##### 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, 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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No 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
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    38Item 4. Controls and Procedures
    
    
    39PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    40Item 4. Submission of Matters to a Vote of Security Holders
    
    
    40Item 6. Exhibits
    
    
    40Signatures
    
    
    41Exhibit Index
    
    
    42Exhibit 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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    102,042
    
    
    $
    106,444
    
    
    $
    203,752
    
    
    $
    211,858Operating expenses:Cost of services and products
(exclusive of depreciation and amorization shown
separately below)
    
    
    36,344
    
    
    
    36,108
    
    
    
    72,444
    
    
    
    69,971Selling, general and administrative expenses
    
    
    25,850
    
    
    
    26,911
    
    
    
    53,727
    
    
    
    55,055Depreciation and amortization
    
    
    20,981
    
    
    
    22,350
    
    
    
    42,658
    
    
    
    45,221Income from operations
    
    
    18,867
    
    
    
    21,075
    
    
    
    34,923
    
    
    
    41,611Other income (expense):Interest income
    
    
    15
    
    
    
    64
    
    
    
    37
    
    
    
    288Interest expense
    
    
    (14,564
    )
    
    
    (16,048
    )
    
    
    (29,056
    )
    
    
    (34,326
    )Investment income
    
    
    6,761
    
    
    
    4,845
    
    
    
    11,809
    
    
    
    9,207Loss on extinguishment of debt
    
    
    
    
    
    
    (9,224
    )
    
    
    
    
    
    
    (9,224
    )Other, net
    
    
    1,766
    
    
    
    (129
    )
    
    
    1,215
    
    
    
    (114
    )Income before income taxes
    
    
    12,845
    
    
    
    583
    
    
    
    18,928
    
    
    
    7,442Income tax expense
    
    
    5,186
    
    
    
    270
    
    
    
    7,572
    
    
    
    3,148Net income
    
    
    7,659
    
    
    
    313
    
    
    
    11,356
    
    
    
    4,294Less: Net income attributable to noncontrolling interest
    
    
    136
    
    
    
    133
    
    
    
    543
    
    
    
    405Net income attributable to ConsolidatedCommunications Holdings, Inc.
    
    $
    7,523
    
    
    $
    180
    
    
    $
    10,813
    
    
    $
    3,889Net income per share attributable to ConsolidatedCommunications
Holdings, Inc. common stockholders Basic
    
    $
    0.26
    
    
    $
    0.01
    
    
    $
    0.37
    
    
    $
    0.13Diluted
    
    $
    0.25
    
    
    $
    0.01
    
    
    $
    0.37
    
    
    $
    0.13Cash dividends declared per common share
    
    $
    0.38
    
    
    $
    0.38
    
    
    $
    0.77
    
    
    $
    0.77
   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)
 June 30,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,025
    
    
    $
    15,471Accounts receivable, net of allowance of $1,478
and $1,908 respectively
    
    
    46,229
    
    
    
    45,092Inventories
    
    
    7,068
    
    
    
    7,482Deferred income taxes
    
    
    3,600
    
    
    
    3,600Prepaid expenses and other current assets
    
    
    6,047
    
    
    
    6,931Total current assets
    
    
    82,969
    
    
    
    78,576Property, plant and equipment, net
    
    
    388,058
    
    
    
    400,286Intangibles and other assets:Investments
    
    
    97,575
    
    
    
    95,657Goodwill
    
    
    520,562
    
    
    
    520,562Customer lists, net
    
    
    113,168
    
    
    
    124,249Tradenames
    
    
    14,291
    
    
    
    14,291Deferred financing costs and other assets
    
    
    7,239
    
    
    
    8,005Total assets
    
    $
    1,223,862
    
    
    $
    1,241,626LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of capital lease obligations
    
    $
    813
    
    
    $
    922Current portion of pension and post retirement benefit obligations
    
    
    2,960
    
    
    
    2,960Accounts payable
    
    
    10,790
    
    
    
