##### 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, 2008
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Transition Period from  to
 Commission File Number 000-51446
 CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.
  Delaware
    
    02-0636095(State or Other Jurisdiction of Incorporation or
    
    (I.R.S. Employer Identification No.)Organization)
 121 South 17 th Street
Mattoon, Illinois 61938-3987
  þ 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
    
    
    17Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    34PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 4. Submission of Matters to a Vote of Security Holders
    
    
    35Item 5. Other Information
    
    
    35Item 6. Exhibits
    
    
    35Signatures
    
    
    36Exhibit Index
    
    
    37Exhibit 10.1Exhibit 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 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    106,444
    
    
    $
    80,944
    
    
    $
    211,858
    
    
    $
    163,924Operating expenses:Cost of services and products
(exclusive of depreciation and
amortization shown separately below)
    
    
    36,108
    
    
    
    25,788
    
    
    
    69,971
    
    
    
    51,417Selling, general and administrative expenses
    
    
    26,911
    
    
    
    22,296
    
    
    
    55,055
    
    
    
    44,595Depreciation and amortization
    
    
    22,350
    
    
    
    16,606
    
    
    
    45,221
    
    
    
    33,235Income from operations
    
    
    21,075
    
    
    
    16,254
    
    
    
    41,611
    
    
    
    34,677Other income (expense):Interest income
    
    
    64
    
    
    
    227
    
    
    
    288
    
    
    
    441Interest expense
    
    
    (16,048
    )
    
    
    (11,688
    )
    
    
    (34,326
    )
    
    
    (23,302
    )Investment income
    
    
    4,845
    
    
    
    1,611
    
    
    
    9,207
    
    
    
    3,054Minority interest
    
    
    (133
    )
    
    
    (118
    )
    
    
    (405
    )
    
    
    (290
    )Loss on extinguishment of debt
    
    
    (9,224
    )
    
    
    
    
    
    
    (9,224
    )
    
    
    Other, net
    
    
    (129
    )
    
    
    264
    
    
    
    (114
    )
    
    
    276Income before income taxes
    
    
    450
    
    
    
    6,550
    
    
    
    7,037
    
    
    
    14,856Income tax expense
    
    
    270
    
    
    
    1,057
    
    
    
    3,148
    
    
    
    4,744Net income
    
    $
    180
    
    
    $
    5,493
    
    
    $
    3,889
    
    
    $
    10,112Net income per common share  Basic and Diluted
    
    $
    0.01
    
    
    $
    0.21
    
    
    $
    0.13
    
    
    $
    0.39Cash 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 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,433
    
    
    $
    34,341Accounts receivable, net of allowance of $2,127
and $2,440, respectively
    
    
    44,777
    
    
    
    44,001Inventories
    
    
    7,235
    
    
    
    6,364Deferred income taxes
    
    
    4,551
    
    
    
    4,551Prepaid expenses and other current assets
    
    
    13,182
    
    
    
    10,358Total current assets
    
    
    80,178
    
    
    
    99,615Property, plant and equipment, net
    
    
    403,780
    
    
    
    411,647Intangibles and other assets:Investments
    
    
    94,921
    
    
    
    94,142Goodwill
    
    
    526,630
    
    
    
    526,439Customer lists, net
    
    
    135,329
    
    
    
    146,411Tradenames
    
    
    14,291
    
    
    
    14,291Deferred financing costs and other assets
    
    
    8,712
    
    
    
    12,046Total assets
    
    $
    1,263,841
    
    
    $
    1,304,591LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of capital lease obligations
    
    $
    1,048
    
    
    $
    1,010Current portion of pension and postretirement benefit obligations
    
    
    7,919
    
    
    
    8,765Accounts payable
    
    
    12,798
    
    
    
    17,386Advance billings and customer deposits
    
    
    18,970
    
    
    
    18,167Dividends payable
    
    
    11,363
    
    
    
    11,361Accrued expenses
    
    
    20,763
    
    
    
    28,254Total current liabilities
    
    
    72,861
    
    
    
