Consolidated Communications Holdings
Consolidated Communications Holdings, Inc. (Form: 10-Q, Received: 11/06/2017 06:05:26)

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 September 30, 2017

 

or

 

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

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 000-51446

 

RG_HI

 

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

 

 

02-0636095

 

 

(State or other jurisdiction

 

 

 

(I.R.S. Employer

 

 

of incorporation or organization)

 

 

 

Identification No.)

 

 

 

 

 

 

 

 

 

121 South 17 th 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, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,”  “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer    Accelerated filer    

 

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

Emerging growth company ____

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ____

 

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 October 30, 2017, the registrant had 70,836,042 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

 

34

 

 

 

 

Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

 

53

 

 

 

 

Item 4.  

Controls and Procedures

 

53

 

 

 

 

PART II. OTHER INFORMATION  

 

 

 

 

 

 

Item 1.  

Legal Proceedings

 

55

 

 

 

 

Item 6.  

Exhibits

 

56

 

 

 

 

SIGNATURES  

 

57

 

 

 

 


 

Table of Contents

PART I.  FINANCIAL INFORMATIO N

 

ITEM 1.  FINANCIAL STATEMENT S

 

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; Amounts in thousands except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

363,329

 

$

191,541

 

$

703,214

 

$

567,258

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

145,323

 

 

85,646

 

 

287,090

 

 

246,129

 

Selling, general and administrative expenses

 

 

94,459

 

 

39,917

 

 

166,210

 

 

119,398

 

Acquisition and other transaction costs

 

 

27,139

 

 

18

 

 

30,663

 

 

266

 

Loss on impairment

 

 

 —

 

 

 —

 

 

 —

 

 

610

 

Depreciation and amortization

 

 

104,406

 

 

43,224

 

 

187,084

 

 

130,855

 

Income (loss) from operations

 

 

(7,998)

 

 

22,736

 

 

32,167

 

 

70,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net of interest income

 

 

(36,307)

 

 

(19,075)

 

 

(99,896)

 

 

(56,827)

 

Investment income

 

 

9,594

 

 

8,735

 

 

23,068

 

 

24,636

 

Other, net

 

 

28

 

 

(316)

 

 

74

 

 

(374)

 

Income (loss) before income taxes

 

 

(34,683)

 

 

12,080

 

 

(44,587)

 

 

37,435

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

(6,289)

 

 

4,991

 

 

(9,862)

 

 

22,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

(28,394)

 

 

7,089

 

 

(34,725)

 

 

15,148

 

Less: net income attributable to noncontrolling interest

 

 

54

 

 

77

 

 

136

 

 

211

 

Net income (loss) attributable to common shareholders

 

$

(28,448)

 

$

7,012

 

$

(34,861)

 

$

14,937

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.41)

 

$

0.14

 

$

(0.62)

 

$

0.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.39

 

$

0.39

 

$

1.16

 

$

1.16

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

1


 

Table of Contents

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended September 30,

 

Nine Months Ended September 30,

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(28,394)

 

$

7,089

 

$

(34,725)

 

$

15,148

 

Pension and post-retirement obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in prior service credit, net of tax

 

 

 -

 

 

 -

 

 

(814)

 

 

 -

 

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

 

 

667

 

 

679

 

 

2,400

 

 

2,036

 

Derivative instruments designated as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of derivatives, net of tax

 

 

(285)

 

 

 3

 

 

(2,829)

 

 

(595)

 

Reclassification of realized loss to earnings, net of tax

 

 

218

 

 

159

 

 

667

 

 

466

 

Comprehensive income (loss)

 

 

(27,794)

 

 

7,930

 

 

(35,301)

 

 

17,055

 

Less: comprehensive income attributable to noncontrolling interest

 

 

54

 

 

77

 

 

136

 

 

211

 

Total comprehensive income (loss) attributable to common shareholders

 

$

(27,848)

 

$

7,853

 

$

(35,437)

 

$

16,844

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

2


 

Table of Contents

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2017

    

2016

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,314

 

$

27,077

 

Accounts receivable, net of allowance for doubtful accounts

 

 

120,844

 

 

56,216

 

Income tax receivable

 

 

23,494

 

 

21,616

 

Prepaid expenses and other current assets

 

 

33,852

 

 

28,292

 

Assets held for sale

 

 

21,406

 

 

 —

 

Total current assets

 

 

222,910

 

 

133,201

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

2,058,418

 

 

1,055,186

 

Investments

 

 

108,268

 

 

