##### 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, 2007
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Transition Period from  to
 Commission File Number 000-51446
 CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.
  Delaware
    
    02-0636095(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 121 South 17 th Street  Mattoon, Illinois 61938-3987
  þ o
  o þ o
 o þ




---



##### 



PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    33PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item 6. Exhibits
    
    
    34Signatures
    
    
    35Exhibit Index
    
    
    36Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Consolidated Communications Holdings, Inc.
Condensed Consolidated Statements of Income  (Amounts in thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    80,320
    
    
    $
    80,323
    
    
    $
    244,244
    
    
    $
    239,089Operating expenses:Cost of services and products
(exclusive of depreciation and
amortization shown separately below)
    
    
    27,698
    
    
    
    24,140
    
    
    
    79,115
    
    
    
    72,764Selling, general and administrative expenses
    
    
    21,800
    
    
    
    23,764
    
    
    
    66,395
    
    
    
    70,947Depreciation and amortization
    
    
    16,350
    
    
    
    16,961
    
    
    
    49,585
    
    
    
    50,876Income from operations
    
    
    14,472
    
    
    
    15,458
    
    
    
    49,149
    
    
    
    44,502Other income (expense):Interest income
    
    
    253
    
    
    
    239
    
    
    
    694
    
    
    
    854Interest expense
    
    
    (12,118
    )
    
    
    (11,414
    )
    
    
    (35,420
    )
    
    
    (32,195
    )Investment income
    
    
    1,987
    
    
    
    1,709
    
    
    
    5,041
    
    
    
    4,692Minority interest
    
    
    (251
    )
    
    
    (203
    )
    
    
    (541
    )
    
    
    (499
    )Other, net
    
    
    10
    
    
    
    139
    
    
    
    286
    
    
    
    186Income before income taxes
    
    
    4,353
    
    
    
    5,928
    
    
    
    19,209
    
    
    
    17,540Income tax expense
    
    
    2,012
    
    
    
    3,913
    
    
    
    6,756
    
    
    
    3,752Net income
    
    $
    2,341
    
    
    $
    2,015
    
    
    $
    12,453
    
    
    $
    13,788Net income per common share -Basic
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.48
    
    
    $
    0.48Diluted
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.48
    
    
    $
    0.48Cash dividends declared per common share
    
    $
    0.39
    
    
    $
    0.39
    
    
    $
    1.16
    
    
    $
    1.16
   3




---



##### Table of Contents



Consolidated Communications Holdings, Inc.
Condensed Consolidated Balance Sheets  (Amounts in thousands, except share and per share amounts)
 September 30,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    24,355
    
    
    $
    26,672Accounts receivable, net of allowances of $1,692
and $2,110, respectively
    
    
    37,067
    
    
    
    34,396Inventories
    
    
    4,529
    
    
    
    4,170Deferred income taxes
    
    
    2,432
    
    
    
    2,081Prepaid expenses and other current assets
    
    
    7,889
    
    
    
    6,898Total current assets
    
    
    76,272
    
    
    
    74,217Property, plant and equipment, net
    
    
    298,923
    
    
    
    314,381Intangibles and other assets:Investments
    
    
    40,649
    
    
    
    40,314Goodwill
    
    
    316,034
    
    
    
    316,034Customer lists, net
    
    
    100,622
    
    
    
    110,273Tradenames
    
    
    14,291
    
    
    
    14,291Deferred financing costs and other assets
    
    
    15,276
    
    
    
    20,069Total assets
    
    $
    862,067
    
    
    $
    889,579LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    7,130
    
    
    $
    11,004Advance billings and customer deposits
    
    
    17,327
    
    
    
    15,303Dividends payable
    
    
    10,051
    
    
    
    10,040Accrued expenses
    
    
    27,431
    
    
    
    29,399Total current liabilities
    
    
    61,939
    
    
    
    65,746Long-term debt
    
    
    594,000
    
    
    
    594,000Deferred income taxes
    
    
    52,130
    
    
    
    55,893Pension and postretirement benefit obligations
    
    
    49,858
    
    
    
    54,187Other liabilities
    
    
    3,209
    
    
    