    84,943Capital lease obligations less current portion
    
    
    1,102
    
    
    
    1,636Long-term debt
    
    
    880,000
    
    
    
    890,000Deferred income taxes
    
    
    97,169
    
    
    
    97,289Pension and postretirement benefit obligations
    
    
    57,200
    
    
    
    56,729Other liabilities
    
    
    13,610
    
    
    
    14,306Total liabilities
    
    
    1,121,942
    
    
    
    1,144,903Minority interest
    
    
    4,727
    
    
    
    4,322Stockholders equity:Common stock, $0.01 par value, 100,000,000 shares,
authorized, 29,511,519 and 29,440,587 issued and
outstanding, respectively
    
    
    295
    
    
    
    294Additional paid in capital
    
    
    279,026
    
    
    
    278,175Accumulated deficit
    
    
    (136,455
    )
    
    
    (117,452
    )Accumulated other comprehensive loss
    
    
    (5,694
    )
    
    
    (5,651
    )Total stockholders equity
    
    
    137,172
    
    
    
    155,366Total liabilities and stockholders equity
    
    $
    1,263,841
    
    
    $
    1,304,591
   4




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##### Table of Contents



Consolidated Communications Holdings, Inc.
Consolidated Statements of Cash Flows  (Amounts in thousands)
(Unaudited)
 Six Months EndedJune 30,2008
    
    
    2007OPERATING ACTIVITIESNet income
    
    $
    3,889
    
    
    $
    10,112Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    45,221
    
    
    
    33,235Provision for bad debt losses
    
    
    2,322
    
    
    
    1,858Loss on extinguishment of debt
    
    
    9,224
    
    
    
    Deferred income tax
    
    
    (3,148
    )
    
    
    1,103Partnership income
    
    
    (4,729
    )
    
    
    (882
    )Non-cash stock compensation
    
    
    860
    
    
    
    1,706Minority interest in net income of subsidiary
    
    
    405
    
    
    
    290Amortization of deferred financing costs
    
    
    806
    
    
    
    1,668Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,098
    )
    
    
    (1,738
    )Inventories
    
    
    (871
    )
    
    
    156Other assets
    
    
    830
    
    
    
    (2,538
    )Accounts payable
    
    
    (4,588
    )
    
    
    (794
    )Accrued expenses and other liabilities
    
    
    (4,943
    )
    
    
    (7,067
    )Net cash provided by operating activities
    
    
    42,180
    
    
    
    37,109INVESTING ACTIVITIESSecurities purchased
    
    
    
    
    
    
    (10,625
    )Capital expenditures
    
    
    (26,286
    )
    
    
    (16,673
    )Net cash used in investing activities
    
    
    (26,286
    )
    
    
    (27,298
    )FINANCING ACTIVITIESProceeds from issuance of stock
    
    
    
    
    
    
    12Proceeds from long-term obligations
    
    
    120,000
    
    
    
    Payments made on long-term obligations
    
    
    (136,337
    )
    
    
    Payment of deferred financing costs
    
    
    (240
    )
    
    
    (320
    )Payment of capital lease obligation
    
    
    (496
    )
    
    
    Purchase and retirement of common stock
    
    
    (8
    )
    
    
    Dividends on common stock
    
    
    (22,721
    )
    
    
    (20,093
    )Net cash used in financing activities
    
    
    (39,802
    )
    
    
    (20,401
    )Net decrease in cash and cash equivalents
    
    
    (23,908
    )
    
    
    (10,590
    )Cash and cash equivalents at beginning of period
    
    
    34,341
    
    
    
    26,672Cash and cash equivalents at end of period
    
    $
    10,433
    
    
    $
    16,082
   5




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##### Table of Contents



Consolidated Communications Holdings, Inc.
Condensed Consolidated Statement of Changes in Stockholders Equity
Six Months Ended June 30, 2008  (Amounts in thousands, except share amounts)
(Unaudited)
 AccumulatedOtherCommon Stock
    