106,221

 

Goodwill

 

 

1,042,285

 

 

756,877

 

Other intangible assets

 

 

318,487

 

 

31,612

 

Other assets

 

 

10,857

 

 

9,661

 

Total assets

 

$

3,761,225

 

$

2,092,758

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

14,154

 

$

6,766

 

Advance billings and customer deposits

 

 

45,086

 

 

26,438

 

Dividends payable

 

 

27,440

 

 

19,605

 

Accrued compensation

 

 

43,477

 

 

16,971

 

Accrued interest

 

 

17,183

 

 

11,260

 

Accrued expense

 

 

75,672

 

 

54,123

 

Current portion of long-term debt and capital lease obligations

 

 

28,824

 

 

14,922

 

Liabilities held for sale

 

 

1,075

 

 

 —

 

Total current liabilities

 

 

252,911

 

 

150,085

 

 

 

 

 

 

 

 

 

Long-term debt and capital lease obligations

 

 

2,311,247

 

 

1,376,754

 

Deferred income taxes

 

 

321,355

 

 

244,298

 

Pension and other post-retirement obligations

 

 

340,067

 

 

130,793

 

Other long-term liabilities

 

 

33,996

 

 

14,573

 

Total liabilities

 

 

3,259,576

 

 

1,916,503

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common stock, par value $0.01 per share; 100,000,000 shares authorized, 70,836,042 and 50,612,362 shares outstanding as of September 30, 2017 and December 31, 2016, respectively

 

 

708

 

 

506

 

Additional paid-in capital

 

 

578,218

 

 

217,725

 

Accumulated deficit

 

 

(34,861)

 

 

 —

 

Accumulated other comprehensive loss, net

 

 

(47,853)

 

 

(47,277)

 

Noncontrolling interest

 

 

5,437

 

 

5,301

 

Total shareholders’ equity

 

 

501,649

 

 

176,255

 

Total liabilities and shareholders’ equity

 

$

3,761,225

   

$

2,092,758

 

 

See accompanying notes.

3


 

Table of Contents

 

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

125,224

 

$

173,591

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Business acquisition, net of cash acquired

 

 

(862,385)

 

 

(13,422)

 

Purchases of property, plant and equipment, net

 

 

(119,289)

 

 

(94,158)

 

Proceeds from sale of assets

 

 

296

 

 

71

 

Proceeds from business dispositions

 

 

 —

 

 

20,892

 

Net cash used in investing activities

 

 

(981,378)

 

 

(86,617)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

1,031,325

 

 

31,000

 

Payment of capital lease obligations

 

 

(5,363)

 

 

(1,757)

 

Payment on long-term debt

 

 

(89,750)

 

 

(39,825)

 

Payment of financing costs

 

 

(16,732)

 

 

 —

 

Share repurchases for minimum tax withholding

 

 

(41)

 

 

(71)

 

Dividends on common stock

 

 

(66,698)

 

 

(58,796)

 

Other

 

 

(350)

 

 

 —

 

Net cash provided by (used in) financing activities

 

 

852,391

 

 

(69,449)

 

Increase (decrease) in cash and cash equivalents

 

 

(3,763)

 

 

17,525

 

Cash and cash equivalents at beginning of period

 

 

27,077

 

 

15,878

 

Cash and cash equivalents at end of period

 

$

23,314

 

$

33,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

4


 

Table of Contents

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 communication solutions to consumer, commercial and carrier customers across a 24-state service area.

 

We operate as both an Incumbent Local Exchange Carrier (“ILEC”) and a Competitive Local Exchange Carrier (“CLEC”), dependent upon the territory served.  Leveraging our advanced fiber network spanning more than 36,000 fiber route miles, we offer local, long-distance and 9-1-1 services, high-speed broadband Internet access, video services, Voice over Internet Protocol (“VoIP”), custom calling features, private line services, carrier grade access services, network capacity services over our regional fiber optic networks, data center and managed services, directory publishing, equipment sales and cloud services.  As of September 30, 2017, we had approximately 990 thousand voice connections, 784 thousand data connections and 105 thousand video connections.

 

In the opinion of management, the accompanying unaudited 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 2016 Annual Report on Form 10-K filed with the SEC.

 

Recent Business Developments

 

On December 3, 2016, we entered into a definitive agreement and plan of merger (the “Merger Agreement”) with FairPoint Communications, Inc. (“FairPoint”) to acquire all the issued and outstanding shares of FairPoint in exchange for shares of our common stock.  On July 3, 2017, the merger (the “Merger”) was completed and FairPoint became a wholly owned subsidiary of the Company.  The financial results for FairPoint have been included in our condensed consolidated financial statements as of the acquisition date.  For a more complete discussion of the transaction, refer to Note 2.

