   Current assets
    
    $
    17,729Property, plant and equipment
    
    
    116,308Customer list
    
    
    49,000Goodwill
    
    
    215,863Investments and other assets
    
    
    53,360Liabilities assumed
    
    
    (105,349
    )Net purchase price
    
    $
    346,911
  8




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Goodwill and Other Intangible Assets,
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2007Total revenues
    
    $
    103,971
    
    
    $
    316,632Income from operations
    
    $
    14,540
    
    
    $
    45,749Net income
    
    $
    1,539
    
    
    $
    6,682Income per share  basic
    
    $
    0.05
    
    
    $
    0.23Income per share  diluted
    
    $
    0.05
    
    
    $
    0.23
 6. Goodwill and Customer Lists
  September 30,
    
    
    December 31,2008
    
    
    2007Telephone Operations
    
    $
    520,729
    
    
    $
    519,255Other Operations
    
    
    7,184
    
    
    
    7,184$
    527,913
    
    
    $
    526,439
  9




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##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007Gross carrying amount
    
    $
    205,648
    
    
    $
    205,648Less: accumulated amortization
    
    
    (75,860
    )
    
    
    (59,237
    )Net carrying amount
    
    $
    129,788
    
    
    $
    146,411
  7. Summarized Financial Information for Significant Investments
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2008Total revenues
    
    $
    27,639
    
    
    $
    79,569Income from operations
    
    $
    5,673
    
    
    $
    16,886Income before income taxes
    
    $
    5,699
    
    
    $
    17,038Net income
    
    $
    5,699
    
    
    $
    17,038
 8. Pension Costs and Other Postretirement Benefits
    10




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Pension Benefits
    
    
    Other Benefits2008
    
    
    2007
    
    
    2008
    
    
    2007Three months ended September 30,Service cost
    
    $
    498
    
    
    $
    672
    
    
    $
    170
    
    
    $
    119Interest cost
    
    
    2,837
    
    
    
    3,204
    
    
    
    552
    
    
    
    294Expected return on plan assets
    
    
    (3,008
    )
    
    
    (3,540
    )
    
    
    
    
    
    
    Other, net
    
    
    4
    
    
    
    (62
    )
    
    
    (184
    )
    
    
    65Net periodic benefit cost
    
    $
    331
    
    
    $
    274
    
    
    $
    538
    
    
    $
    478Nine months ended September 30,Service cost
    
    $
    1,590
    
    
    $
    1,362
    
    
    $
    675
    
    
    $
    558Interest cost
    
    
    8,449
    
    
    
    5,544
    
    
    
    1,815
    
    
    
    1,064Expected return on plan assets
    
    
    (9,518
    )
    
    
    (6,007
    )
    
    
    
    
    
    
    Other, net
    
    
    14
    
    
    
    19
    
    
    
    (478
    )
    
    
    (430
    )Net periodic benefit cost
    
    $
    535
    
    
    $
    918
    
    
    $
    2,012
    
    
    $
    1,192
   Employers Accounting for Defined Benefit Pension and Other Postretirement Plans.
  11




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9. Long-Term Debt
  September 30,
    
    
    December 31,2008
    
    
    2007Senior Secured Credit FacilityRevolving loan
    
    $
    
    
    
    $
    Term loan
    
    
    880,000
    
    
    
    760,000Obligations under capital lease
    
    
    1,487
    
    
    
    2,646Senior notes
    
    
    
    
    
    
    130,000881,487
    
    
    
    892,646Less: current portion
    
    
    (906
    )
    
    
    (1,010
    )$
    880,581
    
    
    $
    891,636
      12




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10. Derivative Instruments
    11. Fair Value Measurements
 Fair Value Measurements.
    13




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Fair Value Measurements at Reporting Date UsingQuoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    September 30, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest Rate Derivatives
    
    $
    13,556
    
    
    $
    
    
    
    $
    
    
    
    $
    13,556
  Fair Value
Measurements
Using SignificantUnobservable
Inputs (Level 3)Interest RateDerivativesBalance at December 31, 2007
    
    $
    12,769Total gains or losses (realized/unrealized)Unrealized gain included in earnings
    
