##### 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, 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 Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 121 South 17 th Street
 Mattoon, Illinois 61938-3987
  þ o
 o 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 StatementsCondensed Consolidated Statements of Income (Unaudited)- three month and nine
month periods ended September 30, 2009 and 2008
    
    
    2Condensed Consolidated Balance Sheets -September 30, 2009 (Unaudited) and December 31,
2008
    
    
    3Condensed Consolidated
Statements of Cash Flows (Unaudited)-nine month periods ended
September 30, 2009 and 2008
    
    
    4Condensed Consolidated
Statement of Changes in Stockholders Equity (Unaudited)-nine
month period ended September 30, 2009
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    40PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    41Item 5. Other Information
    
    
    41Item 6. Exhibits
    
    
    42Signatures
    
    
    43Exhibit Index
    
    
    44Exhibit 3.1Exhibit 31.1Exhibit 31.2Exhibit 32.1
  1




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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 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    101,590
    
    
    $
    103,824
    
    
    $
    305,342
    
    
    $
    315,682Operating expenses:Cost of
services and products (exclusive of depreciation and amortization shown
separately below)
    
    
    36,151
    
    
    
    37,778
    
    
    
    108,595
    
    
    
    107,749Selling, general and administrative expenses
    
    
    25,600
    
    
    
    26,162
    
    
    
    79,327
    
    
    
    81,217Depreciation and amortization
    
    
    21,341
    
    
    
    22,841
    
    
    
    63,999
    
    
    
    68,062Income from operations
    
    
    18,498
    
    
    
    17,043
    
    
    
    53,421
    
    
    
    58,654Other income (expense):Interest income
    
    
    10
    
    
    
    41
    
    
    
    47
    
    
    
    329Interest expense
    
    
    (14,785
    )
    
    
    (13,637
    )
    
    
    (43,841
    )
    
    
    (47,963
    )Investment income
    
    
    6,237
    
    
    
    5,918
    
    
    
    18,046
    
    
    
    15,125Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,224
    )Other, net
    
    
    (183
    )
    
    
    13
    
    
    
    1,032
    
    
    
    (101
    )Income before income taxes
    
    
    9,777
    
    
    
    9,378
    
    
    
    28,705
    
    
    
    16,820Income tax expense
    
    
    2,494
    
    
    
    4,262
    
    
    
    10,066
    
    
    
    7,410Net income
    
    
    7,283
    
    
    
    5,116
    
    
    
    18,639
    
    
    
    9,410Less: Net income attributable to noncontrolling
interest
    
    
    226
    
    
    
    145
    
    
    
    769
    
    
    
    550Net income attributable to Consolidated
Communications Holdings, Inc.
    
    $
    7,057
    
    
    $
    4,971
    
    
    $
    17,870
    
    
    $
    8,860Net income per share attributable to Consolidated
Communications Holdings, Inc. common stockholders -Basic
    
    $
    0.24
    
    
    $
    0.17
    
    
    $
    0.60
    
    
    $
    0.30Diluted
    
    $
    0.24
    
    
    $
    0.17
    
    
    $
    0.60
    
    
    $
    0.30Cash dividends declared per common share
    
    $
    0.39
    
    
    $
    0.39
    
    
    $
    1.16
    
    
    $
    1.16
  2




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Consolidated Communications Holdings, Inc.  
 Condensed Consolidated Balance Sheets  (Amounts in thousands, except share and per share amounts)
 September 30,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    31,883
    
    
    $
    15,471Accounts receivable, net of allowance of $1,892
and $1,908, respectively
    
    
    44,990
    
    
    
    45,092Inventories
    
    
    7,118
    
    
    
    7,482Deferred income taxes
    
    
    7,093
    
    
    
    3,600Prepaid expenses and other current assets
    
    
    7,348
    
    
    
    6,931Total current assets
    
    
    98,432
    
    
    
    78,576Property, plant and equipment, net
    
    
    382,642
    
    
    
    400,286Intangibles and other assets:Investments
    
    
    97,809
    
    
    
    95,657Goodwill
    
    
    520,562
    
    
    
