Consolidated Communications Holdings
Consolidated Communications Holdings, Inc. (Form: 10-Q, Received: 08/07/2015 13:48:04)

Table of Contents

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015

 

or

 

[     ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 000-51446

 

 

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

 

02-0636095

 

 

(State or other jurisdiction

 

 

(IRS Employer

 

 

of incorporation or organization)

 

 

Identification No.)

 

 

 

 

 

 

 

 

121 South 17th Street, Mattoon, Illinois

 

 

61938-3987

 

 

(Address of principal executive offices)

 

 

(Zip Code)

 

 

   (217) 235-3311    

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes    X            No ____

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes    X             No ____

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer    X       Accelerated filer ____

 

Non-accelerated filer___ (Do not check if a smaller reporting company) Smaller reporting company ____

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes                   No    X

 

On July 31, 2015, the registrant had 50,509,148 shares of Common Stock outstanding.

 

 

 

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

1

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

42

 

 

 

Item 6.

Exhibits

44

 

 

 

 

 

 

SIGNATURES

45

 



Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; Amounts in thousands except per share amounts)

 

 

 

 

 

Quarter Ended June 30,

 

Six Months Ended June 30,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Net revenues

 

$

201,010

 

$

151,036

 

$

393,588

 

$

300,684

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of services and products (exclusive of depreciation and amortization)

 

86,376

 

55,918

 

166,268

 

111,218

Selling, general and administrative expenses

 

43,085

 

32,711

 

85,033

 

65,286

Acquisition and other transaction costs

 

223

 

977

 

660

 

1,266

Depreciation and amortization

 

43,651

 

36,005

 

87,207

 

71,547

Income from operations

 

27,675

 

25,425

 

54,420

 

51,367

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense, net of interest income

 

(20,429)

 

(19,728)

 

(41,103)

 

(39,559)

Loss on extinguishment of debt

 

(41,242)

 

-

 

(41,242)

 

-

Investment income

 

9,004

 

9,313

 

15,445

 

17,649

Other, net

 

(40)

 

(252)

 

(97)

 

(1,155)

Income (loss) before income taxes

 

(25,032)

 

14,758

 

(12,577)

 

28,302

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

(9,104)

 

4,871

 

(4,478)

 

9,993

 

 

 

 

 

 

 

 

 

Net income (loss)

 

(15,928)

 

9,887

 

(8,099)

 

18,309

Less: net income attributable to noncontrolling interest

 

40

 

80

 

59

 

178

Net income (loss) attributable to common shareholders

 

$

(15,968)

 

$

9,807

 

$

(8,158)

 

$

18,131

 

 

 

 

 

 

 

 

 

Net income (loss) per basic and diluted common share attributable to common shareholders

 

$

(0.32)

 

$

0.24

 

$

(0.16)

 

$

0.45

Dividends declared per common share

 

$

0.38

 

$

0.38

 

$

0.77

 

$

0.77

 

 

See accompanying notes.

 

 

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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; Amounts in thousands)

 

 

 

 

 

Quarter Ended June 30,

 

Six Months Ended June 30,

 

 

2015

 

2014

 

2015

 

2014

Net income (loss)

 

$

(15,928)

 

$

9,887

 

$

(8,099)

 

$

18,309

Pension and other post-retirement obligations:

 

 

 

 

 

 

 

 

Amortization of actuarial losses (gains) and prior service credit to earnings, net of tax

 

464

 

(136)

 

866

 

(272)

Derivative instruments designated as cash flow hedges:

 

 

 

 

 

 

 

 

Change in fair value of derivatives, net of tax

 

(237)

 

-

 

(802)

 

-

Reclassification of realized loss to earnings, net of tax

 

229

 

303

 

491

 

711

Comprehensive income (loss)

 

(15,472)

 

10,054

 

(7,544)

 

18,748

Less: comprehensive income attributable to noncontrolling interest

 

40

 

80

 

59

 

178

Total comprehensive income (loss) attributable to common shareholders

 

$

(15,512)

 

$

9,974

 

$

(7,603)

 

$

18,570

 

 

See accompanying notes.

 

 

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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; Amounts in thousands except share and per share amounts)

 

 

 

 

 

June 30,

 

December 31,

 

 

2015

 

2014

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

  $

6,946

 

  $

6,679

Accounts receivable, net

 

87,096

 

77,536

Income tax receivable

 

25,195

 

18,940

Deferred income taxes

 

13,374

 

13,374

Prepaid expenses and other current assets

 

20,093

 

17,616

Total current assets

 

152,704

 

134,145

 

 

 

 

 

Property, plant and equipment, net

 

1,122,652

 

1,137,478

Investments

 

115,688

 

115,376

Goodwill

 

764,630

 

764,630

Other intangible assets

 

50,146

 

56,322

Deferred debt issuance costs, net and other assets

 

16,600

 

19,313

Total assets

 

  $

2,222,420

 

  $

2,227,264

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

  $

23,228

 

  $

15,277

Advance billings and customer deposits

 

31,567

 

31,933

Dividends payable

 

19,566

 

19,510

Accrued compensation

 

21,615

 

32,581

Accrued interest

 

9,183

 

6,784

Accrued expense

 

39,012

 

39,698

Current portion of long-term debt and capital lease obligations

 

10,102

 

9,849

Current portion of derivative liability

 

297

 

443

Total current liabilities

 

154,570

 

156,075

 

 

 

 

 

Long-term debt and capital lease obligations

 

1,406,566

 

1,356,753

Deferred income taxes

 

247,031

 

246,665

Pension and other post-retirement obligations

 

113,154

 

122,363

Other long-term liabilities

 

14,967

 

14,579

Total liabilities

 

1,936,288

 

1,896,435

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

Common stock, par value $0.01 per share; 100,000,000 shares authorized, 50,509,148 and 50,364,579 shares outstanding as of June 30, 2015 and December 31, 2014, respectively

 

505

 

504

Additional paid-in capital

 

311,827

 

357,139

Retained earnings

 

-

 

-

Accumulated other comprehensive loss, net

 

(31,085)

 

(31,640)

Noncontrolling interest

 

4,885

 

4,826

Total shareholders’ equity

 

286,132

 

330,829

Total liabilities and shareholders’ equity

 

  $

2,222,420

 

  $

2,227,264

 

 

See accompanying notes.

 

 

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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; amounts in thousands)

 

 

 

 

 

Six Months Ended June 30,

 

 

2015

 

2014

Net cash provided by operating activities

 

$

95,816

 

$

87,045

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of property, plant and equipment, net

 

(65,538)

 

(50,446)

Proceeds from sale of assets

 

57

 

1,250

Proceeds from sale of investments

 

846

 

-

Net cash used in investing activities

 

(64,635)

 

(49,196)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Proceeds from bond offering

 

294,780

 

-

Proceeds from the issuance of long-term debt

 

40,000

 

26,000

Payment of capital lease obligations

 

(444)

 

(317)

Payment on long-term debt

 

(59,550)

 

(30,550)

Redemption of senior notes

 

(261,874)

 

-

Payment of financing costs

 

(4,468)

 

(2,524)

Dividends on common stock

 

(39,076)

 

(31,127)

Share repurchases for minimum tax withholding

 

(282)

 

-

Net cash used in financing activities

 

(30,914)

 

(38,518)

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

267

 

(669)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

6,679

 

5,551

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

6,946

 

$

4,882

 

 

See accompanying notes.

 

 

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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

1.               SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Business and Basis of Accounting

 

Consolidated Communications Holdings, Inc. (the “Company”, “we” or “our”) is a holding company with operating subsidiaries (collectively “Consolidated”) that provide integrated communications services in consumer, commercial and carrier channels in California, Illinois, Iowa, Kansas, Minnesota, Missouri, North Dakota, Pennsylvania, South Dakota, Texas and Wisconsin.

 

We operate as both an Incumbent Local Exchange Carrier (“ILEC”) and a Competitive Local Exchange Carrier (“CLEC”), dependent upon the territory served.  We provide a wide range of services and products that include local and long-distance service, high-speed broadband Internet access, video services, Voice over Internet Protocol (“VoIP”), private line services, carrier grade access services, network capacity services over our regional fiber optic networks, cloud services, data center and managed services, directory publishing and equipment sales.  As of June 30, 2015, we had approximately 494 thousand voice connections, 449 thousand data connections and 122 thousand video connections.

 

In the opinion of management, the accompanying condensed consolidated balance sheets and related condensed consolidated statements of operations, comprehensive income (loss) and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States (“US GAAP” or “GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such SEC rules and regulations and accounting principles applicable for interim periods. Events subsequent to the balance sheet date have been evaluated for inclusion in the accompanying condensed consolidated financial statements through the date of issuance.  Management believes that the disclosures made are adequate to make the information presented not misleading. Interim results are not necessarily indicative of results for a full year.  The information presented in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and the accompanying notes to the financial statements (“Notes”) thereto included in our 2014 Annual Report on Form 10-K filed with the SEC.