5


 

Table of Contents

 

Property, Plant and Equipment

 

Property, plant and equipment consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

    

Estimated 

 

(In thousands)

 

2017

 

2016

 

Useful Lives

 

Land and buildings

 

$

249,912

 

$

105,923

 

18

-

40

years

 

Central office switching and transmission

 

 

1,070,214

 

 

861,608

 

3

-

25

years

 

Outside plant cable, wire and fiber facilities

 

 

1,808,299

 

 

1,201,042

 

3

-

50

years

 

Furniture, fixtures and equipment

 

 

253,718

 

 

167,125

 

3

-

15

years

 

Assets under capital lease

 

 

41,965

 

 

28,355

 

3

-

11

years

 

Total plant in service

 

 

3,424,108

 

 

2,364,053

 

 

 

 

 

 

Less: accumulated depreciation and amortization

 

 

(1,510,094)

 

 

(1,345,551)

 

 

 

 

 

 

Plant in service

 

 

1,914,014

 

 

1,018,502

 

 

 

 

 

 

Construction in progress

 

 

104,429

 

 

21,956

 

 

 

 

 

 

Construction inventory

 

 

39,975

 

 

14,728

 

 

 

 

 

 

Totals

 

$

2,058,418

 

$

1,055,186

 

 

 

 

 

 

 

Recent Accounting Pronouncements

 

Effective January 1, 2017, we adopted the Accounting Standards Update (“ASU”) No. 2016-09 (“ASU 2016-09 ”), Improvements to Employee Share-Based Payment Accounting . ASU 2016-09 amends several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, calculation of compensation expense and classification on the statement of cash flows. ASU 2016-09 requires excess tax benefits and deficiencies resulting from stock-based compensation awards vesting to be recognized as income tax expense or benefit in the income statement on a prospective basis. Previously, these amounts were recognized in additional paid-in capital (“APIC”). The impact of this change was not material for the quarter and nine months ended September 30, 2017. In addition, ASU 2016-09 requires excess tax benefits and deficiencies to be excluded from the assumed proceeds in the calculation of diluted shares when using the treasury stock method. This requirement did not impact diluted loss per share for the quarter and nine months ended September 30, 2017 as the diluted shares were excluded from the computation of loss per share. Due to our net loss for the quarter and nine months ended September 30, 2017, the inclusion of these shares would have had an anti-dilutive impact.

 

ASU 2016-09 removed the requirement to delay recognition of excess tax benefits until it reduces current income taxes payable. This update is required to be applied on a modified retrospective basis, which resulted in a cumulative effect adjustment of $2.2 million as of January 1, 2017 to increase opening retained earnings for the cumulative impact of excess tax benefits related to our net operating loss (“NOL”) carryforwards. This amount was subsequently transferred into APIC at March 31, 2017.

 

ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. We have elected to recognize forfeitures as they occur and the cumulative impact of this change was not material to our condensed consolidated financial statements and related disclosures.

 

In August 2017, the Financial Accounting Standards Board (“FASB”) issued the ASU Update No. 2017-12 (“ASU 2017-12”), Targeted Improvements to Accounting for Hedging Activities . ASU 2017-12 amends current guidance on accounting for hedges mainly to align more closely an entity’s risk management activities and financial reporting relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. In addition, amendments in ASU 2017-12 simplify the application of hedge accounting by allowing more time to prepare hedge documentation and allowing effectiveness assessments to be performed on a qualitative basis after hedge inception. The new guidance is effective for annual and interim periods beginning after December 15, 2018 with early adoption permitted. We are currently evaluating the impact this update will have on our condensed consolidated financial statements and related disclosures.

 

6


 

Table of Contents

In May 2017, the FASB issued the ASU No. 2017-09 (“ASU 2017-09”), Scope of Modification Accounting . ASU 2017-09 clarifies the modification accounting guidance for stock compensation included in Topic 718, Compensation – Stock Compensation . ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award must be accounted for as a modification under Topic 718. The new guidance is effective prospectively for annual and interim periods beginning after December 15, 2017, with early adoption permitted. We plan to adopt this update effective January 1, 2018 and will apply this guidance to applicable transactions after the adoption date.