    
    Additional
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Paid in Capital
    
    
    Deficit
    
    
    Loss
    
    
    TotalBalance, January 1, 2008
    
    
    29,440,587
    
    
    $
    294
    
    
    $
    278,175
    
    
    $
    (117,452
    )
    
    $
    (5,651
    )
    
    $
    155,366Effects of accounting change regarding
postretirement plan measurement dates
pursuant to SFAS No. 158:Service cost, interest cost, and expected
return on plan assets for October 1, 2007
through Dececmber 31, 2007, net of ($88)
of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (154
    )
    
    
    
    
    
    
    (154
    )Amortization of prior service cost and
net loss for October 1, 2007 through
December 31, 2007, net of ($9) of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (169
    )
    
    
    15
    
    
    
    (154
    )Balance, January 1, 2008 as adjusted
    
    
    29,440,587
    
    
    
    294
    
    
    
    278,175
    
    
    
    (117,621
    )
    
    
    (5,636
    )
    
    
    155,212Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,889
    
    
    
    
    
    
    
    3,889Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,723
    )
    
    
    
    
    
    
    (22,723
    )Shares issued under employee
plan, net of forfeitures
    
    
    71,467
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-cash stock compensation
    
    
    
    
    
    
    1
    
    
    
    859
    
    
    
    
    
    
    
    
    
    
    
    860Purchase and retirement of common stock
    
    
    (535
    )
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (8
    )Prior service cost and net loss, net of ($104) of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (180
    )
    
    
    (180
    )Change in fair value of cash flow
hedges, net of $72 of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122
    
    
    
    122Balance, June 30, 2008
    
    
    29,511,519
    
    
    $
    295
    
    
    $
    279,026
    
    
    $
    (136,455
    )
    
    $
    (5,694
    )
    
    $
    137,172
   6




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##### Table of Contents



CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 2008 and 2007  (Dollars in thousands, except share and per share amounts)
 1. Description of Business
  2. Presentation of Interim Financial Statements
  3. Recent Accounting Pronouncements
 Disclosure about Derivative Instruments
and Hedging Activities  an Amendment of FASB Statement No. 133. Accounting for
Derivative Instruments and Hedging Activities,
 Noncontrolling Interests in Consolidated Financial Statements  an Amendment of ARB No.
51
  7




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##### Table of Contents



(SFAS No. 141 (R)), Business
Combinations.
 4. Marketable Securities
  5. Acquisition
   Current assets
    
    $
    17,729Property, plant and equipment
    
    
    117,134Customer list
    
    
    49,000Goodwill
    
    
    214,580Investments and other assets
    
    
    53,360Liabilities assumed
    
    
    (105,034
    )Net purchase price
    
    $
    346,769
  8




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Goodwill and Other Intangible Assets,
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2007Total revenues
    
    $
    105,258
    
    
    $
    212,661Income from operations
    
    $
    17,399
    
    
    $
    31,209Net income
    
    $
    4,804
    
    
    $
    5,143Income per share  basic
    
    $
    0.17
    
    
    $
    0.18Income per share  diluted
    
    $
    0.16
    
    
    $
    0.17
 6. Goodwill and Customer Lists
  June 30,
    
    
    December 31,2008
    
    
    2007Telephone Operations
    
    $
    519,446
    
    
    $
    519,255Other Operations
    
    
    7,184
    
    
    
    7,184$
    526,630
    
    
    $
    526,439
  June 30,
    
    
    December 31,2008
    
    
    2007Gross carrying amount
    
    $
    205,648
    
    
    $
    205,648Less: accumulated amortization
    
    
    (70,319
    )
    
    
    (59,237
    )Net carrying amount
    
    $
    135,329
    
    
    $
    146,411
  9




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7. Summarized Financial Information for Significant Investments
 
 Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2008Total revenues
    
    $
    26,768
    
    
    $
    51,930Income from operations
    
    $
    5,742
    
    
    $
    11,213Income before income taxes
    
    $
    5,767
    
    
    $
    11,339Net income
    
    $
    5,767
    
    
    $
    11,339
 8. Pension Costs and Other Postretirement Benefits
    10




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Pension Benefits
    
    
    Other Benefits2008
    
    
    2007
    
    
    2008
    
    
    2007Three months ended June 30,Service cost
    
    $
    546
    
    
    $
    345
    
    
    $
    252
    
    
    $
    219Interest cost
    
    
    2,806
    
    
    