    1,100Total liabilities
    
    
    761,136
    
    
    
    770,926Minority interest
    
    
    4,236
    
    
    
    3,695Stockholders equityCommon stock, $0.01 par value, 100,000,000 shares,
authorized, 26,130,618 and 26,001,872 issued and
outstanding, respectively
    
    
    261
    
    
    
    260Additional paid in capital
    
    
    202,811
    
    
    
    199,858Accumulated deficit
    
    
    (105,060
    )
    
    
    (87,362
    )Accumulated other comprehensive income (loss)
    
    
    (1,317
    )
    
    
    2,202Total stockholders equity
    
    
    96,695
    
    
    
    114,958Total liabilities and stockholders equity
    
    $
    862,067
    
    
    $
    889,579
   4




---



##### Table of Contents



Consolidated Communications Holdings, Inc.
Consolidated Statements of Cash Flows  (Amounts in thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    12,453
    
    
    $
    13,788Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    49,585
    
    
    
    50,876Provision for bad debt losses
    
    
    3,194
    
    
    
    3,666Deferred income tax
    
    
    (4,114
    )
    
    
    (645
    )Partnership income
    
    
    (1,667
    )
    
    
    (4,407
    )Non-cash stock compensation
    
    
    2,942
    
    
    
    1,875Minority interest in net income of subsidiary
    
    
    541
    
    
    
    499Amortization of deferred financing costs
    
    
    2,507
    
    
    
    2,437Changes in operating assets and liabilities:Accounts receivable
    
    
    (5,865
    )
    
    
    (5,180
    )Inventories
    
    
    (359
    )
    
    
    (628
    )Other assets
    
    
    (400
    )
    
    
    (1,377
    )Accounts payable
    
    
    (3,874
    )
    
    
    (3,969
    )Accrued expenses and other liabilities
    
    
    (2,164
    )
    
    
    2,628Net cash provided by operating activities
    
    
    52,779
    
    
    
    59,563INVESTING ACTIVITIESProceeds from sale of investments
    
    
    10,625
    
    
    
    5,921Proceeds from sale of land
    
    
    
    
    
    
    590Securities purchased
    
    
    (10,625
    )
    
    
    Capital expenditures
    
    
    (24,648
    )
    
    
    (25,037
    )Net cash used in investing activities
    
    
    (24,648
    )
    
    
    (18,526
    )FINANCING ACTIVITIESProceeds from issuance of stock
    
    
    12
    
    
    
    Proceeds from long-term obligations
    
    
    
    
    
    
    39,000Payment of deferred financing costs
    
    
    (320
    )
    
    
    (262
    )Purchase of treasury shares
    
    
    
    
    
    
    (56,736
    )Dividends on common stock
    
    
    (30,140
    )
    
    
    (34,550
    )Net cash used in financing activities
    
    
    (30,448
    )
    
    
    (52,548
    )Net decrease in cash and cash equivalents
    
    
    (2,317
    )
    
    
    (11,511
    )Cash and cash equivalents at beginning of period
    
    
    26,672
    
    
    
    31,409Cash and cash equivalents at end of period
    
    $
    24,355
    
    
    $
    19,898
   5




---



##### Table of Contents



Consolidated Communications Holdings, Inc.
Condensed Consolidated Statement of Changes in Stockholders Equity
Nine Months Ended September 30, 2007  (Amounts in thousands, except share amounts)
(Unaudited)
 AccumulatedOtherCommon Stock
    
    
    Additional
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Paid in Capital
    
    
    Deficit
    
    
    Income
    
    
    TotalBalance, January 1, 2007
    
    
    26,001,872
    
    
    $
    260
    
    
    $
    199,858
    
    
    $
    (87,362
    )
    
    $
    2,202
    
    
    $
    114,958Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,453
    
    
    
    
    
    
    
    12,453Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,151
    )
    
    
    
    
    
    
    (30,151
    )Issuance of common stock
    
    
    662
    
    
    
    1
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    12Shares issued under employee
plan, net of forfeitures
    
    
    128,084
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-cash stock compensation
    
    
    
    
    
    
    
    
    