 

Recent Business Developments

 

Enventis Merger

 

On October 16, 2014, we completed our acquisition of Enventis Corporation, a Minnesota corporation (“Enventis”), in which we acquired all the issued and outstanding shares of Enventis in exchange for shares of our common stock. The financial results for Enventis have been included in our condensed consolidated financial statements as of the acquisition date.  See Note 2 for a more complete discussion of the transaction.

 

Issuance of Additional Senior Notes

 

On June 8, 2015, we issued an additional $300.0 million in aggregate principal amount of 6.50% Senior Notes due 2022 (the “New Notes”).  The New Notes were priced at 98.26% of par and resulted in total gross proceeds of approximately $294.8 million, excluding accrued interest.  The net proceeds from the issuance of the New Notes were used, in part, to redeem the remaining $227.2 million of the original aggregate principal amount of the 10.875% Senior Notes due 2020 (the “2020 Notes”), to pay related fees and expenses and to reduce the amount outstanding on our revolving credit facility.  In connection with the redemption of the 2020 Notes, we paid $261.9 million and recognized a loss on the extinguishment of debt of $41.2 million during the quarter and six months ended June 30, 2015.  See Note 6 for a more complete discussion of the transaction.

 

Recent Accounting Pronouncements

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Update No. 2015-03 (“ASU 2015-03”), Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that liability, consistent with debt discounts. Amendments in this update are effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2015, with early adoption permitted. We expect, upon adoption of this guidance, that the current financial statement classification of debt issuance costs will change from assets to liabilities on our condensed consolidated balance sheet.

 

 

 

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In August 2014, FASB issued the Accounting Standards Update No. 2014-15 (“ASU 2014-15”), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate for each annual and interim reporting period whether conditions or events give rise to substantial doubt that an entity has the ability to continue as a going concern within one year following issuance of the financial statements and requires specific disclosures regarding the conditions or events leading to substantial doubt. The new guidance is effective for annual and interim periods ending after December 15, 2016, with early adoption permitted.  The adoption of ASU 2014-15 is not expected to have a material impact on our financial position or results of operations.

 

In May 2014, FASB issued the Accounting Standards Update No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606) . ASU 2014-09 provides new, globally applicable converged guidance concerning recognition and measurement of revenue. As a result, significant additional disclosures are required about nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual and interim periods beginning on or after December 15, 2017. Companies are allowed to transition using either the modified retrospective or full retrospective adoption method. If full retrospective adoption is chosen, three years of financial information must be presented in accordance with the new standard.  We are currently evaluating the alternative methods of adoption and the effect on our condensed consolidated financial statements and related disclosures.

 

2.      ACQUISITION

 

On October 16, 2014, we completed our merger with Enventis and acquired all the issued and outstanding shares of Enventis in exchange for shares of our common stock.  As a result, Enventis became a wholly-owned subsidiary of the Company.  Enventis is an advanced communications provider, which services business and residential customers primarily in the upper Midwest.  The Enventis fiber network spans more than 4,200 route miles across Minnesota and into Iowa, North Dakota, South Dakota and Wisconsin.  The acquisition reflects our strategy to diversify revenue and cash flows amongst multiple products and to expand our network to new markets.

 

At the effective time of the merger, each share of common stock, no par value, of Enventis owned immediately prior to the effective time of the merger converted into and became the right to receive 0.7402 shares of common stock, par value of $0.01 per share, plus cash in lieu of fractional shares, as set forth in the merger agreement.  Based on the closing price of our common stock of $25.40 per share on the date preceding the merger, the total value of the purchase consideration exchanged was $257.7 million, excluding the repayment of Enventis’ outstanding debt of $149.9 million.  On the date of the merger, we issued an aggregate total of 10.1 million shares of our common stock to the former Enventis shareholders. The results of operations of Enventis have been reported in our condensed consolidated financial statements as of the effective date of the acquisition.

 

The acquisition was accounted for in accordance with the acquisition method of accounting for business combinations.  The tangible and intangible assets acquired and liabilities assumed were recorded at their estimated fair values as of the date of the acquisition based on a preliminary valuation, which is subject to change within the measurement period as additional information is obtained.  Upon completion of the final fair value assessment, the fair values of the net assets acquired may differ from the preliminary assessment. We are in the process of finalizing the valuation of the net assets acquired, most notably, the valuation of property, plant and equipment and deferred income taxes.  We expect to finalize these valuations during the quarter ending September 30, 2015.  Any changes to the initial estimates of the fair value of the assets acquired and liabilities assumed will be recorded to those assets and liabilities and residual amounts will be allocated to goodwill.

 

 

 

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The preliminary estimated fair value of the tangible and intangible assets acquired and liabilities assumed are as follows:

 

 

 

(In thousands)

Cash and cash equivalents

 

 $

10,382

Accounts receivable

 

37,399

Other current assets

 

15,961

Property, plant and equipment

 

284,709

Intangible assets

 

26,600

Other long-term assets

 

3,162

Total assets acquired

 

378,213

Current liabilities

 

40,552

Pension and other post-retirement obligations

 

13,852

Deferred income taxes

 

74,628

Other long-term liabilities

 

2,766

Total liabilities assumed

 

131,798

Net fair value of assets acquired

 

246,415

Goodwill

 

161,184

Total consideration transferred

 

 $

407,599

 

Goodwill recognized from the acquisition primarily relates to the expected contributions of the entity to the overall corporate strategy in addition to synergies and acquired workforce.  Goodwill is not deductible for income tax purposes.

 

The preliminary identifiable intangible assets acquired include customer relationships of $19.6 million, tradenames of $1.4 million and non-compete agreements of $5.6 million. The identifiable intangible assets are amortized using the straight-line method over their estimated useful lives, which is five to nine years for customer relationships, depending on the nature of the customer, five years for non-compete agreements and two years for tradenames.

 

During the six months ended June 30, 2015, we made certain adjustments to the fair value of the assets acquired and liabilities assumed which resulted in an increase in property, plant and equipment of $2.1 million, intangible assets of $6.0 million, pension and other post-retirement obligations of $6.3 million and deferred income taxes of $0.6 million. The net impact of the adjustments increased net assets acquired and reduced goodwill by $1.2 million.  These adjustments have been retrospectively applied on the balance sheet as of the acquisition date.  There was no material impact to amounts previously reported in the statement of operations as a result of these adjustments.  During the quarter ended June 30, 2015, no adjustments were recorded to the preliminary valuation of the net assets acquired.

 

In connection with the opening balance sheet adjustment for the pension and other post-retirement obligations discussed above, we determined certain changes to the plan should be recognized as a post-acquisition event. As a result, the valuation of the post-retirement obligation was revised to appropriately reflect the changes in the plan provisions as a result of the acquisition.  These changes resulted in a decrease to the pension and other post-retirement obligations liability of $6.3 million, an increase in deferred taxes of $2.4 million and a decrease in accumulated other comprehensive loss of $3.9 million, which have been reflected in the condensed consolidated balance sheet at December 31, 2014.  The impact of the change to the results of operations was not material.

 

Unaudited Pro Forma Results

 

The following unaudited pro forma information presents our results of operations as if the acquisition of Enventis occurred on January 1, 2013.  The adjustments to arrive at the pro forma information below included: additional depreciation and amortization expense for the fair value increases to property, plant and equipment and intangible assets acquired; an increase in interest expense to reflect the additional debt entered into to finance a portion of the acquisition; and the exclusion of certain acquisition related costs.  Shares used to calculate the basic and diluted earnings per share were adjusted to reflect the additional shares of common stock issued to fund a portion of the acquisition price.

 

 

 

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Quarter Ended

 

Six Months Ended

(Unaudited; in thousands, except per share amounts)

 

June 30, 2014

 

June 30, 2014

Operating revenues

 

$

200,760

 

$

394,648

Income from operations

 

$

27,136

 

$

53,295

 

 

 

 

 

 

 

Net income

 

$

9,602

 

$

16,793

Less: net income attributable to noncontrolling interest

 

80

 

178

Net income attributable to common shareholders

 

$

9,522

 

$

16,615

 

 

 

 

 

Net income per common share - basic and diluted

 

$

0.19

 

$

0.33

 

The pro forma information does not purport to present the actual results that would have resulted if the acquisition had in fact occurred at the beginning of the fiscal periods presented, nor does the information project results for any future period. The pro forma information does not include the impact of any future cost savings or synergies that may be achieved as a result of the acquisition.

 

3.      EARNINGS PER SHARE

 

Basic and diluted earnings per share (“EPS”) are computed using the two-class method, which is an earnings allocation that determines EPS for each class of common stock and participating securities according to dividends declared and participation rights in undistributed earnings. The Company’s restricted stock awards are considered participating securities because holders are entitled to receive non-forfeitable dividends during the vesting term. Diluted EPS includes securities that could potentially dilute basic EPS during a reporting period.  Dilutive securities are not included in the computation of loss per share when a company reports a net loss from continuing operations as the impact would be anti-dilutive.