    520,562Customer lists, net
    
    
    107,629
    
    
    
    124,249Tradenames
    
    
    14,291
    
    
    
    14,291Deferred financing costs and other assets
    
    
    6,926
    
    
    
    8,005Total assets
    
    $
    1,228,291
    
    
    $
    1,241,626LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of capital lease obligations
    
    $
    581
    
    
    $
    922Current portion of pension and post retirement benefit obligations
    
    
    2,960
    
    
    
    2,960Accounts payable
    
    
    11,467
    
    
    
    12,336Advance billings and customer deposits
    
    
    22,162
    
    
    
    19,102Dividends payable
    
    
    11,484
    
    
    
    11,388Accrued expenses
    
    
    22,435
    
    
    
    24,584Total current liabilities
    
    
    71,089
    
    
    
    71,292Capital lease obligations less current portion
    
    
    
    
    
    
    344Long-term debt
    
    
    880,000
    
    
    
    880,000Deferred income taxes
    
    
    70,180
    
    
    
    58,134Pension and postretirement benefit obligations
    
    
    100,577
    
    
    
    107,741Other liabilities
    
    
    38,228
    
    
    
    48,830Total liabilities
    
    
    1,160,074
    
    
    
    1,166,341Equity:Consolidated Communications Holdings, Inc. stockholders equity:Common stock, $0.01 par value, 100,000,000 shares,
authorized, 29,642,228 and 29,488,408 issued and
outstanding, respectively
    
    
    296
    
    
    
    295Paid in capital
    
    
    114,029
    
    
    
    129,284Retained earnings
    
    
    
    
    
    
    Accumulated other comprehensive loss
    
    
    (52,062
    )
    
    
    (59,479
    )Total Consolidated Communications Holdings, Inc. stockholders equity
    
    
    62,263
    
    
    
    70,100Noncontrolling interest
    
    
    5,954
    
    
    
    5,185Total equity
    
    
    68,217
    
    
    
    75,285Total liabilities and stockholders equity
    
    $
    1,228,291
    
    
    $
    1,241,626
  3




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Consolidated Communications Holdings, Inc.


Condensed Consolidated Statements of Cash Flows  (Amounts in thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2009
    
    
    2008OPERATING ACTIVITIESNet income
    
    $
    18,639
    
    
    $
    9,410Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    63,999
    
    
    
    68,062Loss on extinguishment of debt
    
    
    
    
    
    
    9,224Deferred income tax
    
    
    8,553
    
    
    
    (2,961
    )Partnership income
    
    
    (2,299
    )
    
    
    (1,823
    )Non-cash stock-based compensation
    
    
    1,434
    
    
    
    1,402Amortization of deferred financing costs
    
    
    978
    
    
    
    1,119Changes in operating assets and liabilities:Accounts receivable
    
    
    102
    
    
    
    (2,324
    )Inventories
    
    
    364
    
    
    
    (730
    )Other assets
    
    
    651
    
    
    
    (1,215
    )Accounts payable
    
    
    (869
    )
    
    
    (6,665
    )Accrued expenses and other liabilities
    
    
    (9,342
    )
    
    
    (6,853
    )Net cash provided by operating activities
    
    
    82,210
    
    
    
    66,646INVESTING ACTIVITIESProceeds from sale of assets
    
    
    300
    
    
    
    Capital expenditures
    
    
    (30,952
    )
    
    
    (37,131
    )Net cash used in investing activities
    
    
    (30,652
    )
    
    
    (37,131
    )FINANCING ACTIVITIESProceeds from long-term obligations
    
    
    
    
    
    
    120,000Payments made on long-term obligations
    
    
    
    
    
    
    (136,337
    )Payment of deferred financing costs
    
    
    
    
    
    
    (240
    )Payment of capital lease obligation
    
    
    (685
    )
    
    
    (750
    )Purchase and retirement of common stock
    
    
    (9
    )
    
    
    (8
    )Dividends on common stock
    
    
    (34,452
    )
    
    
    (34,086
    )Net cash used in financing activities
    
    
    (35,146
    )
    
    
    (51,421
    )Net increase (decrease) in cash and cash equivalents
    
    
    16,412
    
    
    
    (21,906
    )Cash and cash equivalents at beginning of period
    
    
    15,471
    
    
    
    34,341Cash and cash equivalents at end of period
    
    $
    31,883
    
    
    $
    12,435
  4




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Consolidated Communications Holdings, Inc.