    
    2,942
    
    
    
    
    
    
    
    
    
    
    
    2,942Change in fair value of cash
flow
hedges, net of $1,830 of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,519
    )
    
    
    (3,519
    )Balance, September 30, 2007
    
    
    26,130,618
    
    
    $
    261
    
    
    $
    202,811
    
    
    $
    (105,060
    )
    
    $
    (1,317
    )
    
    $
    96,695
   6




---



##### Table of Contents



CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 30, 2007 and 2006  (Dollars in thousands, except share and per share amounts)
 1. Description of Business
  2. Presentation of Interim Financial Statements
  3. Recent Accounting Pronouncements
 Fair
Value Measurements
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
   7




---



##### Table of Contents



4. Marketable Securities
  5. Goodwill and Customer Lists
  September 30,
    
    
    December 31,2007
    
    
    2006Telephone Operations
    
    $
    308,850
    
    
    $
    308,850Other Operations
    
    
    7,184
    
    
    
    7,184$
    316,034
    
    
    $
    316,034
  September 30,
    
    
    December 31,2007
    
    
    2006Gross carrying amount
    
    $
    156,648
    
    
    $
    156,648Less: accumulated amortization
    
    
    (56,026
    )
    
    
    (46,375
    )Net carrying amount
    
    $
    100,622
    
    
    $
    110,273
  6. Pension Costs and Other Postretirement Benefits
    8




---



##### Table of Contents



Pension Benefits
    
    
    Other Benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Three months ended September 30,Service cost
    
    $
    672
    
    
    $
    545
    
    
    $
    119
    
    
    $
    188Interest cost
    
    
    3,203
    
    
    
    2,046
    
    
    
    294
    
    
    
    386Expected return on plan assets
    
    
    (3,540
    )
    
    
    (1,914
    )
    
    
    
    
    
    
    (10
    )Other, net
    
    
    (62
    )
    
    
    (227
    )
    
    
    65
    
    
    
    (212
    )Net periodic benefit cost
    
    $
    274
    
    
    $
    450
    
    
    $
    478
    
    
    $
    352Nine months ended September 30,Service cost
    
    $
    1,362
    
    
    $
    1,565
    
    
    $
    558
    
    
    $
    562Interest cost
    
    
    5,543
    
    
    
    5,413
    
    
    
    1,064
    
    
    
    1,159Expected return on plan assets
    
    
    (6,007
    )
    
    
    (5,719
    )
    
    
    
    
    
    
    Other, net
    
    
    19
    
    
    
    92
    
    
    
    (430
    )
    
    
    (666
    )Net periodic benefit cost
    
    $
    918
    
    
    $
    1,351
    
    
    $
    1,192
    
    
    $
    1,055
  7. Long-Term Debt
  September 30,
    
    
    December 31,2007
    
    
    2006Senior Secured Credit FacilityRevolving loan
    
    $
    
    
    
    $
    Term loan D
    
    
    464,000
    
    
    
    464,000Senior notes
    
    
    130,000
    
    
    
    130,000594,000
    
    
    
    594,000Less: current portion
    
    
    
    
    
    
    $
    594,000
    
    
    $
    594,000
  8. Derivative Instruments
   9




---



##### Table of Contents



9. Restricted Share Plan
  Restricted shares outstanding, December 31, 2006
    
    
    248,745Shares granted
    
    
    135,584Shares vested
    
    
    (4,500
    )Shares forfeited or retired
    
    
    (7,500
    )Restricted shares outstanding, September 30, 2007
    
    
    372,329
  10. Income Taxes
   10




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Income before income taxes
    
    $
    4,353
    
    
    $
    5,928
    
    
    $
    19,209
    
    
    $
    17,540Income tax expense
    
    
    2,012
    
    
    
    3,913
    
    
    
    6,756
    
    
    
    3,752Effective tax rate
    
    
    46.2
    %
    
    
    66.0
    %
    
    
    35.2
    %
    
    
    21.4
    %
   11. Net Income per Common Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic:Net income
    
    $
    2,341
    
    
    $
    2,015
    
    
    $
    12,453
    
    
    $
    13,788Weighted average number of common
shares outstanding
    
    
    25,758,289
    
    
    