 

The potentially dilutive impact of the Company’s restricted stock awards is determined using the treasury stock method. Under the treasury stock method, awards are treated as if they had been exercised with any proceeds used to repurchase common stock at the average market price during the period. Any incremental difference between the assumed number of shares issued and purchased is included in the diluted share computation.

 

The computation of basic and diluted EPS attributable to common shareholders computed using the two-class method is as follows:

 

 

 

Quarter Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

(In thousands, except per share amounts)

 

2015

 

2014

 

2015

 

2014

Net income (loss)

 

$

(15,928)

 

$

9,887

 

$

(8,099)

 

$

18,309

Less: net income attributable to noncontrolling interest

 

40

 

80

 

59

 

178

Income (loss) attributable to common shareholders before allocation of earnings to participating securities

 

(15,968)

 

9,807

 

(8,158)

 

18,131

Less: earnings allocated to participating securities

 

-

 

153

 

-    

 

306

Net income (loss) attributable to common shareholders

 

$

(15,968)

 

$

9,654

 

$

(8,158)

 

$

17,825

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding

 

50,175

 

39,877

 

50,161

 

39,877

 

 

 

 

 

 

 

 

 

Net income (loss) per common share attributable to common shareholders - basic and diluted

 

$

(0.32)

 

$

0.24

 

$

(0.16)

 

$

0.45

 

Diluted earnings per common share attributable to common shareholders for the quarter and six months ended June 30, 2015 both exclude 0.3 million potential common shares that could be issued under our share-based compensation plan because the inclusion of the potential common shares would have an antidilutive effect. For the quarter and six months ended June 30, 2014, diluted earnings per common share attributable to common shareholders excluded 0.4 million and 0.3 million potential common shares, respectively.

 

 

 

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4.   INVESTMENTS

 

Our investments are as follows:

 

 

 

June 30,

 

December 31,

 

(In thousands)

 

2015

 

2014

 

Cash surrender value of life insurance policies

 

 $

2,153

 

 $

2,039

 

Cost method investments:

 

 

 

 

 

GTE Mobilnet of South Texas Limited Partnership (2.34% interest)

 

21,450

 

21,450

 

Pittsburgh SMSA Limited Partnership (3.60% interest)

 

22,950

 

22,950

 

CoBank, ACB Stock

 

7,971

 

7,645

 

Other

 

200

 

200

 

Equity method investments:

 

 

 

 

 

GTE Mobilnet of Texas RSA #17 Limited Partnership (20.51% interest)

 

27,935

 

27,990

 

Pennsylvania RSA 6(I) Limited Partnership (16.67% interest)

 

7,698

 

7,451

 

Pennsylvania RSA 6(II) Limited Partnership (23.67% interest)

 

25,331

 

23,894

 

CVIN, LLC

 

-    

 

1,757

 

Totals

 

 $

115,688

 

 $

115,376

 

 

Cost Method

 

We own 2.34% of GTE Mobilnet of South Texas Limited Partnership (the “Mobilnet South Partnership”).  The principal activity of the Mobilnet South Partnership is providing cellular service in the Houston, Galveston and Beaumont, Texas metropolitan areas.  We also own 3.60% of Pittsburgh SMSA Limited Partnership (“Pittsburgh SMSA”), which provides cellular service in and around the Pittsburgh metropolitan area.  Because of our limited influence over these partnerships, we use the cost method to account for both of these investments.  It is not practicable to estimate the fair value of these investments.  We did not evaluate any of the investments for impairment during the quarters or six months ended June 30, 2015 or 2014 as no factors indicating impairment existed.  For the quarters ended June 30, 2015 and 2014, we received cash distributions from these partnerships totaling $3.0 million and $3.8 million, respectively. For the six months ended June 30, 2015 and 2014, we received cash distributions from these partnerships totaling $4.9 million and $7.3 million, respectively.

 

CoBank, ACB (“CoBank”) is a cooperative bank owned by its customers.  On an annual basis, CoBank distributes patronage in the form of cash and stock in the cooperative based on the Company’s outstanding loan balance with CoBank, which has traditionally been a significant lender in the Company’s credit facility.  The investment in CoBank represents the accumulation of the equity patronage paid by CoBank to the Company.

 

Equity Method

 

We own 20.51% of GTE Mobilnet of Texas RSA #17 Limited Partnership (“RSA #17”), 16.67% of Pennsylvania RSA 6(I) Limited Partnership (“RSA 6(I)”) and 23.67% of Pennsylvania RSA 6(II) Limited Partnership (“RSA 6(II)”).  RSA #17 provides cellular service to a limited rural area in Texas.  RSA 6(I) and RSA 6(II) provide cellular service in and around our Pennsylvania service territory.  Because we have significant influence over the operating and financial policies of these three entities, we account for the investments using the equity method.  For the quarters ended June 30, 2015 and 2014, we received cash distributions from these partnerships totaling $4.1 million and $4.9 million, respectively. For the six months ended June 30, 2015 and 2014, we received cash distributions from these partnerships totaling $9.3 million and $10.5 million, respectively.

 

During the quarter ended June 30, 2015, we sold our 6.96% interest in Central Valley Independent Network, LLC (“CVIN”), a joint enterprise comprised of affiliates of several independent telephone companies located in central and northern California.  CVIN provides network services and oversees a broadband infrastructure project designed to expand and improve the availability of network services to counties in central California.  As a result of the sale, we recognized an other-than-temporary impairment loss of $0.8 million during the six months ended June 30, 2015 to reduce the investment to its estimated fair value.  The impairment charge is included in investment income within other income (expense) in the condensed consolidated statements of operations.  We did not receive any distributions from this partnership during the quarters or six months ended June 30, 2015 and 2014.

 

 

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The combined unaudited results of operations and financial position of our three equity investments in the cellular limited partnerships are summarized below:

 

 

 

Quarter Ended

 

Six Months

 

 

 

June 30,

 

Ended June 30,

 

(In thousands)

 

2015

 

2014

 

2015

 

2014

 

Total revenues

 

 $

86,286

 

 $

83,228

 

 $

173,016

 

 $

164,044

 

Income from operations

 

26,911

 

23,426

 

53,805

 

49,306

 

Net income before taxes

 

26,626

 

23,459

 

53,615

 

49,362

 

Net income

 

26,626

 

23,459

 

53,615

 

49,362

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

 

 

(In thousands)

 

2015

 

2014

 

 

 

 

 

Current assets

 

 $

114,962

 

 $

52,866

 

 

 

 

 

Non-current assets

 

95,869

 

93,771

 

 

 

 

 

Current liabilities

 

22,151

 

16,253

 

 

 

 

 

Non-current liabilities

 

52,710

 

3,225

 

 

 

 

 

Partnership equity

 

135,970

 

127,159

 

 

 

 

5.               FAIR VALUE MEASUREMENTS

 

Our derivative instruments related to interest rate swap agreements are required to be measured at fair value on a recurring basis.  The fair values of the interest rate swaps are determined using valuation models which rely on the expected London Interbank Offered Rate (“LIBOR”) based yield curve and estimates of counterparty and Consolidated’s non-performance risk as the most significant inputs.  Because each of these inputs are directly observable or can be corroborated by observable market data, we have categorized these interest rate swaps as Level 2 within the fair value hierarchy. See Note 7 for further discussion regarding our interest rate swap agreements.

 

Our interest rate swap liabilities measured at fair value on a recurring basis and subject to disclosure requirements at June 30, 2015 and December 31, 2014 were as follows:

 

 As of June 30, 2015

Quoted Prices In
Active Markets
for Identical
Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

(In thousands)

Total

(Level 1)

(Level 2)

(Level 3)

Current interest rate swap liabilities

 $

(297)

 $

 –

 $ 

(297)

$

Long-term interest rate swap liabilities

 

(1,292)

 

 

(1,292)

 

Total

 $

(1,589)

 $ 

 $ 

(1,589)

 $ 

 As of December 31, 2014

Quoted Prices In
Active Markets
for Identical
Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

(In thousands)

Total

(Level 1)

(Level 2)

(Level 3)

Current interest rate swap liabilities

 $

(443)

$

 $ 

(443)

$

Long-term interest rate swap liabilities

 

(690)

 

 

(690)

 

Total

 $

(1,133)

 $ 

 $ 

(1,133)

 $ 

 

We have not elected the fair value option for any of our financial assets or liabilities.  The carrying value of other financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities or variable-rate nature of the respective balances.  The following table presents the other financial instruments that are not carried at fair value but which require fair value disclosure as of June 30, 2015 and December 31, 2014.