    1,168
    
    
    
    632
    
    
    
    385Expected return on plan assets
    
    
    (3,255
    )
    
    
    (1,231
    )
    
    
    
    
    
    
    Other, net
    
    
    4
    
    
    
    40
    
    
    
    (147
    )
    
    
    (248
    )Net periodic benefit cost
    
    $
    101
    
    
    $
    322
    
    
    $
    737
    
    
    $
    356Six months ended June 30,Service cost
    
    $
    1,092
    
    
    $
    690
    
    
    $
    505
    
    
    $
    439Interest cost
    
    
    5,611
    
    
    
    2,340
    
    
    
    1,263
    
    
    
    770Expected return on plan assets
    
    
    (6,510
    )
    
    
    (2,467
    )
    
    
    
    
    
    
    Other, net
    
    
    9
    
    
    
    81
    
    
    
    (293
    )
    
    
    (495
    )Net periodic benefit cost
    
    $
    202
    
    
    $
    644
    
    
    $
    1,475
    
    
    $
    714
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans.
 9. Long-Term Debt
  June 30,
    
    
    December 31,2008
    
    
    2007Senior Secured Credit FacilityRevolving loan
    
    $
    
    
    
    $
    Term loan
    
    
    880,000
    
    
    
    760,000Obligations under capital lease
    
    
    2,150
    
    
    
    2,646Senior notes
    
    
    
    
    
    
    130,000882,150
    
    
    
    892,646Less: current portion
    
    
    (1,048
    )
    
    
    (1,010
    )$
    881,102
    
    
    $
    891,636
  11




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10. Derivative Instruments
    12




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11. Fair Value Measurements
 Fair Value Measurements.
    Fair Value Measurements at Reporting Date UsingQuoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    June 30, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Interest Rate Derivatives
    
    $
    12,575
    
    
    $
    
    
    
    $
    
    
    
    $
    12,575
  Fair Value Measurements 
Using SignificantUnobservable Inputs 
(Level 3)Interest RateDerivativesBalance at December 31, 2007
    
    $
    12,769Total unrealized gains included in other
comprehensive income
    
    
    (194
    )Balance at June 30, 2008
    
    $
    12,575The amount of total gains or (losses) for
the period included in earnings for
the period
    
    $
    
  13




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12. Restricted Share Plan
  Restricted shares outstanding, December 31, 2007
    
    
    129,302Shares granted
    
    
    71,467Shares vested
    
    
    (4,500
    )Shares forfeited or retired
    
    
    Restricted shares outstanding, June 30, 2008
    
    
    196,269
  13. Income Taxes
 Accounting for Uncertainty in
Income Taxes, an Interpretation of Financial Accounting Standards Board Statement
No. 109
     14




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14. Net Income per Common Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Basic:Net income
    
    $
    180
    
    
    $
    5,493
    
    
    $
    3,889
    
    
    $
    10,112Weighted average number of
common
shares outstanding
    
    
    29,315,250
    
    
    
    25,758,289
    
    
    
    29,314,881
    
    
    
    25,757,471Net income per common share
    
    $
    0.01
    
    
    $
    0.21
    
    
    $
    0.13
    
    
    $
    0.39Diluted:Net income
    
    $
    180
    
    
    $
    5,493
    
    
    $
    3,889
    
    
    $
    10,112Weighted average number of
common
shares outstanding
    
    
    29,529,290
    
    
    
    26,130,618
    
    
    
    29,514,570
    
    
    
    26,080,203Net income per common share
    
    $
    0.01
    
    
    $
    0.21
    
    
    $
    0.13
    
    
    $
    0.39
  Earnings per Share,
 15. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    180
    
    
    $
    5,493
    
    
    $
    3,889
    
    
    $
    10,112Other comprehensive income (loss):Prior service cost and net loss, net of tax
    