    26,721,886
    
    
    
    25,757,746
    
    
    
    28,466,394Net income per common share
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.48
    
    
    $
    0.48Diluted:Net income
    
    $
    2,341
    
    
    $
    2,015
    
    
    $
    12,453
    
    
    $
    13,788Weighted average number of common
shares outstanding
    
    
    26,144,943
    
    
    
    27,157,631
    
    
    
    26,102,020
    
    
    
    28,900,902Net income per common share
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.48
    
    
    $
    0.48
    11




---



##### Table of Contents



12. Other Comprehensive Income (Loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    2,341
    
    
    $
    2,015
    
    
    $
    12,453
    
    
    $
    13,788Other comprehensive income:Unrealized gain on marketable securities,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49Change in fair value of cash flow hedges,
net of tax
    
    
    (5,372
    )
    
    
    (4,287
    )
    
    
    (3,519
    )
    
    
    (163
    )Total comprehensive income (loss)
    
    $
    (3,031
    )
    
    $
    (2,272
    )
    
    $
    8,934
    
    
    $
    13,674
 13. Business Segments
    12




---



##### Table of Contents



Telephone
    
    
    OtherOperations
    
    
    Operations
    
    
    TotalThree months ended September 30, 2007:Operating revenues
    
    $
    70,052
    
    
    $
    10,268
    
    
    $
    80,320Cost of services and products
    
    
    20,651
    
    
    
    7,047
    
    
    
    27,69849,401
    
    
    
    3,221
    
    
    
    52,622Operating expenses
    
    
    18,413
    
    
    
    3,387
    
    
    
    21,800Depreciation and amortization
    
    
    15,721
    
    
    
    629
    
    
    
    16,350Operating income (loss)
    
    $
    15,267
    
    
    $
    (795
    )
    
    $
    14,472Three months ended September 30, 2006:Operating revenues
    
    $
    70,131
    
    
    $
    10,192
    
    
    $
    80,323Cost of services and products
    
    
    17,413
    
    
    
    6,727
    
    
    
    24,14052,718
    
    
    
    3,465
    
    
    
    56,183Operating expenses
    
    
    20,249
    
    
    
    3,515
    
    
    
    23,764Depreciation and amortization
    
    
    15,620
    
    
    
    1,341
    
    
    
    16,961Operating income (loss)
    
    $
    16,849
    
    
    $
    (1,391
    )
    
    $
    15,458
 Telephone
    
    
    OtherOperations
    
    
    Operations
    
    
    TotalNine months ended September 30, 2007:Operating revenues
    
    $
    213,570
    
    
    $
    30,674
    
    
    $
    244,244Cost of services and products
    
    
    58,152
    
    
    
    20,963
    
    
    
    79,115155,418
    
    
    
    9,711
    
    
    
    165,129Operating expenses
    
    
    56,200
    
    
    
    10,195
    
    
    
    66,395Depreciation and amortization
    
    
    47,713
    
    
    
    1,872
    
    
    
    49,585Operating income (loss)
    
    $
    51,505
    
    
    $
    (2,356
    )
    
    $
    49,149Nine months ended September 30, 2006:Operating revenues
    
    $
    209,160
    
    
    $
    29,929
    
    
    $
    239,089Cost of services and products
    
    
    53,398
    
    
    
    19,366
    
    
    
    72,764155,762
    
    
    
    10,563
    
    
    
    166,325Operating expenses
    
    
    60,152
    
    
    
    10,795
    
    
    
    70,947Depreciation and amortization
    
    
    46,823
    
    
    
    4,053
    
    
    
    50,876Operating income (loss)
    
    $
    48,787
    
    
    $
    (4,285
    )
    