 

 

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Table of Contents

 

 

 

As of June 30, 2015

 

As of December 31, 2014

 

(In thousands)

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

 

Investments, equity basis

 

  $

60,964

 

n/a

 

  $

61,092

 

n/a

 

Investments, at cost

 

  $

52,571

 

n/a

 

  $

52,245

 

n/a

 

Long-term debt

 

  $

1,411,530

 

  $

1,396,067

 

  $

1,362,049

 

  $

1,381,972

 

 

Cost & Equity Method Investments

 

Our investments at June 30, 2015 and December 31, 2014 accounted for under both the equity and cost methods consisted primarily of minority positions in various cellular telephone limited partnerships and our investment in CoBank.  It is impracticable to determine fair value of these investments.

 

Long-term Debt

 

The fair value of our senior notes was based on quoted market prices and the fair value of borrowings under our credit facility was determined using current market rates for similar types of borrowing arrangements.  We have categorized the long-term debt as Level 2 within the fair value hierarchy.

 

6.               LONG-TERM DEBT

 

Long-term debt, presented net of unamortized discounts, consisted of the following:

 

 

 

June 30,

 

December 31,

 

(In thousands)

 

2015

 

2014

 

Senior secured credit facility:

 

 

 

 

 

Term Loan 4, net of discount of $3,646 and $3,948 at June 30, 2015 and December 31, 2014, respectively

 

 $

892,704

 

 $

896,952

 

Revolving loan

 

24,000

 

39,000

 

10.875% Senior notes due 2020, net of discount of $1,121 at December 31, 2014

 

-

 

226,097

 

6.50% Senior notes due 2022, net of discount of $5,174 at June 30, 2015

 

494,826

 

200,000

 

Capital leases

 

5,138

 

4,553

 

 

 

1,416,668

 

1,366,602

 

Less: current portion of long-term debt and capital leases

 

(10,102)

 

(9,849)

 

Total long-term debt

 

 $

1,406,566

 

 $

1,356,753

 

 

Credit Agreement

 

In December 2013, the Company, through certain of its wholly owned subsidiaries, entered into a Second Amended and Restated Credit Agreement with various financial institutions (the “Credit Agreement”) to replace the Company’s previously amended credit agreement.  The Credit Agreement consists of a $75.0 million revolving credit facility and initial term loans in the aggregate amount of $910.0 million (“Term 4”).  The Credit Agreement also includes an incremental term loan facility which provides the ability to request to borrow up to $300.0 million of incremental term loans subject to certain terms and conditions.  Borrowings under the senior secured credit facility are secured by substantially all of the assets of the Company and its subsidiaries, with the exception of Illinois Consolidated Telephone Company and our majority-owned subsidiary, East Texas Fiber Line Incorporated.

 

The Term 4 loan was issued in an original aggregate principal amount of $910.0 million with a maturity date of December 23, 2020.  The Term 4 loan contains an original issuance discount of $4.6 million, which is being amortized over the term of the loan.  The Term 4 loan requires quarterly principal payments of $2.3 million, which commenced March 31, 2014, and has an interest rate of LIBOR plus 3.25% subject to a 1.00% LIBOR floor.

 

Our revolving credit facility has a maturity date of December 23, 2018 and an applicable margin (at our election) of between 2.50% and 3.25% for LIBOR-based borrowings or between 1.50% and 2.25% for alternate base rate borrowings, depending on our leverage ratio.  Based on our leverage ratio at June 30, 2015, the borrowing margin for the next three month period ending September 30, 2015 will be at a weighted-average margin of 3.00% for a LIBOR-based loan or 2.00% for an alternate base rate loan.  The applicable borrowing margin for the revolving credit facility is adjusted quarterly to reflect the leverage ratio from the prior quarter-end.  As of June 30, 2015 and December 31, 2014, borrowings of $24.0 million and $39.0 million were outstanding under the revolving credit facility, respectively.  A stand-by letter of credit of $1.6 million, issued primarily in connection with the Company’s insurance coverage, was outstanding under our revolving credit facility as of June 30, 2015.  The stand-by letter of credit is renewable annually and reduces the borrowing availability under the revolving credit facility. At June 30, 2015, $49.4 million was available for borrowing under the revolving credit facility.

 

 

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The weighted-average interest rate on outstanding borrowings under our credit facility was 4.14% and 4.20% at June 30, 2015 and December 31, 2014, respectively.  Interest is payable at least quarterly.

 

Net proceeds from asset sales exceeding certain thresholds, to the extent not reinvested, are required to be used to repay loans outstanding under the Credit Agreement.

 

Credit Agreement Covenant Compliance

 

The Credit Agreement contains various provisions and covenants, including, among other items, restrictions on the ability to pay dividends, incur additional indebtedness and issue capital stock.  We have agreed to maintain certain financial ratios, including interest coverage and total net leverage ratios, all as defined in the Credit Agreement.  As of June 30, 2015, we were in compliance with the Credit Agreement covenants.

 

In general, our Credit Agreement restricts our ability to pay dividends to the amount of our Available Cash as defined in our Credit Agreement.  As of June 30, 2015, and including the $19.6 million dividend declared in May 2015 and paid on August 1, 2015, we had $214.5 million in dividend availability under the credit facility covenant.

 

Under our Credit Agreement, if our total net leverage ratio (as defined in the Credit Agreement) as of the end of any fiscal quarter is greater than 5.10:1.00, we will be required to suspend dividends on our common stock unless otherwise permitted by an exception for dividends that may be paid from the portion of proceeds of any sale of equity not used to fund acquisitions or make other investments.  During any dividend suspension period, we will be required to repay debt in an amount equal to 50.0% of any increase in Available Cash, among other things.  In addition, we will not be permitted to pay dividends if an event of default under the Credit Agreement has occurred and is continuing.  Among other things, it will be an event of default if our total net leverage ratio and interest coverage ratio as of the end of any fiscal quarter is greater than 5.25:1.00 and less than 2.25:1.00, respectively.  As of June 30, 2015, our total net leverage ratio under the Credit Agreement was 4.39:1.00, and our interest coverage ratio was 3.82:1.00.

 

Senior Notes

 

6.50% Senior Notes due 2022

 

On June 8, 2015, we completed an offering of $300.0 million in aggregate principal amount of 6.50% Senior Notes due 2022.  The New Notes were priced at 98.26% of par with a yield to maturity of 6.80% and resulted in total gross proceeds of approximately $294.8 million, excluding accrued interest.  The discount and deferred debt issuance costs of $4.5 million incurred in connection with the issuance of the New Notes are being amortized using the effective interest method over the term of the notes.  The net proceeds from the issuance of the New Notes were used, in part, to redeem the remaining $227.2 million of our original $300.0 million aggregate principal amount of 10.875% Senior Notes due 2020, to pay related fees and expenses and to reduce the amount outstanding on the revolving credit facility.  In connection with the redemption of the 2020 Notes, we paid $261.9 million and recognized a loss on the extinguishment of debt of $41.2 million during the quarter and six months ended June 30, 2015.

 

The New Notes were issued as additional notes under the same indenture pursuant to the $200.0 million aggregate principal amount of 6.50% Senior Notes due 2022 (the “Existing Notes” and together with the New Notes, the “2022 Notes”) that we previously issued on September 18, 2014.  The Existing Notes were priced at par, which resulted in total gross proceeds of $200.0 million.  The net proceeds from the issuance of the Existing Notes were used to finance the acquisition of Enventis, including related fees and expenses, and to repay the existing indebtedness of Enventis. A portion of the net proceeds, together with cash on hand and borrowings from the revolving credit facility, were also used to repurchase $72.8 million of the original aggregate principal amount of the 2020 Notes during the fourth quarter of 2014.

 

The 2022 Notes mature on October 1, 2022 and interest is payable semi-annually on April 1 and October 1 of each year.  Consolidated Communications, Inc. (“CCI”) is the primary obligor under the 2022 Notes, and we and certain of our wholly-owned subsidiaries have fully and unconditionally guaranteed the 2022 Notes.  The 2022 Notes are senior unsecured obligations of the Company.

 

The 2022 Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and, unless so registered, may not be offered or sold in the United States absent registration or an exemption from the registration requirements of the Securities Act.  By the end of 2015, we expect to conduct an exchange offer to issue registered notes under the Securities Act in exchange for the 2022 Notes pursuant to the registration rights agreement. The terms of the registered notes are expected to be substantially identical to the 2022 Notes and the exchange offer will not impact the aggregate principal amount of the 2022 Notes outstanding.

 

 

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Table of Contents

 

Senior Notes Covenant Compliance

 

Subject to certain exceptions and qualifications, the indenture governing the 2022 Notes contains customary covenants that, among other things, limits CCI’s and its restricted subsidiaries’ ability to: incur additional debt or issue certain preferred stock; pay dividends or make other distributions on capital stock or prepay subordinated indebtedness; purchase or redeem any equity interests; make investments; create liens; sell assets; enter into agreements that restrict dividends or other payments by restricted subsidiaries; consolidate, merge or transfer all or substantially all of its assets; engage in transactions with its affiliates; or enter into any sale and leaseback transactions.  The indenture also contains customary events of default.