    12,336Advance billings and customer deposits
    
    
    22,069
    
    
    
    19,102Dividends payable
    
    
    11,394
    
    
    
    11,388Accrued expenses
    
    
    25,576
    
    
    
    24,584Total current liabilities
    
    
    73,602
    
    
    
    71,292Capital lease obligations less current portion
    
    
    
    
    
    
    344Long-term debt
    
    
    880,000
    
    
    
    880,000Deferred income taxes
    
    
    59,526
    
    
    
    58,134Pension and postretirement benefit obligations
    
    
    100,655
    
    
    
    107,741Other liabilities
    
    
    38,224
    
    
    
    48,830Total liabilities
    
    
    1,152,007
    
    
    
    1,166,341Equity:Consolidated Communications Holdings, Inc. stockholders equity:Common stock, $0.01 par value, 100,000,000 shares,
authorized, 29,645,467 and 29,488,408 issued and
outstanding, respectively
    
    
    296
    
    
    
    295Paid in capital
    
    
    118,009
    
    
    
    129,284Retained
earnings
    
    
    
    
    
    
    Accumulated other comprehensive loss
    
    
    (52,178
    )
    
    
    (59,479
    )Total Consolidated Communications Holdings, Inc. stockholders equity
    
    
    66,127
    
    
    
    70,100Noncontrolling interest
    
    
    5,728
    
    
    
    5,185Total equity
    
    
    71,855
    
    
    
    75,285Total liabilities and stockholders equity
    
    $
    1,223,862
    
    
    $
    1,241,626
   4




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##### Table of Contents



Consolidated Communications Holdings, Inc.
Consolidated Statements of Cash Flows  (Amounts in thousands) (Unaudited)
 Six Months Ended June 30,2009
    
    
    2008OPERATING ACTIVITIESNet income
    
    $
    11,356
    
    
    $
    4,294Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    42,658
    
    
    
    45,221Loss on extinguishment of debt
    
    
    
    
    
    
    9,224Deferred income tax
    
    
    1,392
    
    
    
    (3,148
    )Partnership income
    
    
    (1,972
    )
    
    
    (821
    )Non-cash stock compensation
    
    
    932
    
    
    
    860Amortization of deferred financing costs
    
    
    655
    
    
    
    806Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,137
    )
    
    
    (776
    )Inventories
    
    
    414
    
    
    
    (871
    )Other assets
    
    
    1,678
    
    
    
    (3,078
    )Accounts payable
    
    
    (1,546
    )
    
    
    (4,588
    )Accrued expenses and other liabilities
    
    
    (6,432
    )
    
    
    (4,943
    )Net cash provided by operating activities
    
    
    47,998
    
    
    
    42,180INVESTING ACTIVITIESProceeds from sale of assets
    
    
    300
    
    
    
    Capital expenditures
    
    
    (20,375
    )
    
    
    (26,286
    )Net cash used in investing activities
    
    
    (20,075
    )
    
    
    (26,286
    )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
    
    
    (453
    )
    
    
    (496
    )Purchase and retirement of common stock
    
    
    (9
    )
    
    
    (8
    )Dividends on participating securities
    
    
    (126
    )
    
    
    Dividends on common stock
    
    
    (22,781
    )
    
    
    (22,721
    )Net cash used in financing activities
    
    
    (23,369
    )
    
    
    (39,802
    )Net increase (decrease) in cash and cash equivalents
    
    
    4,554
    
    
    
    (23,908
    )Cash and cash equivalents at beginning of period
    
    
    15,471
    
    
    
    34,341Cash and cash equivalents at end of period
    
    $
    20,025
    
    
    $
    10,433
   5




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Consolidated Communications Holdings, Inc.
Condensed Consolidated Statement of Changes in Stockholders Equity
Six Months Ended June 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,813
    
    
    
    
    
    
    
    543
    
    
    
    11,356Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    (12,100
    )
    