 

In March 2017, the FASB issued the ASU No. 2017-07 (“ASU 2017-07”), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost . ASU 2017-07 requires presentation of the service cost component of net periodic benefit cost within the same income statement line item as other compensation costs arising from services rendered by relevant employees during the period, and presentation of the other cost components of net periodic benefit cost separately and outside of the income from operations subtotal. In addition, only the service cost component is eligible for capitalization. The new guidance is effective for annual and interim periods beginning after December 15, 2017.   Early adoption is permitted as of the beginning of the annual period and should be applied retrospectively for the presentation of the service cost and prospectively for the capitalization of the service cost component in assets. We plan to adopt this update effective January 1, 2018 and do not expect a material impact on our condensed consolidated financial statements and related disclosures.

 

In February 2017, the FASB issued the ASU No. 2017-05 (“ASU 2017-05”), Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets . ASU 2017-05 provides additional guidance to (i) clarify the scope for recognizing gains and losses from the transfer of nonfinancial assets and in substance nonfinancial assets in contracts with non-customers, and (ii) clarify the accounting for partial sales of nonfinancial assets. ASU 2017-05 is effective for annual and interim periods beginning after December 15, 2017 and can be applied using the retrospective or modified retrospective approach. We plan to adopt ASU 2017-05 as of January 1, 2018 and are currently evaluating the impact this update will have on our condensed consolidated financial statements and related disclosures.

 

In January 2017, FASB issued the ASU No. 2017-04 (“ASU 2017-04”), Simplifying the Accounting for Goodwill Impairment . ASU 2017-04 eliminates Step 2 from the goodwill impairment test. Under the updated guidance, the goodwill impairment test will be performed by comparing the fair value of a reporting unit with its carrying amount and an impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new guidance is effective for annual and interim goodwill tests in fiscal years beginning after December 15, 2019 and should be applied prospectively. Early adoption is permitted for annual and interim goodwill impairment testing performed after January 1, 2017. We plan to early adopt this update in the fourth quarter of 2017.

 

In January 2017, the FASB issued the ASU No. 2017-01 (“ASU 2017-01”), Clarifying the Definition of a Business . ASU 2017-01 clarifies the definition of a business and establishes a screening process to determine whether an integrated set of assets and activities acquired is deemed the acquisition of a business or the acquisition of assets. ASU 2017-01 is effective for annual and interim periods beginning after December 15, 2017 and should be applied prospectively, with early adoption permitted. We plan to adopt this update as of January 1, 2018 and do not expect a material impact on our condensed consolidated financial statements and related disclosures.

 

In October 2016, the FASB issued the ASU No. 2016-16 (“ASU 2016-16”), Intra-Entity Transfers of Assets Other Than Inventory . ASU 2016-16 eliminates the existing exception prohibiting the recognition of the income tax consequences for intra-entity asset transfers until the asset has been sold to an outside party. Under ASU 2016-16, entities will be required to recognize the income tax consequences of intra-entity asset transfers other than inventory when the transfer occurs. ASU 2016-16 is effective on a modified retrospective basis for annual and interim periods beginning after December 15, 2017, with early adoption permitted. We currently anticipate adopting this update effective January 1, 2018 and do not expect a material impact on our condensed consolidated financial statements and related disclosures.

 

In August 2016, the FASB issued the ASU No. 2016-15 (“ASU 2016-15”), Classification of Certain Cash Receipts and Cash Payments . ASU 2016-15 provides guidance concerning the classification of certain cash receipts and cash payments in the statement of cash flows. The new guidance is effective for annual and interim periods beginning after December 15, 2017 and should be applied retrospectively, with early adoption permitted. We are currently evaluating the impact this update will have on our condensed consolidated financial statements and related disclosures.

7


 

Table of Contents

 

In June 2016, the FASB issued the ASU No. 2016-13 (“ASU 2016-13”), Measurement of Credit Losses on Financial Instruments . ASU 2016-13 establishes the new “current expected credit loss” model for measuring and recognizing credit losses on financial assets based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts. The new guidance is effective on a modified retrospective basis for annual and interim periods beginning after December 15, 2019, with early adoption permitted for annual and interim periods beginning after December 15, 2018. We have not yet made a decision on the timing of adoption and are currently evaluating the impact this update will have on our condensed consolidated financial statements and related disclosures.