Condensed Consolidated Statement of Changes in Stockholders Equity
Nine Months Ended September 30, 2009  (Amounts in thousands, except share amounts)
(Unaudited)
 Consolidated Communications Holdings, Inc. Stockholders EquityAccumulatedOtherCommon Stock
    
    
    
    
    
    
    Retained
    
    
    Comprehensive
    
    
    NoncontrollingShares
    
    
    Amount
    
    
    Paid in Capital
    
    
    Earnings
    
    
    Loss
    
    
    Interest
    
    
    TotalBalance, January 1, 2009
    
    
    29,488,408
    
    
    $
    295
    
    
    $
    129,284
    
    
    $
    
    
    
    $
    (59,479
    )
    
    $
    5,185
    
    
    $
    75,285Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,870
    
    
    
    
    
    
    
    769
    
    
    
    18,639Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    (16,582
    )
    
    
    (17,870
    )
    
    
    
    
    
    
    
    
    
    
    (34,452
    )Shares issued under employee
plan, net of forfeitures
    
    
    154,752
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-cash stock compensation
    
    
    
    
    
    
    
    
    
    
    1,434
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,434Purchase and retirement of
common stock
    
    
    (932
    )
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Pension tax adjustment
    
    
    
    
    
    
    
    
    
    
    (97
    )
    
    
    
    
    
    
    97
    
    
    
    
    
    
    
    Change in prior service
cost and net loss,
net of $478 of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    780
    
    
    
    
    
    
    
    780Change in fair value of
cash flow hedges,
net of $3,753 of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,540
    
    
    
    
    
    
    
    6,540Balance, September 30, 2009
    
    
    29,642,228
    
    
    $
    296
    
    
    $
    114,029
    
    
    $
    
    
    
    $
    (52,062
    )
    
    $
    5,954
    
    
    $
    68,217
  5




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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Three and nine months ended September 30, 2009 and 2008
 (1.) Description of Business
  (2.) Presentation of Interim Financial Statements
     (3.) Recent Accounting Pronouncements
 Generally Accepted Accounting Principles,
 6




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7




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(4.) Goodwill and Customer Lists
  September 30,
    
    
    December 31,(In thousands)
    
    2009
    
    
    2008Telephone Operations
    
    $
    519,428
    
    
    $
    519,428Other Operations
    
    
    1,134
    
    
    
    1,134$
    520,562
    
    
    $
    520,562
  September 30,
    
    
    December 31,(In thousands)
    
    2009
    
    
    2008Gross carrying amount
    
    $
    205,648
    
    
    $
    205,648Less: accumulated amortization
    
    
    (98,019
    )
    
    
    (81,399
    )Net carrying amount
    
    $
    107,629
    
    
    $
    124,249
  (5.) Retirement and Other Postretirement Benefit Plans
   8




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Pension Benefits
    
    
    Other Benefits(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Three months ended September
30,Service cost
    
    $
    527
    
    
    $
    498
    
    
    $
    177
    
    
    $
    170Interest cost
    
    
    2,789
    
    
    
    2,837
    
    
    
    450
    
    
    
    552Expected return on plan assets
    
    
    (2,355
    )
    
    
    (3,008
    )
    
    
    
    
    
    
    Amortization prior service cost
    
    
    (10
    )
    
    
    (4
    )
    
    
    (240
    )
    
    
    (158
    )Amortization net (gain) loss
    
    
    676
    
    
    
    8
    
    
    
    (5
    )
    
    
    (26
    )Net periodic benefit cost
    
    $
    1,627
    
    
    $
    331
    
    
    $
    382
    
    
    $
    538Nine months ended September 30,Service cost
    
    $
    1,582
    
    
    $
    1,590
    
    
    $
    610
    
    
    $
    675Interest cost
    
    
    8,367
    
    
    