    
    (10,813
    )
    
    
    
    
    
    
    
    
    
    
    (22,913
    )Shares issued under employee
plan, net of forfeitures
    
    
    157,991
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-cash stock compensation
    
    
    
    
    
    
    
    
    
    
    932
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    932Purchase and retirement of common stock
    
    
    (932
    )
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Pension tax adjustment
    
    
    
    
    
    
    
    
    
    
    (97
    )
    
    
    
    
    
    
    97
    
    
    
    
    
    
    
    Change in prior service cost and net loss,
net of $319 of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    521
    
    
    
    
    
    
    
    521Change in fair value of cash flow hedges,
net of $3,835 of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,683
    
    
    
    
    
    
    
    6,683Balance, June 30, 2009
    
    
    29,645,467
    
    
    $
    296
    
    
    $
    118,009
    
    
    $
    
    
    
    $
    (52,178
    )
    
    $
    5,728
    
    
    $
    71,855
   6




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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 2009 and 2008  (Dollars in thousands, except share and per share amounts)
 1. Description of Business
  2. Presentation of Interim Financial Statements
   3. Recent Accounting Pronouncements
    7




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8




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4. Goodwill and Customer Lists
  June 30,
    
    
    December 31,2009
    
    
    2008Telephone Operations
    
    $
    519,428
    
    
    $
    519,428Other Operations
    
    
    1,134
    
    
    
    1,134$
    520,562
    
    
    $
    520,562
  June 30,
    
    
    December 31,2009
    
    
    2008Gross carrying amount
    
    $
    205,648
    
    
    $
    205,648Less: accumulated amortization
    
    
    (92,480
    )
    
    
    (81,399
    )Net carrying amount
    
    $
    113,168
    
    
    $
    124,249
  5. Pension Costs and Other Postretirement Benefits
     9




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Pension Benefits
    
    
    Other Benefits2009
    
    
    2008
    
    
    2009
    
    
    2008Three months ended June 30,Service cost
    
    $
    527
    
    
    $
    545
    
    
    $
    216
    
    
    $
    252Interest cost
    
    
    2,789
    
    
    
    2,806
    
    
    
    580
    
    
    
    632Expected return on plan assets
    
    
    (2,356
    )
    
    
    (3,255
    )
    
    
    
    
    
    
    Amortization prior service cost
    
    
    (11
    )
    
    
    (3
    )
    
    
    (241
    )
    
    
    (160
    )Amortization net (gain) loss
    
    
    677
    
    
    
    8
    
    
    
    (6
    )
    
    
    13Net periodic benefit cost
    
    $
    1,626
    
    
    $
    101
    
    
    $
    549
    
    
    $
    737Six months ended June 30,Service cost
    
    $
    1,055
    
    
    $
    1,091
    
    
    $
    433
    
    
    $
    505Interest cost
    
    
    5,578
    
    
    
    5,611
    
    
    
    1,159
    
    
    
    1,263Expected return on plan assets
    
    
    (4,711
    )
    
    
    (6,510
    )
    
    
    
    
    
    
    Amortization prior service cost
    
    
    (22
    )
    
    
    (6
    )
    
    
    (482
    )
    
    
    (319
    )Amortization net (gain) loss
    
    
    1,353
    
    
    
    16
    
    
    
    (11
    )
    
    
    26Net periodic benefit cost
    
    $
    3,253
    
    
    $
    202
    
    
    $
    1,099
    
    
    $
    1,475
   6. Long-Term Debt
  June 30,
    
    
    December 31,2009
    
    
    2008Senior Secured Credit FacilityRevolving loan
    
    $
    
    
    
    $
    Term loan
    
    
    880,000
    
    
    
    880,000Obligations under capital lease
    
    
    813
    
    
    
    1,266880,813
    
    
    
    881,266Less: current portion
    
    
    (813
    )
    
    
    (922
    )$
    880,000
    
    
    $
    880,344
  10




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7. Financial Instruments and Derivatives
     11