    
    (90
    )
    
    
    
    
    
    
    (180
    )
    
    
    Change in fair value of cash flow hedges,
net of tax
    
    
    13,342
    
    
    
    3,335
    
    
    
    122
    
    
    
    1,853Total comprehensive income
    
    $
    13,432
    
    
    $
    8,828
    
    
    $
    3,831
    
    
    $
    11,965
  15




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16. Business Segments
  Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,
    
    
    Ended June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating revenuesTelephone Operations
    
    $
    95,637
    
    
    $
    71,006
    
    
    $
    190,611
    
    
    $
    143,518Other Operations
    
    
    10,807
    
    
    
    9,938
    
    
    
    21,247
    
    
    
    20,406Total
    
    $
    106,444
    
    
    $
    80,944
    
    
    $
    211,858
    
    
    $
    163,924Operating income (loss)Telephone Operations
    
    $
    20,746
    
    
    $
    17,020
    
    
    $
    41,600
    
    
    $
    36,238Other Operations
    
    
    329
    
    
    
    (766
    )
    
    
    11
    
    
    
    (1,561
    )Total
    
    
    21,075
    
    
    
    16,254
    
    
    
    41,611
    
    
    
    34,677Interest income
    
    
    64
    
    
    
    227
    
    
    
    288
    
    
    
    441Interest expense
    
    
    (16,048
    )
    
    
    (11,688
    )
    
    
    (34,326
    )
    
    
    (23,302
    )Investment income
    
    
    4,845
    
    
    
    1,611
    
    
    
    9,207
    
    
    
    3,054Minority interest
    
    
    (133
    )
    
    
    (118
    )
    
    
    (405
    )
    
    
    (290
    )Loss on extinguishment of
debt
    
    
    (9,224
    )
    
    
    
    
    
    
    (9,224
    )
    
    
    Other, net
    
    
    (129
    )
    
    
    264
    
    
    
    (114
    )
    
    
    276Income before income taxes
    
    $
    450
    
    
    $
    6,550
    
    
    $
    7,037
    
    
    $
    14,856
  16




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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 (MD&A) of Consolidated Communications Holdings, Inc. and its subsidiaries on a
consolidated basis. The following discussion should be read in conjunction with our historical
financial statements and related notes contained elsewhere in this Report.
 Consolidated Communications or the Company refers to Consolidated Communications Holdings,
Inc. alone or with its wholly owned subsidiaries, as the context requires. When this report uses
the words we, our, or us, they refer to the Company and its subsidiaries.
 Forward-Looking Statements
  
    
    various risks to stockholders of not receiving dividends and risks to our ability to
pursue growth opportunities if we continue to pay dividends according to our current
dividend policy;
 
    
    various risks to the price and volatility of our common stock;
 
    
    our substantial amount of debt and our ability to incur additional debt in the future;
 
    
    our need for a significant amount of cash to service and repay our debt and to pay
dividends on our common stock;
 
    
    restrictions contained in our debt agreements that limit the discretion of our
management in operating our business;
 
    
    the ability to refinance our existing debt as necessary;
 
    
    rapid development and introduction of new technologies and intense competition in the
telecommunications industry;
 
    
    risks associated with our possible pursuit of future acquisitions;
 
    
    the integration of the Company and North Pittsburgh;
 
    
    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;
  17




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##### Table of Contents




    
    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 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,
2007, and the other documents that we file with the SEC from time to time that could cause
our actual results to differ from our current expectations and from the forward-looking
statements discussed in this Report.
  Overview
  Acquisition of North Pittsburgh and New Credit Facility
   
    
    a $50.0 million revolving credit facility that is currently undrawn;
 
    
    a $760.0 million term loan, the proceeds of which were drawn at closing of the
acquisition; and
 
    
    a delayed draw term loan (DDTL) in the amount of up to $140.0 million which was
available to us until May 1, 2008, a portion of the proceeds of which were used for the
purpose of redeeming
our $130.0 million of outstanding senior notes along with the payment of any accrued
interest and fees, as described below under Redemption of Senior Notes.
  18