    
    (2,406
    )Unrealized loss included in other
comprehensive loss from basis swap
    
    
    184Unrealized loss included in other
comprehensive income
    
    
    3,009Balance at September 30, 2008
    
    $
    13,556The amount of total gain for
the period included in earnings for
the period as a component of interest expense
    
    $
    2,406
 12. Restricted Share Plan
  Restricted shares outstanding, December 31, 2007
    
    
    129,302Shares granted
    
    
    71,467Shares vested
    
    
    (4,500
    )Shares forfeited or retired
    
    
    Restricted shares outstanding, September 30, 2008
    
    
    196,269
   14




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##### Table of Contents



13. Contingencies
   14. Income Taxes
 Accounting for Uncertainty in Income
Taxes, an Interpretation of Financial Accounting Standards Board Statement No. 109
   15




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15. Net Income per Common Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Basic:Net income
    
    $
    4,971
    
    
    $
    2,341
    
    
    $
    8,860
    
    
    $
    12,453Weighted average number of common
shares outstanding
    
    
    29,315,250
    
    
    
    25,758,289
    
    
    
    29,315,005
    
    
    
    25,757,746Net income per common share
    
    $
    0.17
    
    
    $
    0.09
    
    
    $
    0.30
    
    
    $
    0.48Diluted:Net income
    
    $
    4,971
    
    
    $
    2,341
    
    
    $
    8,860
    
    
    $
    12,453Weighted average number of common
shares outstanding
    
    
    29,529,487
    
    
    
    26,144,943
    
    
    
    29,519,578
    
    
    
    26,102,020Net income per common share
    
    $
    0.17
    
    
    $
    0.09
    
    
    $
    0.30
    
    
    $
    0.48
  Earnings per Share,
  16




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16. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    4,971
    
    
    $
    2,341
    
    
    $
    8,860
    
    
    $
    12,453Other comprehensive income (loss):Prior service cost and net loss, net of tax
    
    
    (115
    )
    
    
    
    
    
    
    (295
    )
    
    
    Change in fair value of cash flow hedges,
net of tax
    
    
    (2,150
    )
    
    
    (5,372
    )
    
    
    (2,028
    )
    
    
    (3,519
    )Total comprehensive income
    
    $
    2,706
    
    
    $
    (3,031
    )
    
    $
    6,537
    
    
    $
    8,934
 17. Business Segments
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating revenuesTelephone Operations
    
    $
    94,323
    
    
    $
    70,052
    
    
    $
    284,934
    
    
    $
    213,570Other Operations
    
    
    9,501
    
    
    
    10,268
    
    
    
    30,748
    
    
    
    30,674Total
    
    $
    103,824
    
    
    $
    80,320
    
    
    $
    315,682
    
    
    $
    244,244Operating income (loss)Telephone Operations
    
    $
    17,204
    
    
    $
    15,267
    
    
    $
    58,804
    
    
    $
    51,505Other Operations
    
    
    (161
    )
    
    
    (795
    )
    
    
    (150
    )
    
    
    (2,356
    )Total
    
    
    17,043
    
    
    
    14,472
    
    
    
    58,654
    
    
    
    49,149Interest income
    
    
    41
    
    
    
    253
    
    
    
    329
    
    
    
    694Interest expense
    
    
    (13,637
    )
    
    
    (12,118
    )
    
    
    (47,963
    )
    
    
    (35,420
    )Investment income
    
    
    5,918
    
    
    
    1,987
    
    
    
    15,125
    
    
    
    5,041Minority interest
    
    
    (145
    )
    
    
    (251
    )
    
    
    (550
    )
    
    
    (541
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (9,224
    )
    
    
    Other, net
    
    
    13
    
    
    
    10
    
    
    
    (101
    )
    
    
    286Income before income taxes
    
    $
    9,233
    
    
    $
    4,353
    
    
    $
    16,270
    
    
    $
    19,209
  17




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##### 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.
 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.
 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 future acquisitions;
    
    the integration of the Company and North Pittsburgh;
    
    the length and severity of weakened economic conditions in our service areas in
Illinois, Texas and Pennsylvania;
    
    adverse changes in the value of assets or obligations
associated with our employee benefit plans;
    