    $
    44,502
 14. Merger with North Pittsburgh Systems Inc.
   13




---



##### Table of Contents



14




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 We present below Managements Discussion and Analysis of Financial Condition and Results of
Operations of Consolidated Communications Holdings, Inc. and its subsidiaries on a consolidated
basis. The following discussion should be read in conjunction with our historical financial
statements and related notes contained elsewhere in this Report.
 Forward-Looking Statements
  
    
    various risks to stockholders of not receiving dividends and risks to our ability to
pursue growth opportunities if we continue to pay dividends according to our current
dividend policy;
    
    various risks to the price and volatility of our common stock;
    
    our substantial amount of debt and our ability to incur additional debt in the future;
    
    our need for a significant amount of cash to service and repay our debt and to pay
dividends on our common stock;
    
    restrictions contained in our debt agreements that limit the discretion of our
management in operating our business;
    
    the ability to refinance our existing debt as necessary;
    
    rapid development and introduction of new technologies and intense competition in the
telecommunications industry;
    
    risks associated with our possible pursuit of acquisitions;
    
    economic conditions in our service areas in Illinois and Texas;
    
    system failures;
    
    loss of large customers or government contracts;
    
    risks associated with the rights-of-way for our network;
    
    disruptions in our relationship with third party vendors;
    
    loss of key management personnel and the inability to attract and retain highly
qualified management and personnel in the future;
    
    changes in the extensive governmental legislation and regulations governing
telecommunications providers and the provision of telecommunications services and
subsidies;
    
    telecommunications carriers disputing and/or avoiding their obligations to pay network
access changes for use of our network;
    
    high costs of regulatory compliance;
  15




---



##### Table of Contents




    
    the competitive impact of legislation and regulatory changes in the telecommunications
industry;
    
    liability and compliance costs regarding environmental regulations;
    
    the ability to obtain required approvals and satisfy closing conditions may delay or
prevent completion of the merger;
    
    transaction, integration and restructuring costs in connection with the proposed merger,
whether or not the merger is completed;
    
    disruptions in our business caused by the pendency of the merger transaction;
    
    the integration of the Company and North Pittsburgh following the merger; and
    
    the additional risk factors outlined in Part II  Other Information  Item IA  Risk
Factors herein and Part I  Item 1A  Risk Factors incorporated by reference from our
Annual Report on Form 10-K for the fiscal year ended December 31, 2006, our Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 2007, as well as the other
documents that we file with the SEC from time to time that could cause our actual results
to differ from our current expectations and from the forward-looking statements discussed
in this Report.
  Overview
  Acquisition
    16




---



##### Table of Contents



Share Repurchase and Credit Facility Amendments
   
    
    reduction in our annual dividend obligation of $5.9 million;
    
    an increase in our after tax net cash interest of $2.9 million due to the increased
borrowings incurred, an increase in the interest rate on our credit facility of 25 basis
points and a decrease of cash on hand.
  Factors Affecting Results of Operations
 Revenues
 Telephone Operations and Other Operations
 Local Access Lines and Bundled Services.
   17




---



##### Table of Contents




    
    aggressively promoting DSL service with a variety of speeds and price points to meet
customer demands;
    
    bundling our triple play offering of DSL, IPTV and voice services;
    
    maintaining excellent customer service standards while actively promoting new services
to our customers; and
    
    keeping a strong local presence in the communities we serve.
   
    
    hosted VoIP, which was launched in certain Texas markets in 2005 to meet the needs of
small to medium sized business customers who want robust function without having to
purchase a traditional key or PBX phone system;
    
    DSL service which has been made available to users who 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, which was introduced in Texas in May and was launched in
Illinois in the third quarter of 2007.
      18




---



##### Table of Contents



September 30,
    
    
    December 31,
    
    
    September 30,2007
    
    
    2006
    
    
    2006Local access lines in service:Residential
    
    
    149,735
    
    
    
    155,354
    
    
    
    157,609Business
    
    
    77,451
    
    
    
    78,335
    
    
    
    78,374Total local access lines
    
    
    227,186
    
    
    
    233,689
    
    
    
    235,983IPTV subscribers
    
    
    11,063
    
    
    
    6,954
    
    
    
    5,638DSL subscribers
    
    
    62,546
    
    
    
    52,732
    
    
    
    49,360Total connections
    
    
    300,795
    
    
    
    293,375
    
    
    
    290,981Long distance lines (1)
    
    
    151,320
    
    
    
    149,358
    
    
    