 

Among other matters, the 2022 Notes indenture provides that CCI may not pay dividends or make other “restricted payments” (as defined in the indenture) if its total net leverage ratio is 4.75:1.00 or greater.  This ratio is calculated differently than the comparable ratio under the Credit Agreement; among other differences, it takes into account, on a pro forma basis, synergies expected to be achieved as a result of certain acquisitions but not yet reflected in historical results.  At June 30, 2015, this ratio was 4.33:1.00.  If this ratio is met, dividends and other restricted payments may be made from cumulative consolidated cash flow since April 1, 2012, less 1.75 times fixed charges, less dividends and other restricted payments made since May 30, 2012.  Dividends may be paid and other restricted payments may also be made from a “basket” of $50.0 million, none of which has been used to date, and pursuant to other exceptions identified in the indenture.  Since dividends of $214.0 million have been paid since May 30, 2012, including the quarterly dividend declared in May 2015 and paid on August 1, 2015, there was $294.4 million of the $508.4 million of cumulative consolidated cash flow since May 30, 2012 available to pay dividends at June 30, 2015. As of June 30, 2015, the Company was in compliance with all terms, conditions and covenants under the indenture governing the 2022 Notes.

 

Capital Leases

 

We lease certain facilities and equipment under various capital leases which expire between 2015 and 2021.  As of June 30, 2015, the present value of the minimum remaining lease commitments was approximately $5.1 million, of which $1.0 million was due and payable within the next twelve months.  The leases require total remaining rental payments of $6.9 million as of June 30, 2015, of which $4.7 million will be paid to LATEL LLC, a related party entity.

 

7.               DERIVATIVE FINANCIAL INSTRUMENTS

 

We use derivative financial instruments to manage our exposure to the risks associated with fluctuations in interest rates. Our interest rate swap agreements effectively convert a portion of our floating-rate debt to a fixed-rate basis, thereby reducing the impact of interest rate changes on future cash interest payments.  Derivative financial instruments are recorded at fair value in our condensed consolidated balance sheets.  We may designate certain of our interest rate swaps as cash flow hedges of our expected future interest payments.  For derivative instruments designated as a cash flow hedge, the effective portion of the change in the fair value is recognized as a component of accumulated other comprehensive income (loss) (“AOCI”) and is recognized as an adjustment to earnings over the period in which the hedged item impacts earnings. When an interest rate swap agreement terminates, any resulting gain or loss is recognized over the shorter of the remaining original term of the hedging instrument or the remaining life of the underlying debt obligation.  If a derivative instrument is de-designated, the remaining gain or loss in AOCI on the date of de-designation is amortized to earnings over the remaining term of the hedging instrument. For derivative financial instruments that are not designated as a hedge, including those that have been de-designated, changes in fair value are recognized on a current basis in earnings.  The ineffective portion of the change in fair value of any hedging derivative is recognized immediately in earnings.  Cash flows from hedging activities are classified under the same category as the cash flows from the hedged items in our condensed consolidated statements of cash flows.

 

 

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Table of Contents

 

The following interest rate swaps were outstanding at June 30, 2015:

 

(In thousands)

 

Notional
Amount

 

2015 Balance Sheet Location

 

Fair Value

Cash Flow Hedges:

 

 

 

 

 

 

Fixed to 1-month floating LIBOR (with floor)

 

 $

150,000 

 

Other long-term liabilities

 

 $

(1,111)

 

 

 

 

 

 

 

De-designated Hedges:

 

 

 

 

 

 

Fixed to 1-month floating LIBOR

 

 $

50,000 

 

Current portion of derivative liability

 

(297)

Fixed to 1-month floating LIBOR (with floor)

 

50,000 

 

Other long-term liabilities

 

(181)

Total Fair Values

 

 

 

 

 

 $

(1,589)

 

The following interest rate swaps were outstanding at December 31, 2014:

 

(In thousands)

 

Notional
Amount

 

2014 Balance Sheet Location

 

Fair Value

 

 

 

 

 

 

 

Cash Flow Hedges:

 

 

 

 

 

 

Fixed to 1-month floating LIBOR (with floor)

 

 $

100,000 

 

Other long-term liabilities

 

 $

(133)

 

 

 

 

 

 

 

De-designated Hedges:

 

 

 

 

 

 

Fixed to 1-month floating LIBOR

 

 $

125,000 

 

Other long-term liabilities

 

(410)

Fixed to 1-month floating LIBOR

 

50,000 

 

Current portion of derivative liability

 

(443)

Fixed to 1-month floating LIBOR (with floor)

 

50,000 

 

Other long-term liabilities

 

(147)

Total Fair Values

 

 

 

 

 

 $

(1,133)

 

The counterparties to our various swaps are highly rated financial institutions.  None of the swap agreements provide for either us or the counterparties to post collateral nor do the agreements include any covenants related to the financial condition of Consolidated or the counterparties.  The swaps of any counterparty that is a “Lender” as defined in our credit facility are secured along with the other creditors under the credit facility.  Each of the swap agreements provides that in the event of a bankruptcy filing by either Consolidated or the counterparty, any amounts owed between the two parties would be offset in order to determine the net amount due between parties.  This provision allows us to partially mitigate the risk of non-performance by a counterparty.

 

In 2013, interest rate swaps previously designated as cash flow hedges were de-designated as a result of amendments to our credit agreement.  The interest rate swap agreements mature on various dates through September 2016.  Prior to de-designation, the effective portion of the change in fair value of the interest rate swaps were recognized in AOCI.  The balance of the unrealized loss included in AOCI as of the date the swaps were de-designated is being amortized to earnings over the remaining term of the swap agreements.  Changes in fair value of the de-designated swaps are immediately recognized in earnings as interest expense.  During each of the quarters and six-month periods ended June 30, 2015 and 2014, a gain of $0.3 million and $0.5 million, respectively, was recognized as a reduction to interest expense for the change in fair value of the de-designated swaps.

 

At June 30, 2015 and December 31, 2014, the pre-tax deferred losses related to our interest rate swap agreements included in AOCI were $1.2 million and $0.8 million, respectively.  The estimated amount of losses included in AOCI as of June 30, 2015 that will be recognized in earnings in the next twelve months is approximately $1.0 million.

 

Information regarding our cash flow hedge transactions is as follows:

 

 

 

Quarter Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

(In thousands)

 

2015

 

2014

 

2015

 

2014

Loss recognized in AOCI, pretax

 

 $

(384)

 

 $

-     

 

 $

(1,301)

 

 $

-      

Deferred losses reclassed from AOCI to interest expense

 

 $

(370)

 

 $

(489)

 

 $

(796)

 

 $

(1,148)

 

 

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Table of Contents

 

8.      EQUITY

 

Share-Based Compensation

 

On May 4, 2015, the shareholders approved an additional 1,000,000 shares of our common stock authorized for issuance under the Amended and Restated Consolidated Communications Holdings, Inc. 2005 Long-term Incentive Plan (the “Plan”).  Under the Plan, 2,650,000 shares of our common stock are authorized for issuance, provided that no more than 300,000 shares may be granted in the form of stock options or stock appreciation rights to any eligible employee or director in any calendar year.

 

The following table summarizes total compensation costs recognized for share-based payments during the quarters and six-month periods ended June 30, 2015 and 2014:

 

 

 

Quarter Ended

 

Six Months

 

 

June 30,

 

Ended June 30,

(In thousands)

 

2015

 

2014

 

2015

 

2014

Restricted stock

 

 $

379

 

 $

527

 

 $

866

 

 $

1,044

Performance shares

 

331

 

413

 

657

 

680

Total

 

 $

710

 

 $

940

 

 $

1,523

 

 $

1,724

 

Share-based compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

 

As of June 30, 2015, total unrecognized compensation costs related to nonvested Restricted Stock Awards (“RSAs”) and Performance Share Awards (“PSAs”) was $5.1 million and will be recognized over a weighted-average period of approximately 1.3 years.