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##### Table of Contents




    
    pay off our previous credit facility of $464.0 million plus accrued interest;
 
    
    fund the cash portion of the acquisition; and
 
    
    pay fees and expenses related to the acquisition and new financing.
 Redemption of Senior Notes
  Factors Affecting Results of Operations
 Revenues
 Telephone Operations and Other Operations
 Local Access Lines and Bundled Services.
    19




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##### Table of Contents




    
    aggressively promoting DSL service, including selling DSL as a stand-alone service;
 
    
    bundling value-adding services, such as DSL or IPTV, with a combination of local
service, custom calling features, voicemail and Internet access;
 
    
    maintaining excellent customer service standards, particularly as we introduce new
services to existing customers; and
 
    
    keeping a strong local presence in the communities we serve.
   
    
    hosted VOIP, which was launched in certain Texas markets in 2005 to meet the
needs of small to medium sized business customers who want robust function without
having to purchase a traditional key or PBX phone system;
 
    
    VOIP service for residential customers, which is being offered both as a growth
opportunity and as an alternative to the traditional phone line for customers who
are considering a switch to a cable competitor;
 
    
    DSL service which has been made available to users who do not have our access
line. This expands our customer base and creates additional revenue generating
opportunities;
 
    
    a DSL tier with speeds up to 10 Mbps is now being offered for those customers
desiring greater Internet speed; and
 
    
    High definition video service and digital video recorders in
all of our IPTV markets.
     20




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##### Table of Contents



June 30,
    
    
    December 31,
    
    
    June 30,2008
    
    
    2007 (1)
    
    
    2007Local access lines in service:Residential
    
    
    174,641
    
    
    
    183,070
    
    
    
    151,645Business
    
    
    102,152
    
    
    
    103,116
    
    
    
    77,362Total local access lines
    
    
    276,793
    
    
    
    286,186
    
    
    
    229,007IPTV subscribers
    
    
    14,112
    
    
    
    12,241
    
    
    
    9,577ILEC DSL subscribers
    
    
    86,575
    
    
    
    81,337
    
    
    
    58,225100,687
    
    
    
    93,578
    
    
    
    67,802VOIP subscribers
    
    
    4,088
    
    
    
    2,465
    
    
    
    1,822CLEC Access Line Equivalents (2)
    
    
    73,713
    
    
    
    70,063
    
    
    
    Total connections
    
    
    455,281
    
    
    
    452,292
    
    
    
    298,631Long distance lines (3)
    
    
    167,767
    
    
    
    166,599
    
    
    
    150,863Dial-up subscribers
    
    
    5,687
    
    
    
    6,783
    
    
    
    10,223
 (1)
    
    In connection with the acquisition of North Pittsburgh, we acquired 36,411 residential access
lines, 25,988 business access lines, 14,713 DSL subscribers, 87 VOIP subscribers, 70,063 CLEC
access line equivalents and 18,223 long distance lines.(2)
    
    CLEC access line equivalents represent a combination of voice services and data circuits. The
calculations represent a conversion of data circuits to an access line basis.
Equivalents are calculated by converting data circuits (basic rate interface, primary rate
interface, DSL, DS-1, DS-3 and Ethernet) and SONET-based (optical) services (OC-3 and OC-48) to
the equivalent of an access line.(3)
    
    Reflects the inclusion of long distance service provided as part of our VOIP offering while
excluding CLEC long distance subscribers.  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.
  21




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##### Table of Contents



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.
    Depreciation and Amortization Expenses
  YearsBuildings
    
    
    15-35Network and outside plant facilities
    
    
    5-30Furniture, fixtures and equipment
    
    
    3-17Capital leases
    
    
    11
  22




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Goodwill and Other Intangible Assets
  Three Months Ended June 30,2008
    
    
    2007% of Total
    
    
    
    
    
    
    % of Total$ (millions)
    
    
    Revenues
    
    
    $ (millions)
    
    
    RevenuesRevenuesTelephone OperationsLocal calling services
    
    $
    26.5
    
    
    
