cnsl_Current folio_10Q

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 March 31, 2019

 

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 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 every Interactive Data File required to be submitted 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 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.

 

Large accelerated filer    Accelerated filer    

 

Non-accelerated filer___   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 any 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 April 22, 2019, the registrant had 72,098,390 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

 

32

 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

48

 

 

 

 

Item 4. 

Controls and Procedures

 

48

 

 

 

 

PART II. OTHER INFORMATION 

 

 

 

 

 

 

Item 1. 

Legal Proceedings

 

50

 

 

 

 

Item 1A. 

Risk Factors

 

50

 

 

 

 

Item 6. 

Exhibits

 

51

 

 

 

 

SIGNATURES 

 

52

 

 

 

 


 

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

 

 

 

March 31,

 

 

    

2019

    

2018

 

Net revenues

 

$

338,649

 

$

356,039

 

 

 

 

 

 

 

 

 

Operating expense:

 

 

 

 

 

 

 

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

 

 

148,319

 

 

152,916

 

Selling, general and administrative expenses

 

 

74,367

 

 

85,985

 

Depreciation and amortization

 

 

99,243

 

 

107,899

 

Income from operations

 

 

16,720

 

 

9,239

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Interest expense, net of interest income

 

 

(34,283)

 

 

(32,716)

 

Investment income

 

 

8,601

 

 

7,789

 

Other, net

 

 

(1,369)

 

 

242

 

Loss before income taxes

 

 

(10,331)

 

 

(15,446)

 

 

 

 

 

 

 

 

 

Income tax benefit

 

 

(3,145)

 

 

(4,248)

 

 

 

 

 

 

 

 

 

Net loss

 

 

(7,186)

 

 

(11,198)

 

Less: net income attributable to noncontrolling interest

 

 

79

 

 

100

 

Net loss attributable to common shareholders

 

$

(7,265)

 

$

(11,298)

 

 

 

 

 

 

 

 

 

Net loss per basic and diluted common shares attributable to common shareholders

 

$

(0.11)

 

$

(0.16)

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.39

 

$

0.39

 

 

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

 

 

 

March 31,

 

 

    

2019

    

2018

 

 

 

 

 

 

 

 

 

Net loss

 

$

(7,186)

 

$

(11,198)

 

Pension and post-retirement obligations:

 

 

 

 

 

 

 

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

 

 

1,026

 

 

922

 

Derivative instruments designated as cash flow hedges:

 

 

 

 

 

 

 

Change in fair value of derivatives, net of tax

 

 

(6,689)

 

 

4,737

 

Cumulative adjustment upon adoption of ASU 2017-12

 

 

(576)

 

 

 -

 

Reclassification of realized (gain) loss to earnings, net of tax

 

 

(207)

 

 

265

 

Comprehensive loss

 

 

(13,632)

 

 

(5,274)

 

Less: comprehensive income attributable to noncontrolling interest

 

 

79

 

 

100

 

Total comprehensive loss attributable to common shareholders

 

$

(13,711)

 

$

(5,374)

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

2019

    

2018

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,724

 

$

9,599

 

Accounts receivable, net of allowance for doubtful accounts

 

 

132,326

 

 

133,136

 

Income tax receivable

 

 

11,027

 

 

11,072

 

Prepaid expenses and other current assets

 

 

45,801

 

 

44,336

 

Total current assets

 

 

195,878

 

 

198,143

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

1,897,064

 

 

1,927,126

 

Investments

 

 

112,038

 

 

110,853

 

Goodwill

 

 

1,035,274

 

 

1,035,274

 

Customer relationships, net

 

 

212,638

 

 

228,959

 

Other intangible assets

 

 

11,205

 

 

11,483

 

Other assets

 

 

59,948

 

 

23,423

 

Total assets

 

$

3,524,045

 

$

3,535,261

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

26,005

 

$

32,502

 

Advance billings and customer deposits

 

 

50,529

 

 

47,724

 

Dividends payable

 

 

27,934

 

 

27,579

 

Accrued compensation

 