    8,449
    
    
    
    1,609
    
    
    
    1,815Expected return on plan assets
    
    
    (7,066
    )
    
    
    (9,518
    )
    
    
    
    
    
    
    Amortization prior service cost
    
    
    (32
    )
    
    
    (10
    )
    
    
    (722
    )
    
    
    (478
    )Amortization net (gain) loss
    
    
    2,029
    
    
    
    24
    
    
    
    (16
    )
    
    
    Net periodic benefit cost
    
    $
    4,880
    
    
    $
    535
    
    
    $
    1,481
    
    
    $
    2,012
  9




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(6). Long-Term Debt
  September 30,
    
    
    December 31,(In thousands)
    
    2009
    
    
    2008Senior Secured Credit FacilityRevolving loan
    
    $
    
    
    
    $
    Term loan
    
    
    880,000
    
    
    
    880,000Obligations under capital lease
    
    
    581
    
    
    
    1,266880,581
    
    
    
    881,266Less: current portion
    
    
    (581
    )
    
    
    (922
    )$
    880,000
    
    
    $
    880,344
      10




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(7.) Derivatives
    September 30, 2009
    
    Fair Value
    
    December 31, 2008
    
    Fair Value(In thousands)Other Liabilities
    
    $
    37,559
    
    
    Other Liabilities
    
    $
    47,908
  11




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For the three months endedSeptember 30,
    
    September 30,(In thousands)
    
    2009
    
    2008Loss recognized in OCI on the
effective portion of the derivatives,
net of tax
    
    $
    (144
    )
    
    $
    (2,150
    )Loss reclassified from Accumulated OCI
into Interest Expense (Effective
Portion)
    
    
    (2,884
    )
    
    
    Gain (loss) recognized in Interest
Expense on the ineffective portion of
the derivatives
    
    
    (7
    )
    
    
    2,406
 For the nine months endedSeptember 30,
    
    September 30,(In thousands)
    
    2009
    
    2008Gain (loss) recognized in OCI on the
effective portion of the derivatives,
net of tax
    
    $
    6,540
    
    
    $
    (2,028
    )Loss reclassified from Accumulated OCI
into Interest Expense (Effective
Portion)
    
    
    (8,764
    )
    
    
    Gain recognized in Interest Expense on
the ineffective portion of the
derivatives
    
    
    55
    
    
    
    2,406
   (8.) Fair Value Measurements
  12




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Fair Value Measurements at Reporting Date Using(In thousands)
    
    
    Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest Rate Swaps
    
    $
    37,559
    
    
    
    
    
    
    $
    37,559
  MeasurementsUsing SignificantUnobservableInputs (Level 3)Interest Rate(In thousands)
    
    SwapsBalance at December 31, 2008
    
    $
    47,908Settlements
    
    
    (14,852
    )Total gains or losses (realized/unrealized)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 September 30, 2009
    
    $
    The amount of total gain for
the period included in earnings
as a component of interest expense
    
    $
    62
  As of September 30, 2009
    
    As of December 31, 2008(In thousands)
    
    Carrying Value
    
    Fair Value
    
    Carrying Value
    
    Fair ValueInvestments, equity
basis
    
    $
    49,133
    
    
    
    n/a
    
    
    $
    46,817
    
    
    
    n/aInvestments, at cost
    
    $
    44,400
    
    
    
    n/a
    
    
    $
    44,400
    
    
    
    n/aLong-term debt
    
    $
    880,000
    
    
    $
    880,000
    
    
    $
    880,000
    
    
    $
    880,000
   13




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(9.) Stock-based Compensation
  Non-vested restricted shares outstanding, December 31, 2008
    
    
    105,528Shares granted
    
    
    157,991Shares vested
    
    
    (7,202
    )Shares forfeited or retired
    
    
    (3,239
    )Non-vested restricted shares outstanding, September 30, 2009
    
    
    253,078
  (10.) Income Taxes
    14




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(11.) Net Income per Common Share
  15




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands, expect per share amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Basic Earnings Per Share Using Two-class Method:Net income
    