    24.9
    %
    
    $
    21.0
    
    
    
    26.0
    %Network access services
    
    
    24.6
    
    
    
    23.1
    
    
    
    17.5
    
    
    
    21.6Subsidies
    
    
    13.4
    
    
    
    12.6
    
    
    
    11.1
    
    
    
    13.8Long distance services
    
    
    6.3
    
    
    
    5.9
    
    
    
    3.6
    
    
    
    4.4Data and internet services
    
    
    15.2
    
    
    
    14.3
    
    
    
    9.1
    
    
    
    11.2Other services
    
    
    9.6
    
    
    
    9.0
    
    
    
    8.7
    
    
    
    10.8Total Telephone Operations
    
    
    95.6
    
    
    
    89.8
    
    
    
    71.0
    
    
    
    87.8Other Operations
    
    
    10.9
    
    
    
    10.2
    
    
    
    9.9
    
    
    
    12.2Total operating revenues
    
    
    106.5
    
    
    
    100.0
    
    
    
    80.9
    
    
    
    100.0ExpensesOperating expensesTelephone Operations
    
    
    52.9
    
    
    
    49.7
    
    
    
    37.9
    
    
    
    46.9Other Operations
    
    
    10.2
    
    
    
    9.6
    
    
    
    10.1
    
    
    
    12.5Depreciation and amortization
    
    
    22.3
    
    
    
    20.9
    
    
    
    16.6
    
    
    
    20.5Total operating expenses
    
    
    85.4
    
    
    
    80.2
    
    
    
    64.6
    
    
    
    79.9Income from operations
    
    
    21.1
    
    
    
    19.8
    
    
    
    16.3
    
    
    
    20.1Interest expense, net
    
    
    (16.0
    )
    
    
    (15.0
    )
    
    
    (11.5
    )
    
    
    (14.2
    )Other income (expense), net
    
    
    (4.7
    )
    
    
    (4.4
    )
    
    
    1.7
    
    
    
    2.1Income tax expense
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (1.0
    )
    
    
    (1.2
    )Net income
    
    $
    0.2
    
    
    
    0.2
    %
    
    $
    5.5
    
    
    
    6.8
    %
 Segments
 Disclosure about Segments of an
Enterprise and Related Information
  23




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##### Table of Contents



Results of Operations
 For the Three Months Ended June 30, 2008 Compared to June 30, 2007
 Revenues
  Telephone Operations Revenues
 Local calling services
 Network access services
 Subsidies
 Long distance services
 Data and Internet
 Other Services
 Other Operations Revenue
   24




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Operating Expenses
  Telephone Operations Operating Expense
  Other Operations Operating Expenses
  Depreciation and Amortization
  Non-Operating Income (Expense)
 Interest Expense, Net
  Other Income (Expense)
   25




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Income Taxes
  For the Six Months Ended June 30, 2008 Compared to June 30, 2007
  Six Months Ended June 30,2008
    
    
    2007% of Total
    
    
    
    
    
    
    % of Total$ (millions)
    
    
    Revenues
    
    
    $ (millions)
    
    
    RevenuesRevenuesTelephone OperationsLocal calling services
    
    $
    53.5
    
    
    
    25.2
    %
    
    $
    42.3
    
    
    
    25.8
    %Network access services
    
    
    49.1
    
    
    
    23.2
    
    
    
    35.8
    
    
    
    21.9Subsidies
    
    
    27.2
    
    
    
    12.8
    
    
    
    22.7
    
    
    
    13.8Long distance services
    
    
    12.5
    
    
    
    5.9
    
    
    
    7.2
    
    
    
    4.4Data and internet services
    
    
    29.6
    
    
    
    14.0
    
    
    
    17.7
    
    
    
    10.8Other services
    
    
    18.7
    
    
    
    8.8
    
    
    
    17.8
    
    
    
    10.9Total Telephone Operations
    
    
    190.6
    
    
    
    89.9
    
    
    
    143.5
    
    
    
    87.6Other Operations
    
    
    21.3
    
    
    