 

54,566

 

 

64,459

 

Accrued interest

 

 

17,961

 

 

9,232

 

Accrued expense

 

 

78,690

 

 

71,650

 

Current portion of long-term debt and finance lease obligations

 

 

29,343

 

 

30,468

 

Total current liabilities

 

 

285,028

 

 

283,614

 

 

 

 

 

 

 

 

 

Long-term debt and finance lease obligations

 

 

2,308,099

 

 

2,303,585

 

Deferred income taxes

 

 

182,593

 

 

188,129

 

Pension and other post-retirement obligations

 

 

306,663

 

 

314,134

 

Other long-term liabilities

 

 

65,498

 

 

30,145

 

Total liabilities

 

 

3,147,881

 

 

3,119,607

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common stock, par value $0.01 per share; 100,000,000 shares authorized, 72,110,187 and 71,187,301 shares outstanding as of March 31, 2019 and December 31, 2018, respectively

 

 

721

 

 

712

 

Additional paid-in capital

 

 

487,203

 

 

513,070

 

Accumulated deficit

 

 

(58,099)

 

 

(50,834)

 

Accumulated other comprehensive loss, net

 

 

(59,658)

 

 

(53,212)

 

Noncontrolling interest

 

 

5,997

 

 

5,918

 

Total shareholders’ equity

 

 

376,164

 

 

415,654

 

Total liabilities and shareholders’ equity

 

$

3,524,045

    

$

3,535,261

 

 

See accompanying notes.

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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited; Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Additional 

 

Retained 

    

Other 

    

Non-

    

 

 

 

 

 

Common Stock

 

Paid-in 

 

Earnings

 

Comprehensive

 

controlling 

 

 

 

 

 

 

Shares

 

Amount

 

Capital

 

(Deficit)

 

Loss, net

 

Interest

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

70,777

 

$

708

 

$

615,662

 

$

 —

 

$

(48,083)

 

$

5,655

 

$

573,942

 

Cash dividends on common stock

 

 —

 

 

 —

 

 

(25,243)

 

 

(2,359)

 

 

 —

 

 

 —

 

 

(27,602)

 

Shares issued under employee plan, net of forfeitures

 

475

 

 

 5

 

 

(5)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Non-cash, share-based compensation

 

 —

 

 

 —

 

 

678

 

 

 —

 

 

 —

 

 

 —

 

 

678

 

Other comprehensive income (loss)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

5,924

 

 

 —

 

 

5,924

 

Cumulative adjustment: adoption of ASC 606

 

 —

 

 

 —

 

 

 —

 

 

2,359

 

 

 —

 

 

 —

 

 

2,359

 

Net income (loss)

 

 —

 

 

 —

 

 

 —

 

 

(11,298)

 

 

 —

 

 

100

 

 

(11,198)

 

Balance at March 31, 2018

 

71,252

 

$

713

 

$

591,092

 

$

(11,298)

 

$

(42,159)

 

$

5,755

 

$

544,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

71,187

 

$

712

 

$

513,070

 

$

(50,834)

 

$

(53,212)

 

$

5,918

 

$

415,654

 

Cash dividends on common stock

 

 —

 

 

 —

 

 

(27,356)

 

 

(576)

 

 

 —

 

 

 —

 

 

(27,932)

 

Shares issued under employee plan, net of forfeitures

 

923

 

 

 9

 

 

(9)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Non-cash, share-based compensation

 

 —

 

 

 —

 

 

1,498

 

 

 —

 

 

 —

 

 

 —

 

 

1,498

 

Other comprehensive income (loss)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(6,446)

 

 

 —

 

 

(6,446)

 

Cumulative adjustment: adoption of ASU 2017-12

 

 —

 

 

 —

 

 

 —

 

 

576

 

 

 —

 

 

 —

 

 

576

 

Net income (loss)

 

 —

 

 

 —

 

 

 —

 

 

(7,265)

 

 

 —

 

 

79

 

 

(7,186)

 

Balance at March 31, 2019

 

72,110

 