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Classification as of
    
    
    
    
    
    Classification as ofJune 30, 2009
    
    Fair Value
    
    
    December 31, 2008
    
    Fair ValueOther Liabilities
    
    $
    37,326
    
    
    Other Liabilities
    
    $
    47,908
  For the three months endedJune 30, 2009
    
    
    June 30, 2008Gain recognized in OCI on the effective portion of the
derivatives, net of tax
    
    $
    5,539
    
    
    $
    13,342Loss reclassified from Accumulated OCI into Interest
Expense (Effective Portion)
    
    
    3,025
    
    
    
    Gain recognized in Interest Expense on the ineffective
portion of the derivatives
    
    
    39
    
    
    
    
 For the six months endedJune 30, 2009
    
    
    June 30, 2008Gain recognized in OCI on the effective portion of the
derivatives, net of tax
    
    $
    6,683
    
    
    $
    122Loss reclassified from Accumulated OCI into Interest
Expense (Effective Portion)
    
    
    5,880
    
    
    
    Gain recognized in Interest Expense on the ineffective
portion of the derivatives
    
    
    62
    
    
    
    
   12




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8. Fair Value Measurements
   Fair Value Measurements at Reporting Date UsingQuoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableJune 30,
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest Rate Derivatives
    
    $
    37,326
    
    
    
    
    
    
    $
    37,326
   13




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##### Table of Contents



MeasurementsUsing SignificantUnobservableInputs (Level 3)Interest RateDerivativesBalance 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 June 30, 2009
    
    $
    The amount of total gain for
the period included in earnings
as a component of interest expense
    
    $
    62
 9. Restricted Share Plan
  Restricted shares outstanding, December 31, 2008
    
    
    105,528Shares granted
    
    
    157,991Shares vested
    
    
    (7,202
    )Shares forfeited or retired
    
    
    Restricted shares outstanding, June 30, 2009
    
    
    256,317
  10. Subsequent Events
   14




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11. Income Taxes
     15




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12. Net Income per Common Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Basic:Net income attributable to Consolidated
Communications Holdings, Inc.
    
    $
    7,523
    
    
    $
    180
    
    
    $
    10,813
    
    
    $
    3,889Weighted average number of common
shares outstanding
    
    
    29,389,150
    
    
    
    29,315,250
    
    
    
    29,387,776
    
    
    
    29,314,881Net income per common share
    
    $
    0.26
    
    
    $
    0.01
    
    
    $
    0.37
    
    
    $
    0.13Diluted:Net income attributable to Consolidated
Communications Holdings, Inc.
    
    $
    7,523
    
    
    $
    180
    
    
    $
    10,813
    
    
    $
    3,889Weighted average number of common
shares outstanding
    
    
    29,674,395
    
    
    
    29,529,290
    
    
    
    29,620,154
    
    
    
    29,514,570Net income per common share
    
    $
    0.25
    
    
    $
    0.01
    
    
    $
    0.37
    
    
    $
    0.13
    16




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13. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    7,659
    
    
    $
    313
    
    
    $
    11,356
    
    
    $
    4,294Other comprehensive income (loss):Prior service cost and net loss, net of tax
    
    
    261
    
    
    
    (90
    )
    
    
    521
    
    
    
    (180
    )Change in fair value of cash flow hedges,
net of tax
    
    
    5,539
    
    
    
    13,342
    
    
    
    6,683
    
    
    
    122Total other comprehensive income (loss), net of tax
    
    
    5,800
    
    
    
    13,252
    
    
    
    7,204
    
    
    
    (58
    )Comprehensive income
    
    
    13,459
    
    
    
    13,565
    
    
    
    18,560
    
    
    
    4,236Less: Comprehensive income attributable to
noncontrolling interest
    
    
    136
    
    
    
    133
    
    
    
    543
    
    
    
    405Comprehensive income attributable to
Consolidated Communications Holdings, Inc.
    