 

In February 2016, the FASB issued the ASU No. 2016-02 (“ASU 2016-02”), Leases . ASU 2016-02 establishes a new lease accounting model for leases. Lessees will be required to recognize most leases on their balance sheets but lease expense will be recognized on the income statement in a manner similar to existing requirements. ASU 2016-02 is effective on a modified retrospective basis for annual and interim periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the population of our leases and anticipate that most of our operating lease commitments will be recognized on our consolidated balance sheets. We have not yet made a decision on the timing of adoption and are continuing to assess the potential impact of this update on our condensed consolidated financial statements and related disclosures.

 

In May 2014, the FASB issued the ASU No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers   (Topic 606) , which will replace the current revenue recognition requirements in US GAAP.  The core principle of ASU 2014-09 is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.  In addition, ASU 2014-09 requires disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.  Two transition methods are permitted under ASU 2014-09, the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application.  In August 2015, the FASB issued the ASU No. 2015-14 (“ASU 2015-14”), Deferral of the Effective Date , which deferred the effective date of ASU 2014-09 for all entities by one year.  Accordingly, ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017. We plan to adopt this update as of January 1, 2018. 

 

In 2016, we established a cross-functional implementation team to assess the impact of ASU 2014-09 on our revenue contracts by reviewing our current accounting policies and practices to identify potential differences that would result from applying the requirements of this update.  While we continue to assess all potential impacts of this update, we currently believe that the most significant impact relates to the deferral of contract acquisition costs, which is currently expensed as incurred, however under ASU 2014-09 will generally be capitalized and amortized over the contract performance period.  Initially, we anticipated adopting this update using the full retrospective method to restate each prior reporting period presented, however, after further assessment of the impacts to our current systems, processes and internal controls as well as the transition methods allowed, we have determined that adopting this update using the modified retrospective method is more appropriate.

 

 

8


 

Table of Contents

2.  ACQUISITIONS AND DIVESTITURES

 

Acquisitions

 

FairPoint Communications, Inc.

 

On December 3, 2016, we entered into a Merger Agreement with FairPoint to acquire all the issued and outstanding shares of FairPoint in exchange for shares of our common stock.  FairPoint is an advanced communications provider to business, wholesale and residential customers within its service territory, which spans across 17 states.  FairPoint owns and operates a robust fiber-based network with more than 21,000 route miles of fiber, including 17,000 route miles of fiber in northern New England.  On July 3, 2017, the acquisition of FairPoint was completed, and as a result, FairPoint became a wholly-owned subsidiary of the Company.  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, par value of $0.01 per share, of FairPoint issued and outstanding immediately prior to the effective time of the Merger converted into and became the right to receive 0.7300 shares of common stock, par value $0.01 per share, of Consolidated and cash in lieu of fractional shares, as set forth in the Merger Agreement.  Based on the closing price of our common stock on the last complete trading day prior to the effective date of the Merger, the total value of the consideration to be exchanged was $431.0 million, exclusive of debt of approximately $919.3 million.  On the date of the Merger, we issued an approximate aggregate total of 20.1 million shares of our common stock to the former FairPoint stockholders and we assumed approximately 2,615,153 outstanding warrants, each eligible to purchase one share of the Company’s common stock at an exercise price of $66.86 per share, subject to adjustment in accordance with the warrant agreement, and exercisable any time on or prior to January 24, 2018.

 

In connection with the Merger, we secured committed debt financing through a $935.0 million incremental term loan facility, as described in Note 6, that, in addition to cash on hand and other sources of liquidity, was used to repay certain existing indebtedness of FairPoint and to pay the fees and expenses in connection with the Merger.

 

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.

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

 

 

 

 

 

 

 

    

(In thousands)

 

Cash and cash equivalents

 

$

56,980

 

Accounts receivable

 

 

62,805

 

Other current assets

 

 

22,171

 

Assets held for sale

 

 

21,417

 

Property, plant and equipment

 

 

1,045,471

 

Intangible assets

 

 

303,080

 

Other long-term assets

 

 

2,685

 

Total assets acquired

 

 

1,514,609

 

 

 

 

 

 

Current liabilities

 

 

123,194

 

Liabilities held for sale

 

 

1,016

 

Pension and other post-retirement obligations

 

 

222,162

 

Deferred income taxes

 

 

89,137

 

Other long-term liabilities

 

 

14,190

 

Total liabilities assumed

 

 

449,699

 

Net fair value of assets acquired

 

 

1,064,910

 

Goodwill

 

 

285,408

 

Total consideration transferred

 

$

1,350,318

 

 

9


 

Table of Contents

The fair values of the assets acquired and liabilities assumed are based on a preliminary valuation, which is subject to change within the measurement period.  Upon completion of the final fair value assessment, the fair values of the net assets acquired may differ from the preliminary assessment and such changes could be material.  We are in the process of finalizing the valuation of the net assets acquired, most notably, the valuation of property, plant and equipment, intangible assets, pension and other post-retirement obligations and deferred income taxes.  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.