    $
    7,283
    
    
    $
    5,116
    
    
    $
    18,639
    
    
    $
    9,410Less: Net income attributable to noncontrolling
interest
    
    
    226
    
    
    
    145
    
    
    
    769
    
    
    
    550Net income attributable to common stockholders
before
allocation of earnings to participating securities
    
    
    7,057
    
    
    
    4,971
    
    
    
    17,870
    
    
    
    8,860Less: Earnings allocated to participating securities
    
    
    90
    
    
    
    
    
    
    
    271
    
    
    
    Net income attributable to common stockholders
    
    
    6,967
    
    
    
    4,971
    
    
    
    17,599
    
    
    
    8,860Weighted average number of common
shares outstanding
    
    
    29,389
    
    
    
    29,315
    
    
    
    29,388
    
    
    
    29,315Net income per common share attributable to
common stockholders  basic
    
    $
    0.24
    
    
    $
    0.17
    
    
    
    0.60
    
    
    $
    0.30Diluted Earnings Per Share Using Two-class Method:Net income attributable to common stockholders
before
allocation of earnings to participating securities
    
    $
    7,057
    
    
    $
    4,971
    
    
    $
    17,870
    
    
    $
    8,860Less: Earnings allocated to participating securities
    
    
    90
    
    
    
    
    
    
    
    271
    
    
    
    Net income attributable to common stockholders
before
the reallocation of earnings to participating
securities
    
    
    6,967
    
    
    
    4,971
    
    
    
    17,599
    
    
    
    8,860Reallocation of earnings of participating securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income attributable to common stockholders
    
    
    6,967
    
    
    
    4,971
    
    
    
    17,599
    
    
    
    8,860Weighted average number of common
shares outstanding  basic
    
    
    29,389
    
    
    
    29,315
    
    
    
    29,388
    
    
    
    29,315Dilutive impact of share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average number of common
shares outstanding  diluted
    
    
    29,389
    
    
    
    29,315
    
    
    
    29,388
    
    
    
    29,315Net income per common share attributable to
common stockholders  diluted
    
    $
    0.24
    
    
    $
    0.17
    
    
    $
    0.60
    
    
    $
    0.30
  16




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##### Table of Contents



(12.) Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    7,283
    
    
    $
    5,116
    
    
    $
    18,639
    
    
    $
    9,410Other comprehensive income (loss):Prior service cost and net loss, net of tax
    
    
    259
    
    
    
    (115
    )
    
    
    780
    
    
    
    (295
    )Change in fair value of cash flow hedges,
net of tax
    
    
    (143
    )
    
    
    (2,150
    )
    
    
    6,540
    
    
    
    (2,028
    )Total other comprehensive income (loss), net
of tax
    
    
    116
    
    
    
    (2,265
    )
    
    
    7,320
    
    
    
    (2,323
    )Comprehensive income
    
    
    7,399
    
    
    
    2,851
    
    
    
    25,959
    
    
    
    7,087Less: Comprehensive income attributable to
noncontrolling interest
    
    
    226
    
    
    
    145
    
    
    
    769
    
    
    
    550Comprehensive income attributable to
Consolidated Communications Holdings, Inc.
    
    $
    7,173
    
    
    $
    2,706
    
    
    $
    25,190
    
    
    $
    6,537
 (13.) Discontinuance of Accounting for the Effects
of Certain Types of Regulation
   (14.) Business Segments
  17




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Operating revenuesTelephone Operations
    
    $
    91,279
    
    
    $
    94,323
    
    
    $
    274,117
    
    
    $
    284,934Other Operations
    
    
    10,311
    
    
    
    9,501
    
    
    
    31,225
    
    
    
    30,748Total
    
    $
    101,590
    
    
    $
    103,824
    
    
    $
    305,342
    
    
    $
    315,682Operating incomeTelephone Operations
    
    $
    18,108
    
    
    $
    17,204
    
    
    $
    52,508
    
    
    $
    58,804Other Operations
    
    
    390
    
    
    
    (161
    )
    
    
    913
    
    
    
    (150
    )Total
    
    
    18,498
    
    
    
    17,043
    
    
    
    53,421
    
    
    