    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;
  18




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##### Table of Contents




    
    changes in the extensive governmental legislation and regulations governing
telecommunications providers, the provision of telecommunications services and access
charges and subsidies, which are a material part of our revenues;
    
    telecommunications carriers disputing and/or avoiding their obligations to pay network
access charges for use of our network;
    
    high costs of regulatory compliance;
    
    the competitive impact of legislation and regulatory changes in the telecommunications
industry;
    
    liability and compliance costs regarding environmental regulations; and
    
    the additional risk factors outlined in Part II  Other Information  Item 1A Risk
Factors herein and in Part I  Item 1A  Risk Factors incorporated by reference from
our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and 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 of North Pittsburgh and New Credit Facility
   
    
    a $50.0 million revolving credit facility that is currently undrawn;
    
    a $760.0 million term loan, the proceeds of which were drawn at closing of the
acquisition; and
    
    a delayed draw term loan (DDTL) in the amount of up to $140.0 million which was
available to us until May 1, 2008, a portion of the proceeds of which were used for the
purpose of redeeming our $130.0 million of outstanding senior notes along with the payment
of any accrued interest and fees, as described below under Redemption of Senior Notes.
  19




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##### Table of Contents



Proceeds from the term loan along with cash on hand were used to:
    
    pay off our previous credit facility of $464.0 million plus accrued interest;
    
    fund the cash portion of the acquisition; and
    
    pay fees and expenses related to the acquisition and new financing.
 Redemption of Senior Notes
  Factors Affecting Results of Operations
 Revenues
 Telephone Operations and Other Operations
 Local Access Lines and Bundled Services.
    20




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##### Table of Contents




    
    aggressively promoting DSL service, including selling DSL as a stand-alone service;
    
    bundling value-adding services, such as DSL or IPTV, with a combination of local
service, custom calling features, voicemail and Internet access;
    
    maintaining excellent customer service standards, particularly as we introduce new
services to existing customers; and
    
    keeping a strong local presence in the communities we serve.
   
    
    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;
    
    VOIP service for residential customers, which is being offered both as a growth
opportunity and as an alternative to the traditional phone line for customers who
are considering a switch to a cable competitor;
    
    DSL service which has been made available to users who do 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
    
    High definition video service and digital video recorders in all of our IPTV
markets.
     21




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##### Table of Contents



September 30,
    
    
    December 31,
    
    
    September 30,2008
    
    
    2007 (1)
    
    
    2007Local access lines in service:Residential
    
    
    167,581
    
    
    
    183,070
    
    
    
    149,735Business
    
    
    102,771
    
    
    
    103,116
    
    
    
    77,451Total local access lines
    
    
    270,352
    
    
    
    286,186
    
    
    
    227,186IPTV subscribers
    
    
    15,454
    
    
    
    12,241
    
    
    
    11,063ILEC DSL subscribers
    
    
    89,129
    
    
    
    81,337
    
    
    
    62,546104,583
    
    
    
    93,578
    
    
    
    73,609VOIP subscribers
    
    
    5,739
    
    
    
    2,465
    
    
    
    CLEC Access Line Equivalents
(2)
    
    
    74,762
    
    
    
    70,063
    
    
    
    Total connections
    
    
    455,436
    
    
    
    452,292
    
    
    
    300,795Long distance lines (3)
    
    
    166,652
    
    
    
    166,599
    
    
    
    151,320Dial-up subscribers
    
    
    5,442
    
    
    
    6,783
    
    
    
    8,858
 (1)
    
    In connection with the acquisition of North Pittsburgh, we acquired 36,411 residential
access lines, 25,988 business access lines, 14,713 DSL subscribers, 87 VOIP subscribers, 70,063
CLEC access line equivalents and 18,223 long distance lines.(2)
    
    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.(3)
    
    Reflects the inclusion of long distance service provided as part of our VOIP offering
while excluding CLEC long distance subscribers.  Network Access and Subsidy Revenues.
    22




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##### Table of Contents



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.
     23




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##### Table of Contents



Depreciation and Amortization Expenses
  YearsBuildings
    
    
    15-35Network and outside plant facilities
    
    
    5-30Furniture, fixtures and equipment
    
    
    3-17Capital leases
    
    
    11
 Goodwill and Other Intangible Assets
  24




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Three Months Ended September 30,2008
    
    
    2007% of Total
    
    
    
    
    
    
    % of Total$ (millions)
    
    
    Revenues
    
    
    $ (millions)
    