Goodwill recognized from the acquisition primarily relates to the expected contributions of the entity to the overall corporate strategy and the synergies expected to be realized from the acquisition.  Amortization of goodwill is not deductible for income tax purposes.

Based on the preliminary valuation analysis, the identifiable intangible assets acquired consisted of customer relationships of $300.2 million, tradenames of $1.1 million and non-compete agreements of $1.8 million.  The identifiable intangible assets are amortized using the straight-line method over their preliminary estimated useful lives, which is seven to eleven years for customer relationships depending on the nature of the customer, six months for tradenames and one year for non-compete agreements.

As discussed in the “Divestures” section below, we have committed to a formal plan to sell certain assets of FairPoint and these assets have been classified as held for sale at the acquisition date.  In connection with the classification as assets held for sale at the acquisition date, the carrying value of these assets was recorded at their estimated fair value of approximately $20.4 million, which was determined based on the estimated selling price less costs to sell.

The results of operations of FairPoint have been reported in our condensed consolidated financial statements as of the effective date of the acquisition.  For the quarter ended September 30, 2017, FairPoint contributed operating revenues of $198.0 million and a net loss of $2.9 million, which included $10.2 million in acquisition related costs.  Upon closing of the FairPoint acquisition or shortly thereafter, various triggering events occurred which resulted in the payment of various change in control payments and other contingent payments to certain FairPoint employees.  The estimated cash payments under these agreements will be approximately $9.8 million of which $8.7 million was recognized during the quarter ended September 30, 2017 and $0.5 million is expected to be paid during the quarter ended December 31, 2017 with the remainder due in 2018 and 2019.

Unaudited Pro Forma Results

 

The following unaudited pro forma information presents our results of operations as if the acquisition of FairPoint occurred on January 1, 2016.  The adjustments to arrive at the pro forma information below included adjustments for depreciation and amortization on the acquired tangible and intangible assets acquired, interest expense on the debt incurred to finance the acquisition and to repay certain existing indebtedness of FairPoint, 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 the acquisition.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

(Unaudited; in thousands, except per share amounts)

    

2017

    

 

2016

 

2017

    

 

2016

Operating revenues

 

$

363,329

 

$

398,682

 

$

1,104,260

 

$

1,187,772

Income from operations

 

$

18,975

 

$

91,946

 

$

48,688

 

$

232,698

Net income (loss)

 

$

(628)

 

$

42,455

 

$

(10,576)

 

$

94,279

Less: net income attributable to noncontrolling interest

 

 

54

 

 

77

 

 

136

 

 

211

Net income (loss) attributable to common stockholders

 

$

(682)

 

$

42,378

 

$

(10,712)

 

$

94,068

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.01)

 

$

0.60

 

$

(0.15)

 

$

1.34

 

Transaction costs related to the acquisition of FairPoint were $27.0 million and $30.2 million during the quarter and nine months ended September 30, 2017, respectively, which are included in acquisition and other transaction costs in the condensed consolidated statements of operations.  These costs are considered to be non-recurring in nature and therefore pro forma adjustments have been made to exclude these costs from the pro forma results of operations.

 

10


 

Table of Contents

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.

 

Champaign Telephone Company, Inc.

 

On July 1, 2016, we acquired substantially all of the assets of Champaign Telephone Company, Inc. and its sister company, Big Broadband Services, LLC, a private business communications provider in the Champaign-Urbana, IL area.  The aggregate purchase price, including customary working capital adjustments, consisted of cash consideration of $13.4 million, which was paid from our existing cash resources.  The fair value of the acquired assets and liabilities assumed consisted primarily of property, plant and equipment of $6.9 million, intangible assets of $1.0 million, working capital of $0.8 million and goodwill of $4.7 million.  Goodwill and other intangible assets are expected to be amortizable and deductible for income tax purposes. 

 

Divestitures

 

In August 2017, we committed to a formal plan to sell certain assets of FairPoint.  Accordingly, the net assets have been classified as held for sale in the condensed consolidated balance sheet.  The expected sale of these assets has not been reported as discontinued operations in the condensed consolidated statements of operations as the annual revenues of these operations is less than 1% of the consolidated operating revenues.  The estimated fair value of the net assets held for sale was determined based on the estimated selling price less costs to sell and was classified as Level 2 within the fair value hierarchy at September 30, 2017.