    58,654Interest income
    
    
    10
    
    
    
    41
    
    
    
    47
    
    
    
    329Interest expense
    
    
    (14,785
    )
    
    
    (13,637
    )
    
    
    (43,841
    )
    
    
    (47,963
    )Investment income
    
    
    6,237
    
    
    
    5,918
    
    
    
    18,046
    
    
    
    15,125Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,224
    )Other, net
    
    
    (183
    )
    
    
    13
    
    
    
    1,032
    
    
    
    (101
    )Income before income taxes
    
    $
    9,777
    
    
    $
    9,378
    
    
    $
    28,705
    
    
    $
    16,820
 (15.) Litigation and Contingencies
     18




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##### Table of Contents



(16.) Subsequent Events
  19




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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;
 
    
    the current volatility in economic conditions and the financial markets;
 
    
    adverse changes in the value of assets or obligations associated with our employee
benefit plans;
 
    
    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 length and severity of weakened economic conditions in our service areas in
Illinois, Texas and Pennsylvania;
 
    
    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;
 20




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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 I  Item 1A  Risk Factors in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, 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
   21




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##### Table of Contents



Redemption of senior notes
  Discontinuance of Accounting for the Effects of Certain Types of Regulation
   Factors affecting results of operations
 Revenues
 Telephone Operations and Other Operations.
 Local access lines and bundled services.
 22




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##### Table of Contents



 ̈
    
    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.
    ̈

    
    hosted digital telephone service in certain Texas and Pennsylvania 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;
  ̈

    
    Digital telephone 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 digital telephone 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;
  ̈
    a 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.
  23




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##### Table of Contents



September 30,
    
    
    December 31,
    
    
    September 30,2009
    
    
    2008
    
    
    2008Local access lines in service:Residential
    
    
    148,857
    
    
    
    162,067
    
    
    
    167,581Business
    
    
    101,513
    
    
    
    102,256
    
    
    
    102,771Total local access lines
    
    
    250,370
    
    
    
    264,323
    
    
    
    270,352Digital telephone subscribers
    
    
    8,562
    
    
    
    6,510
    
    
    
    5,739IPTV subscribers
    
    
    21,518
    
    
    
    16,666
    
    
    
    15,454ILEC DSL subscribers
    
    
    97,750
    
    
    
    91,817
    
    
    
    89,129CLEC access line equivalents (1)
    
    
    71,723
    
    
    
    74,687
    
    
    
    74,762Total connections
    
    
    449,923
    
    
    
    454,003
    
    
    
    455,436Long distance lines (2)
    
    
    166,859
    
    
    
    165,953
    
    
    
    166,652Dial-up subscribers
    
    
    3,017
    
    
    
    3,957
    
    
    
    5,442
 
 (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. Network Access and Subsidy Revenues.
  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;
 24




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##### Table of Contents




    
    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
  25




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##### Table of Contents



Results of Operations
 Segments
  For the Three Months Ended September 30, 2009 compared to September 30, 2008
  Three Months Ended September 30,2009
    
    
    2008% of Total
    
    
    
    
    
    
    % of Total$ (millions)
    
    
    Revenues
    
    
    $ (millions)
    
    
    RevenuesRevenuesTelephone OperationsLocal calling services
    
    $
    24.3
    
    
    
    23.9
    %
    
    $
    26.0
    
    
    
    25.0
    %Network access services
    
    
    20.9
    
    
    
    20.6
    
    
    
    23.4
    
    
    
    22.5Subsidies
    
    
    14.5
    
    
    
    14.3
    
    
    
    13.8
    
    
    
    13.3Long distance services
    
    
    4.9
    
    
    
    4.8
    
    
    
    5.8
    
    
    
    5.6Data and internet services
    
    
    17.4
    
    
    
    17.1
    
    
    
    16.5
    
    
    
    15.9Other services
    
    
    9.3
    
    
    
    9.2
    
    
    
    8.9
    
    
    
    8.6Total Telephone Operations
    
    
    91.3
    
    
    
    89.9
    
    
    
    94.4
    
    
    
    90.9Other Operations
    
    
    10.3
    
    
    