$

721

 

$

487,203

 

$

(58,099)

 

$

(59,658)

 

$

5,997

 

$

376,164

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

    

2019

    

2018

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

74,997

 

$

90,842

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property, plant and equipment, net

 

 

(53,394)

 

 

(60,808)

 

Proceeds from sale of assets

 

 

865

 

 

144

 

Distributions from investments

 

 

329

 

 

233

 

Net cash used in investing activities

 

 

(52,200)

 

 

(60,431)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

51,000

 

 

27,000

 

Payment of finance lease obligations

 

 

(3,507)

 

 

(2,923)

 

Payment on long-term debt

 

 

(45,588)

 

 

(31,588)

 

Dividends on common stock

 

 

(27,577)

 

 

(27,417)

 

Net cash used in financing activities

 

 

(25,672)

 

 

(34,928)

 

Change in cash and cash equivalents

 

 

(2,875)

 

 

(4,517)

 

Cash and cash equivalents at beginning of period

 

 

9,599

 

 

15,657

 

Cash and cash equivalents at end of period

 

$

6,724

 

$

11,140

 

 

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,”  “our” or “us”) is a holding company with operating subsidiaries (collectively “Consolidated”) that provide communication solutions to consumer, commercial and carrier customers across a 23-state service area.

 

Leveraging our advanced fiber network spanning more than 37,000 fiber route miles, we offer residential high-speed Internet, video, phone and home security services as well as multi-service residential and small business bundles.  Our business product suite includes data and Internet solutions, voice, data center services, security services, managed and IT services, and an expanded suite of cloud services.  As of March 31, 2019, we had approximately 887,000 voice connections, 781,000 data connections and 91,000 video connections.

 

In the opinion of management, the accompanying unaudited condensed consolidated balance sheets and related condensed consolidated statements of operations, comprehensive income (loss), shareholders’ equity 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 2018 Annual Report on Form 10-K filed with the SEC.

 

Divestitures

 

On July 31, 2018, we completed the sale of all of the issued and outstanding stock of our subsidiaries Peoples Mutual Telephone Company and Peoples Mutual Long Distance Company (collectively, “Peoples”) for total cash proceeds of approximately $21.0 million, net of certain contractual and customary working capital adjustments.  Peoples operates as a local exchange carrier in Virginia and provides telecommunications services to residential and business customers.  The sale of Peoples has not been reported as discontinued operations in the condensed consolidated statements of operations as the annual revenue of these operations is less than 1% of the consolidated operating revenues.

 

Recent Accounting Pronouncements

 

Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02 (“ASU 2016-02”), Leases using the optional transitional method.  ASU 2016-02 establishes a new lease accounting model for leases, which requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet but lease expense will be recognized on the income statement in a manner similar to previous requirements.  Under the optional transitional method, the new standard is applied using the modified retrospective approach on the date of adoption.  Prior years presented have not been adjusted for ASU 2016-02 and continue to be reported in accordance with our historical accounting policy.

 

As part of the adoption, we elected the package of practical expedients permitted under the new lease standard, which among other things, allows us to carry forward the historical lease classification.  As a result, there was no impact to opening retained earnings.  We elected the practical expedient to combine lease and non-lease components, as well as

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the practical expedient related to land easements, which allows us to carry forward our accounting treatment for land easements in existing agreements.  We also made an accounting policy election to not recognize right-of-use assets and lease liabilities on the balance sheet for leases with a term of 12 months or less and will recognize lease payments as an expense on a straight-line basis over the lease term.

 

The adoption of the new lease standard resulted in the recognition of right-of-use assets and lease liabilities of approximately $30.9 million for historical operating leases, while our accounting for historical finance leases remained substantially unchanged.  The adoption of the new lease standard did not have a material impact on our consolidated statements of operations, consolidated statements of cash flows or our debt-covenant compliance under our current agreements.  For additional information on leases and the impact of the new lease standard, refer to Note 8.