    $
    13,323
    
    
    $
    13,432
    
    
    $
    18,017
    
    
    $
    3,831
 14. Discontinuance of the application of SFAS No. 71, Accounting for the Effects of Certain
Types of Regulation
    17




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15. Business Segments
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Operating revenuesTelephone Operations
    
    $
    91,143
    
    
    $
    95,637
    
    
    $
    182,838
    
    
    $
    190,611Other Operations
    
    
    10,899
    
    
    
    10,807
    
    
    
    20,914
    
    
    
    21,247Total
    
    $
    102,042
    
    
    $
    106,444
    
    
    $
    203,752
    
    
    $
    211,858Operating incomeTelephone Operations
    
    $
    18,372
    
    
    $
    20,746
    
    
    $
    34,400
    
    
    $
    41,600Other Operations
    
    
    495
    
    
    
    329
    
    
    
    523
    
    
    
    11Total
    
    
    18,867
    
    
    
    21,075
    
    
    
    34,923
    
    
    
    41,611Interest income
    
    
    15
    
    
    
    64
    
    
    
    37
    
    
    
    288Interest expense
    
    
    (14,564
    )
    
    
    (16,048
    )
    
    
    (29,056
    )
    
    
    (34,326
    )Investment income
    
    
    6,761
    
    
    
    4,845
    
    
    
    11,809
    
    
    
    9,207Loss on extinguishment of debt
    
    
    
    
    
    
    (9,224
    )
    
    
    
    
    
    
    (9,224
    )Other, net
    
    
    1,766
    
    
    
    (129
    )
    
    
    1,215
    
    
    
    (114
    )Income before income taxes
    
    $
    12,845
    
    
    $
    583
    
    
    $
    18,928
    
    
    $
    7,442
  18




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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;
  19




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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
incorporated by reference from 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
    20




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##### Table of Contents



Redemption of senior notes
  Discontinuance of the application of SFAS No. 71, 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.
  21




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##### Table of Contents




    
    aggressively promoting DSL service, including selling DSL as a stand-alone offering;
    
    bundling value-adding 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 function 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 10 Mbps for those customers desiring greater Internet speed; and
    
    High definition video service and digital video recorders in all of our IPTV markets.
   22




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##### Table of Contents



June 30,
    
    
    December 31,
    
    
    June 30,2009
    
    
    2008
    
    
    2008Local access lines in service:Residential
    
    
    151,937
    
    
    
    162,067
    
    
    
    174,641Business
    
    
    102,656
    
    
    
    102,256
    
    
    
    102,152Total local access lines
    
    
    254,593
    
    
    
    264,323
    
    
    
    276,793Digital telephone subscribers
    
    
    7,883
    
    
    
    6,510
    
    
    
    4,088IPTV subscribers
    
    
    19,731
    
    
    
    16,666
    
    
    
    14,112ILEC DSL subscribers
    
    
    95,656
    
    
    
    91,817
    
    
    
    86,575CLEC Access Line Equivalents (1)
    
    
    72,062
    
    
    
    74,687
    
    
    
    73,713Total connections
    
    
    449,925
    
    
    
    454,003
    
    
    
    455,281Long distance lines (2)
    
    
    166,006
    
    
    
    165,953
    
    
    
    167,767Dial-up subscribers
    
    
    3,406
    
    
    
    3,957
    
    
    
    5,687
 (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;
 
    
    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.
  23




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##### Table of Contents



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
   24




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##### Table of Contents



For the Three Months Ended June 30, 2009 compared to June 30, 2008
  Three Months Ended June 30,2009
    
    
    2008% of Total
    
    
    
    
    
    
    % of Total$ (millions)
    
    
    Revenues
    
    
    $ (millions)
    
    
    RevenuesRevenuesTelephone OperationsLocal calling services
    
    $
    24.3
    
    
    
    23.8
    %
    
    $
    26.5
    
    
    