    
    RevenuesRevenuesTelephone OperationsLocal calling services
    
    $
    26.0
    
    
    
    25.0
    %
    
    $
    20.5
    
    
    
    25.5
    %Network access services
    
    
    23.4
    
    
    
    22.5
    
    
    
    17.1
    
    
    
    21.3Subsidies
    
    
    13.8
    
    
    
    13.3
    
    
    
    10.1
    
    
    
    12.6Long distance services
    
    
    5.8
    
    
    
    5.6
    
    
    
    3.6
    
    
    
    4.5Data and internet services
    
    
    16.5
    
    
    
    15.9
    
    
    
    9.9
    
    
    
    12.3Other services
    
    
    8.9
    
    
    
    8.6
    
    
    
    8.9
    
    
    
    11.1Total Telephone Operations
    
    
    94.4
    
    
    
    90.9
    
    
    
    70.1
    
    
    
    87.3Other Operations
    
    
    9.4
    
    
    
    9.1
    
    
    
    10.2
    
    
    
    12.7Total operating revenues
    
    
    103.8
    
    
    
    100.0
    
    
    
    80.3
    
    
    
    100.0ExpensesOperating expensesTelephone Operations
    
    
    54.6
    
    
    
    52.5
    
    
    
    39.0
    
    
    
    48.6Other Operations
    
    
    9.3
    
    
    
    9.0
    
    
    
    10.5
    
    
    
    13.1Depreciation and
amortization
    
    
    22.9
    
    
    
    22.1
    
    
    
    16.4
    
    
    
    20.4Total operating expenses
    
    
    86.8
    
    
    
    83.6
    
    
    
    65.9
    
    
    
    82.1Income from operations
    
    
    17.0
    
    
    
    16.4
    
    
    
    14.4
    
    
    
    17.9Interest expense, net
    
    
    (13.6
    )
    
    
    (13.1
    )
    
    
    (11.8
    )
    
    
    (14.6
    )Other income, net
    
    
    5.9
    
    
    
    5.7
    
    
    
    1.8
    
    
    
    2.2Income tax expense
    
    
    (4.3
    )
    
    
    (4.2
    )
    
    
    (2.1
    )
    
    
    (2.6
    )Net income
    
    $
    5.0
    
    
    
    4.8
    %
    
    $
    2.3
    
    
    
    2.9
    %
 Segments
 Disclosure about Segments of an
Enterprise and Related Information
 Results of Operations
 For the Three Months Ended September 30, 2008 Compared to September 30, 2007
 Revenues
  Telephone Operations Revenues
 Local calling services
  25




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Network access services
 Subsidies
 Long distance services
 Data and Internet
 Other
services
 Other Operations Revenue
  Operating Expenses
  Telephone Operations Operating Expense
   26




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Other Operations Operating Expenses
  Depreciation and Amortization
  Non-Operating Income
 Interest Expense, Net
  Other Income (Expense)
  Income Taxes
   27




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For the Nine Months Ended September 30, 2008 Compared to September 30, 2007
  Nine Months Ended September 30,2008
    
    
    2007% of Total
    
    
    
    
    
    
    % of Total$ (millions)
    
    
    Revenues
    
    
    $ (millions)
    
    
    RevenuesRevenuesTelephone OperationsLocal calling services
    
    $
    79.5
    
    
    
    25.2
    %
    
    $
    62.8
    
    
    
    25.7
    %Network access services
    
    
    72.5
    
    
    
    23.0
    
    
    
    52.9
    
    
    
    21.7Subsidies
    
    
    41.0
    
    
    
    13.0
    
    
    
    32.8
    
    
    
    13.5Long distance services
    
    
    18.3
    
    
    
    5.8
    
    
    
    10.8
    
    
    
    4.4Data and internet services
    
    
    46.1
    
    
    
    14.6
    
    
    
    27.6
    
    
    
    11.3Other services
    
    
    27.6
    
    
    
    8.7
    
    
    
    26.7
    
    
    
    10.9Total Telephone Operations
    
    
    285.0
    
    
    
    90.3
    
    
    
    213.6
    
    
    
    87.5Other Operations
    
    
    30.7
    
    
    
    9.7
    
    
    
    30.6
    
    
    
    12.5Total operating revenues
    
    
    315.7
    
    
    