 

The following table summarizes the RSA and PSA activity for the six-month period ended June 30, 2015:

 

 

 

RSAs

 

PSAs

 

 

Shares

 

Weighted
Average Grant
Date Fair Value

 

Shares

 

Weighted
Average Grant
Date Fair Value

Non-vested shares outstanding - January 1, 2015

 

141,565 

 

 $

18.78

 

82,409 

 

 $

18.94

Shares granted

 

83,571 

 

 $

21.08

 

77,786 

 

 $

19.74

Shares vested

 

(42,560)

 

 $

20.90

 

(7,618)

 

 $

18.45

Non-vested shares outstanding - June 30, 2015

 

182,576 

 

 

 

152,577 

 

 

 

Accumulated Other Comprehensive Loss

 

The following table summarizes the changes in accumulated other comprehensive loss, net of tax, by component for the six-month period ended June 30, 2015:

 

 

 

Pension and Other

 

 

 

 

 

 

Post-Retirement

 

Derivative

 

 

(In thousands)

 

Obligations

 

Instruments

 

Total

Balance at December 31, 2014

 

 $

(31,185)

 

 $

(455)

 

 $

(31,640)

Other comprehensive income before reclassifications

 

 

(802)

 

(802)

Amounts reclassified from accumulated other comprehensive income

 

866

 

491

 

1,357

Net current period other comprehensive income (loss)

 

866

 

(311)

 

555

Balance at June 30, 2015

 

 $

(30,319)

 

 $

(766)

 

 $

(31,085)

 

 

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The following table summarizes reclassifications from accumulated other comprehensive loss for the quarters and six-month periods ended June 30, 2015 and 2014:

 

 

 

Quarter Ended June 30,

 

Six Months Ended June 30,

 

Affected Line Item in the

 (In thousands)

 

2015

 

2014

 

2015

 

2014

 

Statement of Income

 Amortization of pension and post-retirement items:

 

 

 

 

 

 

 

 

 

 

Prior service credit

 

 $

123

 

 $

79

 

 $

347

 

 $

159

 

(a)

Actuarial gain (loss)

 

(884)

 

142

 

(1,768)

 

284

 

(a)

 

 

(761)

 

221

 

(1,421)

 

443

 

Total before tax

 

 

297

 

(85)

 

555

 

(171)

 

Tax benefit (expense)

 

 

 $

(464)

 

 $

136

 

 $

(866)

 

 $

272

 

Net of tax

 

 

 

 

 

 

 

 

 

 

 

Loss on cash flow hedges:

 

 

 

 

 

 

 

 

 

 

Interest rate derivatives

 

 $

(370)

 

 $

(489)

 

 $

(796)

 

 $

(1,148)

 

Interest expense

 

 

141

 

186

 

305

 

437

 

Tax benefit

 

 

 $

(229)

 

 $

(303)

 

 $

(491)

 

 $

(711)

 

Net of tax

 

(a)          These items are included in the components of net periodic benefit cost for our pension and post-retirement benefit plans.  See Note 9 for further discussion regarding our pension and post-retirement benefit plans.

 

9.               PENSION PLAN AND OTHER POST-RETIREMENT BENEFITS

 

Defined Benefit Plans

 

We sponsor a qualified defined benefit pension plan (“Retirement Plan”) that is non-contributory covering certain of our hourly employees who fulfill minimum age and service requirements.  Certain salaried employees are also covered by the Retirement Plan, although these benefits have previously been frozen.  As of May 2013, the Retirement Plan was closed to all new entrants and all employees under collective bargaining agreements that provide for defined benefit plan coverage accrue benefits under a cash balance formula.

 

We also have two non-qualified supplemental retirement plans (“Supplemental Plans”).  The Supplemental Plans provide supplemental retirement benefits to certain former employees by providing for incremental pension payments to partially offset the reduction that would have been payable under the qualified defined benefit pension plans if it were not for limitations imposed by federal income tax regulations. The Supplemental Plans have previously been frozen so that no person is eligible to become a new participant.  These plans are unfunded and have no assets.  The benefits paid under the Supplemental Plans are paid from the general operating funds of the Company.

 

The following table summarizes the components of net periodic pension cost for our defined benefit plans for the quarters and six-month periods ended June 30, 2015 and 2014:

 

 

 

Quarter Ended

 

Six Months

 

 

June 30,

 

Ended June 30,

(In thousands)

 

2015

 

2014

 

2015

 

2014

Service cost

 

 $

129

 

 $

140

 

 $

258

 

 $

280

Interest cost

 

3,931

 

4,074

 

7,863

 

8,147

Expected return on plan assets

 

(5,843)

 

(5,776)

 

(11,687)

 

(11,553)

Net amortization loss

 

954

 

5

 

1,908

 

10

Prior service credit amortization

 

(114)

 

(114)

 

(228)

 

(229)

Net periodic pension benefit

 

 $

(943)

 

 $

(1,671)

 

 $

(1,886)

 

 $

(3,345)

 

Other Non-qualified Deferred Compensation Agreements

 

We also are liable for deferred compensation agreements with former members of the board of directors and certain other former employees of acquired companies.  Depending on the plan, benefits are payable in monthly or annual installments for a period of time based on the terms of the agreement, which range from five years up to the life of the participant or to the beneficiary upon the death of the participant, and may begin as early as age 55.  Participants accrue no new benefits as these plans had previously been frozen.  Payments related to the deferred compensation agreements totaled approximately $0.1 million for each of the quarters ended June 30, 2015 and 2014 and $0.2 million for the six-month periods ended June 30, 2015 and 2014. The net present value of the remaining obligations was approximately $2.2 million and $2.4 million at June 30, 2015 and December 31, 2014, respectively, and is included in pension and other post-retirement benefit obligations in the accompanying condensed consolidated balance sheets.

 

 

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We also maintain 28 life insurance policies on certain of the participating former directors and employees.  The excess of the cash surrender value of the remaining life insurance policies over the notes payable balances related to these policies is determined by an independent consultant, and totaled $2.2 million at June 30, 2015 and $2.0 million at December 31, 2014.  These amounts are included in investments in the accompanying condensed consolidated balance sheets.  Cash principal payments for the policies and any proceeds from the policies are classified as operating activities in the condensed consolidated statements of cash flows.  We did not recognize any life insurance proceeds during the quarter or six-month period ended June 30, 2015.  We recognized $0.3 million in life insurance proceeds as other non-operating income in the quarter and six-month period ended June 30, 2014.

 

Post-retirement Benefit Obligations

 

We sponsor various healthcare and life insurance plans (“Post-retirement Plans”) that provide post-retirement medical and life insurance benefits to certain groups of retired employees.  Certain plans have previously been frozen so that no person is eligible to become a new participant.  Retirees share in the cost of healthcare benefits, making contributions that are adjusted periodically—either based upon collective bargaining agreements or because total costs of the program have changed.  Covered expenses for retiree health benefits are paid as they are incurred.  Post-retirement life insurance benefits are fully insured.  A majority of the healthcare plans are unfunded and have no assets, and benefits are paid from the general operating funds of the Company.  However, a plan acquired in the purchase of another company has assets from employer contributions for retiree medical benefits that are separately designated within the Retirement Plan for the sole purpose of providing payments of retiree medical benefits for this specific plan.  The assets used to provide payment of these retiree medical benefits are those of the Retirement Plan.  In connection with the acquisition of Enventis, we have included its post-retirement benefit plan as of the date of acquisition.

 

The following table summarizes the components of the net periodic cost for our post-retirement benefit plans for the quarters and six-month periods ended June 30, 2015 and 2014:

 

 

 

Quarter Ended

 

Six Months

 

 

June 30,

 

Ended June 30,

(In thousands)

 

2015

 

2014

 

2015

 

2014

Service cost

 

$

147 

 

$

90 

 

$

295 

 

$

180 

Interest cost

 

412 

 

355 

 

826 

 

710 

Expected return on plan assets

 

(58)

 

(55)

 

(116)

 

(110)

Net amortization (gain) loss

 

(70)

 

(147)

 

(140)

 

(294)

Net prior service cost (credit) amortization

 

(9)

 

35 

 

(119)

 

70 

Net periodic postretirement benefit cost

 

$

422 

 

$

278 

 

$

746 

 

$

556 

 

Contributions

 

We expect to contribute approximately $12.3 million to our pension plans and $3.8 million to our other post-retirement plans in 2015.  As of June 30, 2015, we have contributed $5.2 million and $1.2 million of the annual contribution to the pension plans and other post-retirement plans, respectively.

 

10.              INCOME TAXES

 

There have been no changes to our unrecognized tax benefits as reported at December 31, 2014.  As of June 30, 2015 and December 31, 2014, the amount of unrecognized tax benefits was $0.2 million.  The net amount of unrecognized benefits that, if recognized, would result in an impact to the effective tax rate is $0.2 million.  We do not expect any material changes in our unrecognized tax benefits during the remainder of 2015.

 

Our practice is to recognize interest and penalties related to income tax matters in interest expense and general and administrative expense, respectively.  At June 30, 2015, we did not have a material liability for interest or penalties and had no material interest or penalty expense.

 

The only period subject to examination for our federal return is 2013.  The periods subject to examination for our state returns are years 2010 through 2013.  We recently completed the examinations for our 2010 through 2012 federal returns and there was no material effect on our results of operations or cash flows.  We are not currently under examination by federal or state taxing authorities.