 

The classes of assets and liabilities to be sold and classified as held for sale consisted of the following:

 

 

 

 

 

(In thousands)

    

 

Current assets

 

$

235

Property, plant and equipment

 

 

4,342

Goodwill

 

 

16,829

Total assets

 

$

21,406

 

 

 

 

Current liabilities

 

$

773

Deferred taxes

 

 

302

Total liabilities

 

$

1,075

 

On December 6, 2016, we completed the sale of substantially all of the assets of the Company’s Enterprise Services equipment and IT Services business (“EIS”) to ePlus Technology inc. (“ePlus”) for cash proceeds of $9.2 million net of a customary working capital adjustment.  As part of the transaction, we entered into a Co-Marketing Agreement with ePlus, a nationwide systems integrator of technology solutions, to cross-sell both broadband network services and IT services.  The strategic partnership will provide our business customers access to a broader suite of IT solutions, and will also provide ePlus customers access to Consolidated’s business network services. 

 

On May 3, 2016, we entered into a definitive agreement to sell all of the issued and outstanding stock of our non-core, rural ILEC business located in northwest Iowa, Consolidated Communications of Iowa Company (“CCIC”), formerly Heartland Telecommunications Company of Iowa.  CCIC provides telecommunications and data services to residential and business customers in 11 rural communities in northwest Iowa and surrounding areas.  The sale was completed on September 1, 2016 for total cash proceeds of approximately $21.0 million, net of certain contractual and customary working capital adjustments.  In connection with the sale, during the quarter and nine months ended September 30, 2016, we recognized a loss of $0.3 million and $0.9 million, respectively, which is included in other, net in the condensed consolidated statement of operations.  We recognized a taxable gain on the transaction resulting in current income tax expense of $7.2 million during the nine months ended September 30, 2016 to reflect the tax impact of the divestiture.  See Note 10 for additional income tax related information regarding this transaction. 

 

11


 

Table of Contents

3.  EARNINGS (LOSS) PER SHARE

 

Basic and diluted earnings (loss) per common share (“EPS”) are computed using the two-class method, which is an earnings allocation method that determines EPS for each class of common stock and participating securities considering 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.  With the acquisition of FairPoint in 2017, we assumed approximately 2,615,153 warrants outstanding, each eligible to purchase one share of the Company’s common stock at an exercise price of $66.86 per share. 

 

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

 

Potentially dilutive shares exclude warrants in accordance with the treasury stock method primarily due to the exercise price exceeding the average market price during the period.  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 computation of basic and diluted EPS attributable to common shareholders computed using the two‑class method is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(In thousands, except per share amounts)

    

2017

    

2016

    

2017

    

2016

 

Net income (loss)

 

$

(28,394)

 

$

7,089

 

$

(34,725)

 

$

15,148

 

Less: net income attributable to noncontrolling interest

 

 

54

 

 

77

 

 

136

 

 

211

 

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

 

 

(28,448)

 

 

7,012

 

 

(34,861)

 

 

14,937

 

Less: earnings allocated to participating securities

 

 

127

 

 

131

 

 

291

 

 

393

 

Net income (loss) attributable to common shareholders, after earnings allocated to participating securities

 

$

(28,575)

 

$

6,881

 

$

(35,152)

 

$

14,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding

 

 

69,830

 

 

50,294

 

 

56,955

 

 

50,292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.41)

 

$

0.14

 

$

(0.62)

 

$

0.29

 

 

Diluted EPS attributable to common shareholders for each of the quarters ended September 30, 2017 and 2016 excludes  0.4 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 each of the nine months ended September 30, 2017 and 2016, diluted EPS attributable to common shareholders exclude 0.3 million potential common shares that could be issued under our share-based compensation plan.

 

12


 

Table of Contents

4.  INVESTMENTS

 

Our investments are as follows:

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

(In thousands)

    

2017

    

2016

 

Cash surrender value of life insurance policies

 

$

2,229

 

$

2,156

 

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

 

 

9,105

 

 

8,138

 

Other

 

 

318

 

 

200

 

Equity method investments:

 

 

 

 

 

 

 

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

 

 

17,439

 

 

17,160

 

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

 

 

7,172

 

 

6,540

 

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

 

 

27,605

 

 

27,627

 

Totals

 

$

108,268

 

$

106,221

 

 

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, 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.  No factors of impairment existed for any of the investments during the quarters or nine months ended September 30, 2017 or 2016.  For the quarters ended September 30, 2017 and 2016, we received cash distributions from these partnerships totaling $4.3 million and $3.1 million, respectively. For each of the nine months ended September 30, 2017 and 2016, we received cash distributions from these partnerships totaling $9.6 million.