    10.1
    
    
    
    9.4
    
    
    
    9.1Total operating revenues
    
    
    101.6
    
    
    
    100.0
    
    
    
    103.8
    
    
    
    100.0ExpensesOperating expensesTelephone Operations
    
    
    52.2
    
    
    
    51.4
    
    
    
    54.6
    
    
    
    52.5Other Operations
    
    
    9.6
    
    
    
    9.4
    
    
    
    9.3
    
    
    
    9.0Depreciation and amortization
    
    
    21.3
    
    
    
    21.0
    
    
    
    22.9
    
    
    
    22.1Total operating expenses
    
    
    83.1
    
    
    
    81.8
    
    
    
    86.8
    
    
    
    83.6Income from operations
    
    
    18.5
    
    
    
    18.2
    
    
    
    17.0
    
    
    
    16.4Interest expense, net
    
    
    (14.8
    )
    
    
    (14.6
    )
    
    
    (13.6
    )
    
    
    (13.1
    )Other income, net
    
    
    6.1
    
    
    
    6.1
    
    
    
    6.0
    
    
    
    5.8Income tax expense
    
    
    (2.5
    )
    
    
    (2.5
    )
    
    
    (4.3
    )
    
    
    (4.2
    )Net income
    
    
    7.3
    
    
    
    7.2
    
    
    
    5.1
    
    
    
    4.9Less: Net income attributable to
noncontrolling interest
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1Net income attributable to
Consolidated
Communications Holdings, Inc.
    
    $
    7.1
    
    
    
    7.0
    %
    
    $
    5.0
    
    
    
    4.8
    %
 Revenues
  26




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##### Table of Contents



Telephone Operations Revenues
 Local calling services
 Network access services
 Subsidies
 Long distance services
 Data and Internet
 Other Services
 Other Operations Revenue
  Operating Expenses
  Telephone Operations Operating Expense
  27




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##### Table of Contents



Other Operations Operating Expenses
  Depreciation and Amortization
  Non-Operating Income
 Interest Expense, Net
  Other Income, net
  Income Taxes
  28




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##### Table of Contents



Noncontrolling interest
  For the Nine Months Ended September 30, 2009 Compared to September 30, 2008
  Nine Months Ended September 30,2009
    
    
    2008% of Total
    
    
    
    
    
    
    % of Total$ (millions)
    
    
    Revenues
    
    
    $ (millions)
    
    
    RevenuesRevenuesTelephone OperationsLocal calling services
    
    $
    73.3
    
    
    
    24.0
    %
    
    $
    79.5
    
    
    
    25.2
    %Network access services
    
    
    65.0
    
    
    
    21.3
    
    
    
    72.5
    
    
    
    23.0Subsidies
    
    
    42.0
    
    
    
    13.8
    
    
    
    41.0
    
    
    
    13.0Long distance services
    
    
    15.8
    
    
    
    5.2
    
    
    
    18.3
    
    
    
    5.8Data and internet services
    
    
    50.5
    
    
    
    16.5
    
    
    
    46.1
    
    
    
    14.6Other services
    
    
    27.5
    
    
    
    9.0
    
    
    
    27.6
    
    
    
    8.7Total Telephone Operations
    
    
    274.1
    
    
    
    89.8
    
    
    
    285.0
    
    
    
    90.3Other Operations
    
    
    31.2
    
    
    
    10.2
    
    
    
    30.7
    
    
    
    9.7Total operating revenues
    
    
    305.3
    
    
    
    100.0
    
    
    
    315.7
    
    
    
    100.0ExpensesOperating expensesTelephone Operations
    
    
    158.5
    
    
    
    51.9
    
    
    
    159.1
    
    
    
    50.4Other Operations
    
    
    29.4
    
    
    
    9.6
    
    
    
    29.9
    
    
    
    9.5Depreciation and amortization
    
    
    64.0
    
    
    
    21.0
    
    
    
    68.1
    
    
    
    21.6Total operating expenses
    
    
    251.9
    
    
    
    82.5
    
    
    
    257.1
    
    
    
    81.5Income from operations
    
    
    53.4
    
    
    