 

 

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Table of Contents

 

Our effective tax rate was 36.4% and 33.0% for the quarters ended June 30, 2015 and 2014, respectively, and 35.6% and 35.3% for the six-month periods ended June 30, 2015 and 2014, respectively. For the quarter and six-month periods ended June 30, 2015, the effective tax rate differed from the federal and state statutory rates primarily due to non-deductible expenses, state taxable income differences and state tax credits.  For the quarter and six-month periods ended June 30, 2014, the effective tax rate differed from the federal and state statutory rates primarily due to the release of a valuation allowance set up on federal net operating loss carryforwards subject to separate return limitation year restrictions.  Exclusive of this adjustment, our effective tax rate for the quarter and six months ended June 30, 2014 would have been approximately 36.6% and 37.2%, respectively.

 

On September 13, 2013, Treasury and the Internal Revenue Service issued final regulations regarding the deduction and capitalization of expenditures related to tangible property. The final regulations under Internal Revenue Code Sections 162, 167 and 263(a) apply to amounts paid to acquire, produce or improve tangible property as well as dispositions of such property and are generally effective for tax years beginning on or after January 1, 2014.  We have evaluated these regulations and we do not expect they will have a material adverse impact on our condensed consolidated results of operations, cash flows or financial position.

 

11.         COMMITMENTS AND CONTINGENCIES

 

Litigation, Regulatory Proceedings and Other Contingencies

 

Five putative class action lawsuits were filed by alleged Enventis shareholders that challenged the Company’s merger with Enventis in which the Company, Sky Merger Sub Inc., Enventis and members of the Enventis board of directors were named as defendants.  The shareholder actions were filed in the Fifth Judicial District, Blue Earth County, Minnesota.  The actions generally alleged, among other things, that each member of the Enventis board of directors breached fiduciary duties to Enventis and its shareholders by authorizing the sale of Enventis to the Company for consideration that allegedly was unfair to the Enventis shareholders, agreeing to terms that allegedly unduly restricted other bidders from making a competing offer, as well as allegations regarding disclosure deficiencies in the joint proxy statement/prospectus.  The complaints also alleged that the Company and Sky Merger Sub Inc. aided and abetted the breaches of fiduciary duties allegedly committed by the members of the Enventis board of directors.  The lawsuits sought, amongst other things, equitable relief, including an order to prevent the defendants from consummating the merger on the agreed-upon terms.  The Enventis board of directors appointed a Special Litigation Committee to address the claims.  We believed that these claims were without merit.  On September 19, 2014, the District Court entered an order consolidating the five lawsuits as In Re: Enventis Corporation Shareholder Litigation, Case No. 07-CV-14-2489.  On September 23, 2014, the District Court entered an order that denied the plaintiffs’ request for expedited proceedings and stayed all proceedings “pending the completion of the Special Litigation Committee and the issuance of its decision.” On February 2, 2015, the Special Litigation Committee issued a report stating that the claims lacked merit and should not proceed.  On March 4, 2015, the members of the Enventis board of directors filed a motion to dismiss all of the claims with prejudice.  On March 11, 2015, the Company, Sky Merger Sub Inc. and Enventis filed their motion to dismiss the matter with prejudice.  A hearing on the motions to dismiss was scheduled for May 8, 2015.  However, on April 29, 2015, all parties entered into an agreed stipulation to dismiss all claims with prejudice.  On May 4, 2015, the court entered an order granting the parties’ stipulation to dismiss all claims, and on May 6, 2015, the court entered the judgment of dismissal dismissing all claims with prejudice and without costs to any party.

 

In 2014, Sprint Corporation, Level 3 Communications, Inc. and Verizon Communications Inc. filed lawsuits against us and many others in the industry regarding the proper charges to be applied between interexchange and local exchange carriers for certain calls between mobile and wireline devices that are routed through an interexchange carrier. The plaintiffs are refusing to pay these access charges in all states and are seeking refunds of past charges paid.  The disputed amounts total $1.8 million, and cover the periods extending from 2006. CenturyLink, Inc. has filed to bring all related suits to the U.S. District Court’s Judicial Panel on multi district litigation.  This panel is granted authority to transfer to a single court the pretrial proceedings for civil cases involving common questions of fact. The U.S. District Court in Dallas, Texas is expected to hear the case no later than September 2015.  We have interconnection agreements in place with all wireless carriers and the applicable traffic is being billed at current access rates, therefore we do not expect any potential settlement or judgment to have an adverse material impact on our financial results or cash flows.

 

On April 15, 2008, Salsgiver Inc., a Pennsylvania-based telecommunications company, and certain of its affiliates (“Salsgiver”) filed a lawsuit against us and our subsidiaries North Pittsburgh Telephone Company and North Pittsburgh Systems Inc. in the Court of Common Pleas of Allegheny County, Pennsylvania alleging that we had prevented Salsgiver from connecting their fiber optic cables to our utility poles.  Salsgiver sought compensatory and punitive damages as the result of alleged lost projected profits, damage to its business reputation and other costs. 

 

 

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Table of Contents

 

Salsgiver originally claimed to have sustained losses of approximately $125.0 million.  We believe that these claims are without merit and that the alleged damages are completely unfounded.  We had recorded approximately $0.4 million in 2011 in anticipation of the settlement of this case.  During the quarter ended September 30, 2013, we recorded an additional $0.9 million, which included estimated legal fees.  A jury trial concluded on May 14, 2015 with the jury ruling in our favor.  Salsgiver subsequently filed a post-trial motion asking the judge to overturn the jury verdict.  That motion was denied. On June 17, 2015, Salsgiver filed an appeal in the Pennsylvania Superior Court. A briefing schedule has not been set. We believe that, despite the appeal, the $1.3 million currently accrued represents management’s best estimate of the potential loss if the verdict is overturned in Salsgiver’s favor.

 

Two of our subsidiaries, Consolidated Communications of Pennsylvania Company LLC (“CCPA”) and Consolidated Communications Enterprise Services Inc. (“CCES”), have, at various times, received assessment notices from the Commonwealth of Pennsylvania Department of Revenue (“DOR”) increasing the amounts owed for Pennsylvania Gross Receipt Taxes, and/or have had audits performed for the tax years of 2008 through 2013.  In addition, a re-audit was performed on CCPA for the 2010 calendar year.  For the calendar years for which we received both additional assessment notices and audit actions, those issues have been combined by the DOR into a single Docket for each year.

 

For the CCES subsidiary, the total additional tax liability calculated by the auditors for the tax years 2008 through 2013 is approximately $4.2 million.  Audits for calendar years 2008 through 2010 have been filed for appeal and have received continuances pending the outcome of the present litigation in the Commonwealth of Pennsylvania (Verizon Pennsylvania, Inc. v. Commonwealth, Docket No. 266 F.R. 2008).  The preliminary audit findings for the calendar years 2011 through 2013 were received on September 16, 2014.  We are awaiting invoices for each of these years, at which time we will prepare to file an appeal with the DOR.

 

For the CCPA subsidiary, the total additional tax liability calculated by the auditors for calendar years 2008 through 2013 (using the re-audited 2010 number) is approximately $7.3 million.  Appeals of cases for calendar years 2008, 2009 and the original 2010 audit have been filed and have received continuance pending the outcome of present litigation in the Commonwealth of Pennsylvania (Verizon Pennsylvania, Inc. v. Commonwealth, Docket No. 266 F.R. 2008).  The preliminary audit findings for the calendar years 2011 through 2013, as well as the re-audit of 2010, were received on September 16, 2014.  We are awaiting invoices for each of these years, at which time we will prepare to file an appeal with the DOR.

 

We anticipate that the outstanding audits and subsequent appeals will be continued pending the outcome of the Verizon litigation. The Gross Receipts Tax issues in the Verizon Pennsylvania case are substantially the same as those presently facing CCPA and CCES.  In addition, there are numerous telecommunications carriers with Gross Receipts Tax matters dealing with the same issues that are in various stages of appeal before the Board of Finance and Revenue and the Commonwealth Court.  Those appeals by other similarly situated telecommunications carriers have been continued until resolution of the Verizon Pennsylvania case.  We believe that these assessments and the positions taken by the Commonwealth of Pennsylvania are without substantial merit.  We do not believe that the outcome of these claims will have a material adverse impact on our financial results or cash flows.

 

We are from time to time involved in various other legal proceedings and regulatory actions arising out of our operations.  We do not believe that any of these, individually or in the aggregate, will have a material adverse effect upon our business, operating results or financial condition.

 

12 .        CONDENSED CONSOLIDATING FINANCIAL INFORMATION

 

Consolidated Communications, Inc. is the primary obligor under the unsecured 2022 Notes.  We and substantially all of our subsidiaries, excluding Illinois Consolidated Telephone Company, have jointly and severally guaranteed the 2022 Notes.  All of the subsidiary guarantors are 100% direct or indirect wholly owned subsidiaries of the parent, and all guarantees are full, unconditional and joint and several with respect to principal, interest and liquidated damages, if any.  As such, we present condensed consolidating balance sheets as of June 30, 2015 and December 31, 2014, and condensed consolidating statements of operations and cash flows for the quarters and six-month periods ended June 30, 2015 and 2014 for each of the Company (Parent), Consolidated Communications, Inc. (Subsidiary Issuer), guarantor subsidiaries and other non-guarantor subsidiaries with any consolidating adjustments.  See Note 6 for more information regarding our 2022 Notes.