    100.0
    
    
    
    244.2
    
    
    
    100.0ExpensesOperating expensesTelephone Operations
    
    
    159.1
    
    
    
    50.4
    
    
    
    114.3
    
    
    
    46.8Other Operations
    
    
    29.9
    
    
    
    9.5
    
    
    
    31.2
    
    
    
    12.8Depreciation and
amortization
    
    
    68.1
    
    
    
    21.6
    
    
    
    49.6
    
    
    
    20.3Total operating expenses
    
    
    257.1
    
    
    
    81.5
    
    
    
    195.1
    
    
    
    79.9Income from operations
    
    
    58.6
    
    
    
    18.5
    
    
    
    49.1
    
    
    
    20.1Interest expense, net
    
    
    (47.6
    )
    
    
    (15.1
    )
    
    
    (34.7
    )
    
    
    (14.2
    )Other income, net
    
    
    5.3
    
    
    
    1.7
    
    
    
    4.8
    
    
    
    2.0Income tax benefit expense
    
    
    (7.4
    )
    
    
    (2.3
    )
    
    
    (6.8
    )
    
    
    (2.8
    )Net income
    
    $
    8.9
    
    
    
    2.8
    %
    
    $
    12.4
    
    
    
    5.1
    %
 Revenues
  Telephone Operations Revenues
 Local calling services
 Network access services
  28




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##### Table of Contents



Subsidies
 Long distance services
 Data and Internet
 Other services
 Other Operations Revenue
  Operating Expenses
  Telephone Operations Operating Expense
   29




---



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Other Operations Operating Expenses
  Depreciation and Amortization
  Non-Operating Income (Expense)
 Interest Expense, Net
  Other Income
  Income Taxes
   30




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Liquidity and Capital Resources
 General
       31




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##### Table of Contents



Nine Months EndedSeptember 30,2008
    
    
    2007(In millions)Net Cash Provided by (Used for):Operating activities
    
    $
    66.6
    
    
    $
    52.8Investing activities
    
    
    (37.1
    )
    
    
    (24.6
    )Financing activities
    
    
    (51.4
    )
    
    
    (30.4
    )
 Operating Activities
   Investing Activities
   32




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##### Table of Contents



Financing Activities
  Debt
  Debt and Capital Leases as of September 30, 2008
(In Millions)
 Balance
    
    
    Maturity Date
    
    
    Rate (1)Capital lease
    
    $
    1.5
    
    
    July 1, 2011
    
    
    
    7.40
    %Revolving credit
facility
    
    
    
    
    
    December 31, 2013
    
    
    LIBOR + 2.50%Term loan
    
    
    880.0
    
    
    December 31, 2014
    
    
    LIBOR + 2.50%
 
 (1)
    
    As of September 30, 2008, the 1-month LIBOR rate in effect on our borrowings was
3.71%. Credit Facilities
     33




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Derivative Instruments
  Covenant Compliance
     34




---



##### Table of Contents



Dividends
   Surety Bonds
  Recent Accounting Pronouncements
 Determining Whether Instruments Granted in Share-Based Payment
Transactions are Participating Securities.
 Disclosure about Derivative Instruments and Hedging Activities  an Amendment of FASB
Statement No. 133. Accounting
for Derivative Instruments and Hedging Activities
 Noncontrolling Interests in Consolidated Financial Statements  an Amendment of ARB No.
51
 Business Combinations.
  35




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
    36




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Item 4. Controls and Procedures
   37




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
 The current volatility in economic conditions and the financial markets may adversely affect
our industry, business and financial performance.
  Adverse changes in the value of assets or obligations associated with the Companys employee
benefit plans could adversely affect the Companys results.
  Proposed Access and Universal Service Reforms could have an adverse impact on the Companys
revenues.
  
 Item 6. Exhibits
   38




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##### Table of Contents



SIGNATURES
  Consolidated Communications Holdings, Inc.(Registrant)Date: November 7, 2008
    
    By:
    
    /s/ Robert J. Currey

Robert J. CurreyPresident and Chief Executive Officer(Principal Executive Officer)Date: November 7, 2008
    
    By:
    
    /s/ Steven L. Childers

Steven L. ChildersChief Financial Officer(Principal Financial Officer andChief Accounting Officer)
  39




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    
    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.
 
  40