    148,167Dial-up subscribers
    
    
    8,858
    
    
    
    11,942
    
    
    
    11,740Service bundles
    
    
    45,911
    
    
    
    43,175
    
    
    
    42,100
 (1)
    
    Reflects the inclusion of long distance services provided as part of the VoIP offering. Expenses
  Cost of Services and Products
  
    
    operating expenses relating to plant costs, including those related to the network
and general support costs, central office switching and transmission costs, and cable
and wire facilities;
    
    general plant costs, such as testing, provisioning, network, administration, power
and engineering; and
    
    the cost of transport and termination of long distance and private lines outside our
rural telephone companies service area.
  Selling, General and Administrative Expenses
  
    
    selling and marketing expenses;
    
    expenses associated with customer care;
    
    billing and other operating support systems; and
    
    corporate expenses, including professional service fees and non-cash stock
compensation.
  19




---



##### Table of Contents



Depreciation and Amortization Expenses
  YearsBuildings
    
    
    15-35Network and outside plant facilities
    
    
    5-30Furniture, fixtures and equipment
    
    
    3-17
 Goodwill and Other Intangible Assets
  20




---



##### Table of Contents



Results of Operations
 Three months ended September 30, 2007 compared to three months ended September 30, 2006
  Three Months Ended September 30,2007
    
    
    2006% of Total
    
    
    
    
    
    
    % of Total$ (millions)
    
    
    Revenues
    
    
    $ (millions)
    
    
    RevenuesRevenuesTelephone OperationsLocal calling services
    
    $
    20.5
    
    
    
    25.5
    %
    
    $
    21.3
    
    
    
    26.5
    %Network access services
    
    
    17.1
    
    
    
    21.3
    
    
    
    17.3
    
    
    
    21.5Subsidies
    
    
    10.1
    
    
    
    12.6
    
    
    
    11.0
    
    
    
    13.7Long distance services
    
    
    3.6
    
    
    
    4.5
    
    
    
    4.1
    
    
    
    5.1Data and internet services
    
    
    9.9
    
    
    
    12.3
    
    
    
    7.9
    
    
    
    9.8Other services
    
    
    8.9
    
    
    
    11.1
    
    
    
    8.5
    
    
    
    10.6Total Telephone Operations
    
    
    70.1
    
    
    
    87.3
    
    
    
    70.1
    
    
    
    87.3Other Operations
    
    
    10.2
    
    
    
    12.7
    
    
    
    10.2
    
    
    
    12.7Total operating revenues
    
    
    80.3
    
    
    
    100.0
    
    
    
    80.3
    
    
    
    100.0ExpensesOperating expensesTelephone Operations
    
    
    39.0
    
    
    
    48.6
    
    
    
    37.7
    
    
    
    46.9Other Operations
    
    
    10.5
    
    
    
    13.1
    
    
    
    10.2
    
    
    
    12.7Depreciation and amortization
    
    
    16.4
    
    
    
    20.4
    
    
    
    17.0
    
    
    
    21.2Total operating expenses
    
    
    65.9
    
    
    
    82.1
    
    
    
    64.9
    
    
    
    80.8Income from operations
    
    
    14.4
    
    
    
    17.9
    
    
    
    15.4
    
    
    
    19.2Interest expense, net
    
    
    (11.8
    )
    
    
    (14.7
    )
    
    
    (11.1
    )
    
    
    (13.8
    )Other income, net
    
    
    1.8
    
    
    
    2.2
    
    
    
    1.6
    
    
    
    2.0Income tax expense
    
    
    (2.1
    )
    
    
    (2.6
    )
    
    
    (3.9
    )
    
    
    (4.9
    )Net income
    
    $
    2.3
    
    
    
    2.9
    %
    
    $
    2.0
    
    
    
    2.5
    %
 Segments
 Disclosure about Segments of an
Enterprise and Related Information
 Results of Operations
 Revenues
  Telephone Operations Revenues
 Local calling services
 Network access services
  21




---



##### Table of Contents



Subsidies
 Long distance services
 Data and Internet
 Other Services
 Other Operations Revenue
  Operating Expenses
  Telephone Operations Operating Expense
  Other Operations Operating Expenses
  Depreciation and Amortization
   22