    24.9
    %Network access services
    
    
    22.1
    
    
    
    21.7
    
    
    
    24.6
    
    
    
    23.1Subsidies
    
    
    13.4
    
    
    
    13.1
    
    
    
    13.4
    
    
    
    12.6Long distance services
    
    
    5.4
    
    
    
    5.3
    
    
    
    6.3
    
    
    
    5.9Data and internet services
    
    
    16.7
    
    
    
    16.4
    
    
    
    15.2
    
    
    
    14.3Other services
    
    
    9.2
    
    
    
    9.0
    
    
    
    9.6
    
    
    
    9.0Total Telephone Operations
    
    
    91.1
    
    
    
    89.3
    
    
    
    95.6
    
    
    
    89.8Other Operations
    
    
    10.9
    
    
    
    10.7
    
    
    
    10.9
    
    
    
    10.2Total operating revenues
    
    
    102.0
    
    
    
    100.0
    
    
    
    106.5
    
    
    
    100.0ExpensesOperating expensesTelephone Operations
    
    
    52.1
    
    
    
    51.1
    
    
    
    52.9
    
    
    
    49.7Other Operations
    
    
    10.1
    
    
    
    9.9
    
    
    
    10.2
    
    
    
    9.6Depreciation and amortization
    
    
    21.0
    
    
    
    20.6
    
    
    
    22.3
    
    
    
    20.9Total operating expenses
    
    
    83.2
    
    
    
    81.6
    
    
    
    85.4
    
    
    
    80.2Income from operations
    
    
    18.8
    
    
    
    18.4
    
    
    
    21.1
    
    
    
    19.8Interest expense, net
    
    
    (14.5
    )
    
    
    (14.2
    )
    
    
    (16.0
    )
    
    
    (15.0
    )Other income (expense), net
    
    
    8.5
    
    
    
    8.3
    
    
    
    (4.6
    )
    
    
    (4.3
    )Income tax expense
    
    
    (5.2
    )
    
    
    (5.0
    )
    
    
    (0.2
    )
    
    
    (0.2
    )Net income
    
    
    7.6
    
    
    
    7.5
    
    
    
    0.3
    
    
    
    0.3Less: Net income attributable to noncontrolling interest
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Net income attributable to Consolidated
Communications Holdings, Inc.
    
    $
    7.5
    
    
    
    7.4
    %
    
    $
    0.2
    
    
    
    0.2
    %
 Segments
 Disclosure about Segments of an
Enterprise and Related Information
  25




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##### Table of Contents



Results of Operations
 For the Three Months Ended June 30, 2009 Compared to June 30, 2008
 Revenues
  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
   26




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




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##### Table of Contents



For the Six Months Ended June 30, 2009 Compared to June 30, 2008
  Six Months Ended June 30,2009
    
    
    2008% of Total
    
    
    
    
    
    
    % of Total$ (millions)
    
    
    Revenues
    
    
    $ (millions)
    
    
    RevenuesRevenuesTelephone OperationsLocal calling services
    
    $
    49.0
    
    
    
    24.1
    %
    
    $
    53.5
    
    
    
    25.2
    %Network access services
    
    
    44.1
    
    
    
    21.6
    
    
    
    49.1
    
    
    
    23.2Subsidies
    
    
    27.5
    
    
    
    13.5
    
    
    
    27.2
    
    
    
    12.8Long distance services
    
    
    10.9
    
    
    
    5.4
    
    
    
    12.5
    
    
    
    5.9Data and internet services
    
    
    33.1
    
    
    
    16.2
    
    
    
    29.6
    
    
    
    14.0Other services
    
    
    18.2
    
    
    
    8.9
    
    
    
    18.7
    
    
    
    8.8Total Telephone Operations
    
    
    182.8
    
    
    
    89.7
    
    
    
    190.6
    
    
    
    89.9Other Operations
    
    
    20.9
    
    
    
    10.3
    
    
    