    10.1
    
    
    
    20.4
    
    
    
    12.4Total operating revenues
    
    
    211.9
    
    
    
    100.0
    
    
    
    163.9
    
    
    
    100.0ExpensesOperating expensesTelephone Operations
    
    
    104.5
    
    
    
    49.3
    
    
    
    75.3
    
    
    
    45.9Other Operations
    
    
    20.6
    
    
    
    9.7
    
    
    
    20.7
    
    
    
    12.6Depreciation and amortization
    
    
    45.2
    
    
    
    21.4
    
    
    
    33.2
    
    
    
    20.3Total operating expenses
    
    
    170.3
    
    
    
    80.4
    
    
    
    129.2
    
    
    
    78.8Income from operations
    
    
    41.6
    
    
    
    19.6
    
    
    
    34.7
    
    
    
    21.2Interest expense, net
    
    
    (34.0
    )
    
    
    (16.0
    )
    
    
    (22.9
    )
    
    
    (14.0
    )Other income (expense), net
    
    
    (0.6
    )
    
    
    (0.3
    )
    
    
    3.0
    
    
    
    1.8Income tax expense
    
    
    (3.1
    )
    
    
    (1.5
    )
    
    
    (4.7
    )
    
    
    (2.8
    )Net income
    
    $
    3.9
    
    
    
    1.8
    %
    
    $
    10.1
    
    
    
    6.2
    %
  26




---



##### 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
   27




---



##### Table of Contents



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




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Liquidity and Capital Resources
 General
       29




---



##### Table of Contents



Six Months EndedJune 30,2008
    
    
    2007(In millions)Net Cash Provided by (Used for):Operating activities
    
    $
    42.2
    
    
    $
    37.1Investing activities
    
    
    (26.3
    )
    
    
    (27.3
    )Financing activities
    
    
    (39.8
    )
    
    
    (20.4
    )
 Operating Activities
   Investing Activities
  Financing Activities
   30




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##### Table of Contents



Debt
  Debt and Capital Leases as of June 30, 2008
(In Millions)
 Balance
    
    
    Maturity Date
    
    
    Rate (1)Capital lease
    
    $
    2.2
    
    
    July 1, 2011
    
    
    7.40
    %Revolving credit
facility
    
    
    
    
    
    December 31, 2013
    
    LIBOR + 2.50%Term loan
    
    
    880.0
    
    
    December 31, 2014
    
    LIBOR + 2.50%
 
 (1)
    
    As of June 30, 2008, the 90-day LIBOR rate in effect on our borrowings was 2.80%. Credit Facilities
    Derivative Instruments
   31




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##### Table of Contents



Covenant Compliance
    Dividends
   Surety Bonds
   32




---



##### Table of Contents



Recent Accounting Pronouncements
 Disclosure about Derivative Instruments
and Hedging Activities  an Amendment of FASB Statement No. 133. Accounting for
Derivative Instruments and Hedging Activities,
 Noncontrolling Interests in Consolidated Financial Statements  an Amendment of ARB No.
51
 Business Combinations.
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
    33




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##### Table of Contents



Item 4. Controls and Procedures
   34




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
 Redemption Premium
 CCI CCI Texas Borrowers Wachovia Credit Agreement Letter
Agreement
  
 Item 6. Exhibits
   35




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##### Table of Contents



SIGNATURES
  Consolidated Communications Holdings, Inc.
(Registrant)Date: August 7, 2008
    By:
    /s/ Robert J. CurreyRobert J. CurreyPresident and Chief Executive Officer
(Principal Executive Officer)Date: August 7, 2008
    By:
    /s/ Steven L. ChildersSteven L. ChildersChief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)  36




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    Letter Agreement, dated
August 6, 2008, by Wachovia Bank, National Association, and agreed
to and acknowledged by Consolidated Communications Holdings, Inc., Consolidated
Communications, Inc., Consolidated Communications Acquisition Texas, Inc. and North Pittsburgh
Systems, Inc. (formerly known as Fort Pitt Acquisition Sub Inc.).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.
  37