---



##### Table of Contents



Non-Operating Income (Expense)
 Interest Expense, Net
  Other Income
  Income Taxes
   23




---



##### Table of Contents



Nine months ended September 30, 2007 compared to nine months ended September 30, 2006
  Nine Months Ended September 30,2007
    
    
    2006% of Total
    
    
    
    
    
    
    % of Total$ (millions)
    
    
    Revenues
    
    
    $ (millions)
    
    
    RevenuesRevenuesTelephone OperationsLocal calling services
    
    $
    62.8
    
    
    
    25.7
    %
    
    $
    64.2
    
    
    
    26.9
    %Network access services
    
    
    52.9
    
    
    
    21.7
    
    
    
    51.3
    
    
    
    21.5Subsidies
    
    
    32.8
    
    
    
    13.4
    
    
    
    35.0
    
    
    
    14.6Long distance services
    
    
    10.8
    
    
    
    4.4
    
    
    
    11.6
    
    
    
    4.9Data and internet services
    
    
    27.6
    
    
    
    11.3
    
    
    
    22.5
    
    
    
    9.4Other services
    
    
    26.7
    
    
    
    10.9
    
    
    
    24.6
    
    
    
    10.3Total Telephone Operations
    
    
    213.6
    
    
    
    87.5
    
    
    
    209.2
    
    
    
    87.5Other Operations
    
    
    30.6
    
    
    
    12.5
    
    
    
    29.9
    
    
    
    12.5Total operating revenues
    
    
    244.2
    
    
    
    100.0
    
    
    
    239.1
    
    
    
    100.0ExpensesOperating expensesTelephone Operations
    
    
    114.3
    
    
    
    46.8
    
    
    
    113.6
    
    
    
    47.5Other Operations
    
    
    31.2
    
    
    
    12.8
    
    
    
    30.1
    
    
    
    12.6Depreciation and amortization
    
    
    49.6
    
    
    
    20.3
    
    
    
    50.9
    
    
    
    21.3Total operating expenses
    
    
    195.1
    
    
    
    79.9
    
    
    
    194.6
    
    
    
    81.4Income from operations
    
    
    49.1
    
    
    
    20.1
    
    
    
    44.5
    
    
    
    18.6Interest expense, net
    
    
    (34.7
    )
    
    
    (14.2
    )
    
    
    (31.3
    )
    
    
    (13.1
    )Other income, net
    
    
    4.8
    
    
    
    2.0
    
    
    
    4.3
    
    
    
    1.8Income tax benefit (expense)
    
    
    (6.8
    )
    
    
    (2.8
    )
    
    
    (3.7
    )
    
    
    (1.5
    )Net income
    
    $
    12.4
    
    
    
    5.1
    %
    
    $
    13.8
    
    
    
    5.8
    %
 Revenues
  Telephone Operations Revenues
 Local calling services
 Network access services
 Subsidies
  24




---



##### Table of Contents



Long distance services
 Data and Internet
 Other Services
 Other Operations Revenue
  Operating Expenses
  Telephone Operations Operating Expense
  Other Operations Operating Expenses
  Depreciation and Amortization
   25




---



##### Table of Contents



Non-Operating Income (Expense)
 Interest Expense, Net
  Other Income
  Income Taxes
  Liquidity and Capital Resources
  Nine Months EndedSeptember 30,2007
    
    
    2006(In millions)Net Cash Provided by (Used for):Operating activities
    
    $
    52.8
    
    
    $
    59.6Investing activities
    
    
    (24.6
    )
    
    
    (18.5
    )Financing activities
    
    
    (30.4
    )
    
    
    (52.5
    )
 Operating Activities
   26




---



##### Table of Contents



Investing Activities
  Financing Activities
  Debt
  Indebtedness as of September 30, 2007Balance
    
    
    Maturity Date
    
    
    Rate (1)(in millions)Revolving credit facility
    
    $
    
    
    