    21.3
    
    
    
    10.1Total operating revenues
    
    
    203.7
    
    
    
    100.0
    
    
    
    211.9
    
    
    
    100.0ExpensesOperating expensesTelephone Operations
    
    
    106.4
    
    
    
    52.2
    
    
    
    104.5
    
    
    
    49.3Other Operations
    
    
    19.7
    
    
    
    9.7
    
    
    
    20.6
    
    
    
    9.7Depreciation and amortization
    
    
    42.7
    
    
    
    21.0
    
    
    
    45.2
    
    
    
    21.4Total operating expenses
    
    
    168.8
    
    
    
    82.9
    
    
    
    170.3
    
    
    
    80.4Income from operations
    
    
    34.9
    
    
    
    17.1
    
    
    
    41.6
    
    
    
    19.6Interest expense, net
    
    
    (29.0
    )
    
    
    (14.2
    )
    
    
    (34.0
    )
    
    
    (16.0
    )Other income (expense), net
    
    
    13.0
    
    
    
    6.3
    
    
    
    (0.2
    )
    
    
    (0.1
    )Income tax expense
    
    
    (7.6
    )
    
    
    (3.7
    )
    
    
    (3.1
    )
    
    
    (1.5
    )Net income
    
    
    11.3
    
    
    
    5.5
    
    
    
    4.3
    
    
    
    2.0Less: Net income attributable to noncontrolling interest
    
    
    0.5
    
    
    
    0.2
    
    
    
    0.4
    
    
    
    0.2Net income attributable to Consolidated
Communications Holdings, Inc.
    
    $
    10.8
    
    
    
    5.3
    %
    
    $
    3.9
    
    
    
    1.8
    %
 Revenues
  Telephone Operations Revenues
 Local calling services
  28




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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
   29




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




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##### Table of Contents



Critical Accounting Policies and Use of Estimates
  Goodwill and other intangible assets
 Goodwill and Other Intangible Assets
      Telephone operations
    
    $
    519.5 millionPrison Systems
    
    $
    0.2 millionBusiness Systems
    
    $
    0.8 million
  31




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32




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##### Table of Contents



Liquidity and Capital Resources
 General
        33




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##### Table of Contents



Six Months EndedJune 30,2009
    
    
    2008(In millions)Net Cash Provided by (Used for):Operating activities
    
    $
    48.0
    
    
    $
    42.2Investing activities
    
    
    (20.1
    )
    
    
    (26.3
    )Financing activities
    
    
    (23.4
    )
    
    
    (39.8
    )
 Operating Activities
  .
 Investing Activities
  Financing Activities
  Debt
  Debt
and Capital Leases as of June 30, 2009 (In Millions)
 Balance
    
    
    Maturity Date
    
    
    Rate (1)Capital lease
    
    $
    0.8
    
    
    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 June 30, 2009, the 1-month LIBOR rate in effect on our borrowings was 0.31%.  34




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##### Table of Contents



Credit Facilities
    Derivative Instruments
  Covenant Compliance
   35




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Dividends
   Surety Bonds
  Recent Accounting Pronouncements
   36




---



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37




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Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
     38




---



##### Table of Contents



Item 4.
    
    Controls and Procedures
   39




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
    
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 6.
    
    Exhibits
   40




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##### Table of Contents



SIGNATURES
  Consolidated Communications Holdings, Inc.
(Registrant)Date: August 7, 2009
    By:
    /s/ Robert J. CurreyRobert J. CurreyPresident and Chief Executive Officer
(Principal Executive Officer)Date: August 7, 2009
    By:
    /s/ Steven L. ChildersSteven L. ChildersChief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)  41




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    
    Consolidated Communications Holdings, Inc. 2005 Long-Term Incentive Plan (As Amended and
Restated Effective May 5, 2009) (incorporated by reference to Exhibit A to the Companys 2009
Proxy Statement for the Annual Meeting held on May 5, 2009).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.
  42