    17.5
    
    
    
    58.6
    
    
    
    18.5Interest expense, net
    
    
    (43.7
    )
    
    
    (14.3
    )
    
    
    (47.6
    )
    
    
    (15.0
    )Other income, net
    
    
    19.1
    
    
    
    6.3
    
    
    
    5.8
    
    
    
    1.8Income tax expense
    
    
    (10.1
    )
    
    
    (3.4
    )
    
    
    (7.4
    )
    
    
    (2.3
    )Net income
    
    
    18.7
    
    
    
    6.1
    
    
    
    9.4
    
    
    
    3.0Less: Net income attributable to
noncontrolling interest
    
    
    0.8
    
    
    
    0.2
    
    
    
    0.5
    
    
    
    0.2Net income attributable to Consolidated Communications Holdings, Inc.
    
    $
    17.9
    
    
    
    5.9
    %
    
    $
    8.9
    
    
    
    2.8
    %
 29




---



##### Table of Contents



Revenues
  Telephone Operations Revenues
 Local calling services
 Network access services
 Subsidies
 Long distance services
 Data and Internet
 Other Services
 Other Operations Revenue
  Operating Expenses
  30




---



##### Table of Contents



Telephone Operations Operating Expense
  Other Operations Operating Expenses
  Depreciation and Amortization
  Non-Operating Income (Expense)
 Interest Expense, Net
  Other Income, net
  31




---



##### Table of Contents



Income Taxes
  Critical Accounting Policies and Use of Estimates
  Goodwill and other intangible assets
     32




---



##### Table of Contents



Telephone operations
    
    
    $519.5
    millionPrison Systems
    
    
    $    0.2
    millionBusiness Systems
    
    
    $    0.8
    million
     33




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##### Table of Contents



Liquidity and Capital Resources
 Outlook and Overview
  September 30,
    
    December 31,(In thousands)
    
    2009
    
    2008Cash and cash equivalents
    
    $
    31,883
    
    
    $
    15,471Working capital
    
    
    27,343
    
    
    
    7,284Total debt
    
    
    880,581
    
    
    
    881,266Current ratio
    
    
    1.38
    
    
    
    1.10
     34




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##### Table of Contents



Sources of Liquidity
  Cash and cash equivalents
 Cash provided by operations
 Working capital
 Cash available under our secured revolving credit facility
 Uses of Liquidity
  Dividend payments
 Interest and other payments related to outstanding debt
 35




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##### Table of Contents



Pension and postretirement obligations
 Capital expenditures
 Debt
  Debt and Capital Leases as of September 30, 2009
(In Millions)
 Balance
    
    Maturity Date
    
    Rate (1)Capital lease
    
    $
    0.6
    
    
    April 12, 2010
    

    7.40%Revolving credit facility
    
    
    -
    
    
    December 31, 2013
    
    LIBOR + 2.75%Term loan
    
    
    880.0
    
    
    December 31, 2014
    
    LIBOR + 2.50%
 
 (1)
    
    As of September 30, 2009, the 1-month LIBOR rate in effect on our borrowings was 0.25%.       36




---



##### Table of Contents



Covenant Compliance
   Form 8-K.
   37




---



##### Table of Contents



Surety Bonds
  Recent Accounting Pronouncements
 Generally Accepted Accounting Principles,
      38




---



##### Table of Contents



39




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
 Item 4. Controls and Procedures
  40




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
     
 Item 5. Other Information.
     41




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##### Table of Contents



Item 6. Exhibits
  42




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##### Table of Contents



SIGNATURES
  Consolidated Communications Holdings, Inc.
(Registrant)Date: November 6, 2009
    By:
    /s/ Robert J. CurreyRobert J. CurreyPresident and Chief Executive Officer
(Principal Executive Officer) Date: November 6, 2009
    By:
    /s/ Steven L. ChildersSteven L. ChildersChief Financial Officer
(Principal Financial Officer and Chief Accounting Officer) 43




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    Amended and Restated By-Laws of Consolidated Communications Holdings, Inc., as amended as of
November 2, 2009.31.1
    
    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.
 44