 

Effective January 1, 2019, we adopted ASU No. 2018-07 (“ASU 2018-07”), Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expands the scope of Topic 718, Compensation – Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees to align the accounting guidance for both employee and nonemployee share-based transactions.  The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related disclosures.

 

Effective January 1, 2019, we adopted ASU No. 2018-02 (“ASU 2018-02”), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 provides an option to allow reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. Tax effects in accumulated other comprehensive loss are established at the currently enacted tax rate and reclassified to earnings in the same period that the related pre-tax items included in accumulated other comprehensive loss are recognized.  The adoption of this guidance did not have any impact on our condensed consolidated financial statements and related disclosures as we did not make the optional election for reclassification of stranded tax effects from accumulated other comprehensive income (loss) to retained earnings.

 

Effective January 1, 2019, we adopted ASU 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.  ASU 2017-12 was adopted using the modified retrospective transition approach, except for the amended presentation and disclosure requirements, which are applied prospectively.  Upon adoption of ASU 2017-12, we recognized a cumulative adjustment of $0.6 million, net of tax, from accumulated other comprehensive loss to opening retained earnings.  The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related disclosures.

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-15 (“ASU 2018-15”), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU 2018-15 provides guidance on accounting for costs of implementation activities in a cloud computing arrangement that is a service contract. The new guidance should be applied either retrospectively or prospectively and is effective for annual and interim periods beginning after December 15, 2019 with early adoption permitted. We are currently evaluating the impact this update will have on our condensed consolidated financial statements and related disclosures.

 

In August 2018, the FASB issued ASU No. 2018-14 (“ASU 2018-14”), Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 modifies disclosure requirements for defined benefit pension and other postretirement plans by removing disclosures that no longer are considered cost beneficial, clarifying the specific requirement of disclosures and adding disclosure requirements identified as relevant. The new guidance is effective retrospectively for annual periods beginning after December 15, 2020 with early adoption permitted. We are currently evaluating the impact this update will have on our condensed consolidated financial statements and related disclosures.

 

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In June 2016, the FASB issued 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.  

 

Reclassifications

 

Certain amounts in our 2018 condensed consolidated financial statements have been reclassified to conform to the current year presentation.   

 

 

2.  REVENUE

 

Nature of Contracts with Customers

 

Our revenue contracts with customers may include a promise or promises to deliver goods such as equipment and/or services such as broadband, video or voice services.  Promised goods and services are considered distinct as the customer can benefit from the goods or services either on their own or together with other resources that are readily available to the customer and the Company’s promise to transfer a good or service to the customer is separately identifiable from other promises in the contract.  The Company accounts for goods and services as separate performance obligations.  Each service is considered a single performance obligation as it is providing a series of distinct services that are substantially the same and have the same pattern of transfer.

 

The transaction price is determined at contract inception and reflects the amount of consideration to which we expect to be entitled in exchange for transferring a good or service to the customer.  This amount is generally equal to the market price of the goods and/or services promised in the contract and may include promotional discounts.  The transaction price excludes amounts collected on behalf of third parties such as sales taxes and regulatory fees.  Conversely, nonrefundable upfront fees, such as service activation and set-up fees, are included in the transaction price.  In determining the transaction price, we consider our enforceable rights and obligations within the contract.  We do not consider the possibility of a contract being cancelled, renewed or modified.

 

The transaction price is allocated to each performance obligation based on the standalone selling price of the good or service, net of the related discount, as applicable.

 

Revenue is recognized when or as performance obligations are satisfied by transferring control of the good or service to the customer as described below.