    April 14, 2010
    
    LIBOR + 2.25%Term loan D
    
    
    464.0
    
    
    October 14, 2011
    
    LIBOR + 1.75%Senior notes
    
    
    130.0
    
    
    April 1, 2012
    
    
    9.75
    %
 
 (1)
    
    As of September 30, 2007, the 90-day LIBOR rate was 5.23%. Credit Facilities
   Derivative Instruments
   27




---



##### Table of Contents



Senior Notes
  Covenant Compliance
    
    
    our senior secured leverage ratio, as of the end of any fiscal quarter is greater than
4.00 to 1.00; or
    
    our fixed charge coverage ratio as of the end of any fiscal quarter is not at least 1.75
to 1.00.
  Total net leverage ratio
    
    
    4.07:1.00Senior secured leverage ratio
    
    
    3.26:1.00Fixed charge coverage ratio
    
    
    2.50:1.00
  28




---



##### Table of Contents



29




---



##### Table of Contents




    
    Our total net leverage ratio (defined as the ratio of consolidated indebtedness, net of
unrestricted cash and cash equivalents in excess of $5,000,000 but not to exceed
$25,000,000, to consolidated EBITDA for the immediately preceding four fiscal quarters), as
of the end of any fiscal quarter, is greater than 5.50:1.00 (stepping down to 5.25:1.00
after the first anniversary of the closing date of the Credit Facilities); or
    
    Consolidateds interest coverage ratio (defined as the ratio of consolidated EBITDA to
consolidated cash interest expense for the immediately preceding four fiscal quarters) as
of the end of any fiscal quarter is not at least 2.25:1.00.
  Surety Bonds
  Table of Contractual Obligations and Commitments
  Payments Due by PeriodTotal
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter(In millions)Long-term debt (a)
    
    $
    594.0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    464.0
    
    
    $
    130.0Operating leases
    
    
    8.8
    
    
    
    0.8
    
    
    
    2.3
    
    
    
    1.9
    
    
    
    1.7
    
    
    
    1.1
    
    
    
    1.0Pension and other post
retirement obligations (b)
    
    
    46.0
    
    
    
    0.5
    
    
    
    5.2
    
    
    
    5.4
    
    
    
    5.7
    
    
    
    6.0
    
    
    
    23.2$
    648.8
    
    
    $
    1.3
    
    
    $
    7.5
    
    
    $
    7.3
    
    
    $
    7.4
    
    
    $
    471.1
    
    
    $
    154.2
  30




---



##### Table of Contents



(a)
    
    This item consists of loans outstanding under our credit facilities totaling $464.0
million and our senior notes totaling $130.0 million. The credit facilities consist of a
$464.0 million term loan D facility maturing on October 14, 2011 and a $30.0 million
revolving credit facility, which was fully available but undrawn as September 30, 2007.(b)
    
    Pension funding is an estimate of our minimum funding requirements to provide pension
benefits for employees based on service through September 30, 2007. Obligations relating
to other post retirement benefits are based on estimated future benefit payments. Our
estimates are based on forecasts of future benefit payments which may change over time due
to a number of factors, including life expectancy, medical costs and trends and on the
actual rate of return on the plan assets, discount rates, discretionary pension
contributions and regulatory rules.  Recent Accounting Pronouncements
 Fair
Value Measurements
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   31




---



##### Table of Contents



32




---



##### Table of Contents



Item 4. Controls and Procedures
   33




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 6. Exhibits
   34




---



##### Table of Contents



SIGNATURES
  Consolidated Communications Holdings, Inc.
(Registrant)Date:  November 8, 2007
    By:
    /s/ Robert J. CurreyRobert J. CurreyPresident and Chief Executive Officer
(Principal Executive Officer)Date: November 8, 2007
    By:
    /s/ Steven L. ChildersSteven L. ChildersChief Financial Officer

(Principal Financial Officer and

Chief Accounting Officer)  35




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Merger, dated as of July 1, 2007, by and among Consolidated
Communications Holdings, Inc., North Pittsburgh Systems, Inc. and Fort Pitt Acquisition Sub
Inc. (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed July 18,
2007)3.2
    
    Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Current Report on
Form 8-K filed September 12, 2007)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
  36