 

 

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Table of Contents

 

Condensed Consolidating Balance Sheets

(In thousands)

 

 

 

June 30, 2015

 

 

 

Parent

 

Subsidiary
Issuer

 

Guarantors

 

Non-Guarantors

 

Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 $

-

 

 $

428

 

 $

4,026

 

 $

2,492

 

 $

-

 

 $

6,946

 

Accounts receivable, net

 

-

 

1,943

 

78,668

 

6,485

 

-

 

87,096

 

Income taxes receivable

 

41,161

 

-

 

-

 

-

 

(15,966)

 

25,195

 

Deferred income taxes

 

(71)

 

158

 

12,807

 

480

 

-

 

13,374

 

Prepaid expenses and other current assets

 

-

 

-

 

19,795

 

298

 

-

 

20,093

 

Total current assets

 

41,090

 

2,529

 

115,296

 

9,755

 

(15,966)

 

152,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

-

 

-

 

1,073,405

 

49,247

 

-

 

1,122,652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles and other assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

-

 

8,171

 

107,517

 

-

 

-

 

115,688

 

Investments in subsidiaries

 

2,143,500

 

1,581,007

 

13,165

 

-

 

(3,737,672)

 

-

 

Goodwill

 

-

 

-

 

698,449

 

66,181

 

-

 

764,630

 

Other intangible assets

 

-

 

-

 

41,059

 

9,087

 

-

 

50,146

 

Deferred debt issuance costs, net and other assets

 

-

 

12,950

 

3,650

 

-

 

-

 

16,600

 

Total assets

 

 $

2,184,590

 

 $

1,604,657

 

 $

2,052,541

 

 $

134,270

 

 $

(3,753,638)

 

 $

2,222,420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 $

-

 

 $

-

 

 $

23,228

 

 $

-

 

 $

-

 

 $

23,228

 

Advance billings and customer deposits

 

-

 

-

 

29,949

 

1,618

 

-

 

31,567

 

Dividends payable

 

19,566

 

-

 

-

 

-

 

-

 

19,566

 

Accrued compensation

 

-

 

-

 

19,869

 

1,746

 

-

 

21,615

 

Accrued interest

 

137

 

9,045

 

1

 

-

 

-

 

9,183

 

Accrued expense

 

12

 

369

 

37,234

 

1,397

 

-

 

39,012

 

Income tax payable

 

-

 

399

 

11,505

 

4,062

 

(15,966)

 

-

 

Current portion of long term debt and capital

 

 

 

 

 

 

 

 

 

 

 

 

 

lease obligations

 

-

 

9,100

 

917

 

85

 

-

 

10,102

 

Current portion of derivative liability

 

-

 

297

 

-

 

-

 

-

 

297

 

Total current liabilities

 

19,715

 

19,210

 

122,703

 

8,908

 

(15,966)

 

154,570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and capital lease obligations

 

-

 

1,402,430

 

3,446

 

690

 

-

 

1,406,566

 

Advances due to/from affiliates, net

 

1,898,461

 

(1,960,682)

 

125,304

 

(63,083)

 

-

 

-

 

Deferred income taxes

 

(14,833)

 

(1,093)

 

243,835

 

19,122

 

 

 

247,031

 

Pension and postretirement benefit obligations

 

-

 

-

 

96,990

 

16,164

 

-

 

113,154

 

Other long-term liabilities

 

-

 

1,292

 

13,140

 

535

 

-

 

14,967

 

Total liabilities

 

1,903,343

 

(538,843)

 

605,418

 

(17,664)

 

(15,966)

 

1,936,288

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

505

 

-

 

17,411

 

30,000

 

(47,411)

 

505

 

Other shareholders’ equity

 

280,742

 

2,143,500

 

1,424,827

 

121,934

 

(3,690,261)

 

280,742

 

Total Consolidated Communications Holdings, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

shareholders’ equity

 

281,247

 

2,143,500

 

1,442,238

 

151,934

 

(3,737,672)

 

281,247

 

Noncontrolling interest

 

-

 

-

 

4,885

 

-

 

-

 

4,885

 

Total shareholders’ equity

 

281,247

 

2,143,500

 

1,447,123

 

151,934

 

(3,737,672)

 

286,132

 

Total liabilities and shareholders’ equity

 

 $

2,184,590

 

 $

1,604,657

 

 $

2,052,541

 

 $

134,270

 

 $

(3,753,638)

 

 $

2,222,420

 

 

 

20



Table of Contents

 

Condensed Consolidating Balance Sheet

(In thousands)

 

 

 

December 31, 2014

 

 

 

Parent

 

Subsidiary
Issuer

 

Guarantors

 

Non-Guarantors

 

Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 $

-

 

 $

4,940

 

 $

820

 

 $

919

 

 $

-

 

 $

6,679

 

Accounts receivable, net

 

-

 

-

 

70,543

 

6,993

 

-

 

77,536

 

Income taxes receivable

 

12,665

 

-

 

6,232

 

43

 

-

 

18,940

 

Deferred income taxes

 

(71)

 

158

 

12,807

 

480

 

-

 

13,374

 

Prepaid expenses and other current assets

 

-

 

-

 

17,285

 

331

 

-

 

17,616

 

Total current assets

 

12,594

 

5,098

 

107,687

 

8,766

 

-

 

134,145

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

-

 

-

 

1,088,196

 

49,282

 

-

 

1,137,478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles and other assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

-

 

3,724

 

111,652

 

-

 

-

 

115,376

 

Investments in subsidiaries

 

2,119,335

 

1,510,416

 

13,000

 

-

 

(3,642,751)

 

-

 

Goodwill

 

-

 

-

 

698,449

 

66,181

 

-

 

764,630

 

Other intangible assets

 

-

 

-

 

47,235

 

9,087

 

-

 

56,322

 

Deferred debt issuance costs, net and other assets

 

-

 

15,421

 

3,892

 

-

 

-

 

19,313

 

Total assets

 

 $

2,131,929

 

 $

1,534,659

 

 $

2,070,111

 

 $

133,316

 

 $

(3,642,751)

 

 $

2,227,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 $

-

 

 $

-

 

 $

15,277

 

 $

-

 

 $

-

 

 $

15,277

 

Advance billings and customer deposits

 

-

 

-

 

30,250

 

1,683

 

-

 

31,933

 

Dividends payable

 

19,510

 

-

 

-

 

-

 

-

 

19,510

 

Accrued compensation

 

-

 

-

 

30,737

 

1,844

 

-

 

32,581

 

Accrued interest

 

-

 

6,775

 

6

 

3

 

-

 

6,784

 

Accrued expense

 

36

 

-

 

38,211

 

1,451

 

-

 

39,698

 

Current portion of long term debt and capital

 

 

 

 

 

 

 

 

 

 

 

 

 

lease obligations

 

-

 

9,100

 

671

 

78

 

-

 

9,849

 

Current portion of derivative liability

 

-

 

443

 

-

 

-

 

-

 

443

 

Total current liabilities

 

19,546

 

16,318

 

115,152

 

5,059

 

-

 

156,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and capital lease obligations

 

-

 

1,352,949

 

3,070

 

734

 

-

 

1,356,753

 

Advances due to/from affiliates, net

 

1,805,129

 

(1,953,695)

 

206,616

 

(58,050)

 

-

 

-

 

Deferred income taxes

 

(14,833)

 

(938)

 

243,427

 

19,009

 

-

 

246,665

 

Pension and postretirement benefit obligations

 

-

 

-

 

100,221

 

22,142

 

-

 

122,363

 

Other long-term liabilities

 

-

 

690

 

13,337

 

552

 

-

 

14,579

 

Total liabilities

 

1,809,842

 

(584,676)

 

681,823

 

(10,554)

 

-

 

1,896,435

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

504

 

-

 

17,411

 

30,000

 

(47,411)

 

504

 

Other shareholders’ equity

 

321,583

 

2,119,335

 

1,366,051

 

113,870

 

(3,595,340)

 

325,499

 

Total Consolidated Communications Holdings, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

shareholders’ equity

 

322,087

 

2,119,335

 

1,383,462

 

143,870

 

(3,642,751)

 

326,003

 

Noncontrolling interest

 

-

 

-

 

4,826

 

-

 

-

 

4,826

 

Total shareholders’ equity

 

322,087

 

2,119,335

 

1,388,288

 

143,870

 

(3,642,751)

 

330,829

 

Total liabilities and shareholders’ equity

 

 $

2,131,929

 

 $

1,534,659

 

 $

2,070,111

 

 $

133,316

 

 $

(3,642,751)

 

 $

2,227,264

 

 

 

21



Table of Contents

 

Condensed Consolidating Statements of Operations

(In thousands)

 

 

 

Quarter Ended June 30, 2015