 

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 September 30, 2017 and 2016, we received cash distributions from these partnerships totaling $4.3 million and $5.5 million, respectively. For the nine months ended September 30, 2017 and 2016, we received cash distributions from these partnerships totaling $12.4 million and $13.6 million, respectively.

   

13


 

Table of Contents

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(In thousands)

    

2017

    

2016

    

2017

    

2016

 

Total revenues

 

$

78,783

 

$

83,149

 

$

248,615

 

$

247,691

 

Income from operations

 

 

23,436

 

 

24,690

 

 

69,243

 

 

77,083

 

Net income before taxes

 

 

23,069

 

 

24,295

 

 

68,111

 

 

75,880

 

Net income

 

 

23,069

 

 

24,295

 

 

68,111

 

 

75,880

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

(In thousands)

    

2017

    

2016

 

Current assets

 

$

69,991

 

$

64,083

 

Non-current assets

 

 

94,387

 

 

89,651

 

Current liabilities

 

 

25,186

 

 

21,985

 

Non-current liabilities

 

 

50,972

 

 

51,836

 

Partnership equity

 

 

88,220

 

 

79,913

 

 

 

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 and are categorized within Level 2 of the fair value hierarchy as the valuation inputs are based on quoted prices and observable market data of similar instruments.  See Note 7 for further discussion regarding our interest rate swap agreements.

 

Our interest rate swap agreements measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2017

 

 

    

 

 

    

Quoted Prices

    

Significant

    

 

 

 

 

 

 

 

In Active

 

Other

 

Significant

 

 

 

 

 

 

Markets for

 

Observable

 

Unobservable

 

 

 

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

(In thousands)

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Long-term interest rate swap assets

 

$

390

 

$

 -

 

$

390

 

$

 -

 

Current interest rate swap liabilities

 

 

(668)

 

 

 -

 

 

(668)

 

 

 -

 

Long-term interest rate swap liabilities

 

 

(5,371)

 

 

 -

 

 

(5,371)

 

 

 -

 

Total

 

$

(5,649)

 

$

 -

 

$

(5,649)

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016

 

 

    

 

 

    

Quoted Prices

    

Significant

    

 

 

 

 

 

 

 

In Active

 

Other

 

Significant

 

 

 

 

 

 

Markets for

 

Observable

 

Unobservable

 

 

 

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

(In thousands)

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Long-term interest rate swap assets

 

$

398

 

$

 -

 

$

398

 

$

 -

 

Current interest rate swap liabilities

 

 

(453)

 

 

 -

 

 

(453)

 

 

 -

 

Long-term interest rate swap liabilities

 

 

(216)

 

 

 -

 

 

(216)

 

 

 -

 

Total

 

$

(271)

 

$

 -

 

$

(271)

 

$

 -

 

 

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

14


 

Table of Contents

their short maturities.  The following table presents the other financial instruments that are not carried at fair value but which require fair value disclosure as of September 30, 2017 and December 31, 2016 .

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2017

 

As of December 31, 2016

 

(In thousands)

    

Carrying Value

    

Fair Value

    

Carrying Value

    

Fair Value

  

Investments, equity basis

 

$

52,216

 

 

n/a

 

$

51,327

 

 

n/a

 

Investments, at cost

 

$

53,823

 

 

n/a

 

$

52,738

 

 

n/a

 

Long-term debt, excluding capital leases

 

$

2,331,493

 

$

2,264,771

 

$

1,388,786

 

$

1,390,773

 

 

Cost & Equity Method Investments

 

Our investments as of September 30, 2017 and December 31, 2016 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 the 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:

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

(In thousands)

    

2017

    

2016

 

Senior secured credit facility:

 

 

 

 

 

 

 

Term loans, net of discounts of $8,676 and $4,662 at September 30, 2017 and December 31, 2016, respectively

 

$

1,817,324

 

$

893,088

 

Revolving loan

 

 

18,000

 

 

 —

 

6.50% Senior notes due 2022, net of discount of $3,831 and $4,302 at September 30, 2017 and December 31, 2016, respectively

 

 

496,169

 

 

495,698

 

Capital leases