 

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Disaggregation of Revenue

 

The following table summarizes revenue from contracts with customers for the quarters ended March 31, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

 

March 31,

 

(In thousands)

    

2019

    

2018

 

Operating Revenues

 

 

 

 

 

 

 

Commercial and carrier:

 

 

 

 

 

 

 

Data and transport services (includes VoIP)

 

$

88,126

 

$

86,025

 

Voice services

 

 

48,070

 

 

52,161

 

Other

 

 

15,176

 

 

11,863

 

 

 

 

151,372

 

 

150,049

 

Consumer:

 

 

 

 

 

 

 

Broadband (VoIP and Data)

 

 

63,085

 

 

63,111

 

Video services

 

 

20,736

 

 

22,834

 

Voice services

 

 

45,879

 

 

52,062

 

 

 

 

129,700

 

 

138,007

 

  Subsidies

 

 

18,159

 

 

25,255

 

Network access

 

 

36,591

 

 

39,715

 

  Other products and services

 

 

2,827

 

 

3,013

 

Total operating revenues

 

$

338,649

 

$

356,039

 

 

Services 

   

Services revenues, with the exception of usage-based revenues, are generally billed in advance and recognized in subsequent periods when or as services are transferred to the customer.

   

We offer bundled service packages that consists of high-speed Internet, video and voice services including local and long distance calling, voicemail and calling features.  Each service is considered distinct and therefore accounted for as a separate performance obligation.  Service revenue is recognized over time, consistent with the transfer of service, as the customer simultaneously receives and consumes the benefits provided by the Company’s performance as the Company performs.

   

Usage-based services, such as per-minute long-distance service and access charges billed to other telephone carriers for originating and terminating long-distance calls in our network, are billed in arrears.  We recognize revenue from these services when or as services are transferred to the customer. 

   

Revenue related to nonrefundable upfront fees, such as service activation and set-up fees are deferred and amortized over the expected customer life as discussed below.

   

Equipment 

   

Equipment revenue is generated from the sale of voice and data communications equipment as well as design, configuration, installation and professional support services related to such equipment.  Equipment revenue generated from telecommunications systems and structured cabling projects is recognized when or as the project is completed.  Maintenance services are provided on both a contract and time and material basis and are recognized when or as services are transferred.

   

Subsidies and Surcharges 

   

Subsidies consist of both federal and state subsidies, which are designed to promote widely available, quality telephone service at affordable prices in rural areas.  These revenues are calculated by the administering government agency based

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on information we provide.  There is a reasonable possibility that out-of-period subsidy adjustments may be recorded in the future, but they are expected to be immaterial to our results of operations, financial position and cash flows.

 

We recognize Federal Universal Service contributions on a gross basis. We account for all other taxes collected from customers and remitted to the respective government agencies on a net basis.

 

Contract Assets and Liabilities

 

The following table provides information about receivables, contract assets and contract liabilities from our revenue contracts with customers:

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

 

March 31,

 

(In thousands)

    

2019

    

2018

 

Accounts receivable, net

 

$

132,326

 

$

134,496

 

Contract assets

 

 

13,897

 

 

4,527

 

Contract liabilities

 

 

55,212

 

 

47,269

 

 

Contract assets include costs that are incremental to the acquisition of a contract.  Incremental costs are those that result directly from obtaining a contract or costs that would not have been incurred if the contract had not been obtained, which primarily relate to sales commissions.  These costs are deferred and amortized over the expected customer life.  We determined that the expected customer life is the expected period of benefit as the commission on the renewal contract is not commensurate with the commission on the initial contract.  During the quarters ended March 31, 2019 and 2018, the Company recognized expense of $1.2 million and $0.4 million, respectively, related to deferred contract acquisition costs.

 

Contract liabilities include deferred revenues related to advanced payments for services and nonrefundable, upfront service activation and set-up fees, which under the new standard are generally deferred and amortized over the expected customer life as the option to renew without paying an upfront fee provides the customer with a material right.  During the quarters ended March 31, 2019 and 2018, the Company deferred and recognized revenues of $94.0 million and $87.3 million, respectively.

 

A receivable is recognized in the period the Company provides goods or services when the Company’s right to consideration is unconditional.  Payment terms on invoiced amounts are generally 30 to 60 days.

 

Performance Obligations

 

ASU No. 2014-09 (also known as ASC 606), Revenue from Contracts with Customers, requires that the Company disclose the aggregate amount of the transaction price that is allocated to remaining performance obligations that are unsatisfied as of March 31, 2019.  The guidance provides certain practical expedients that limit this requirement.  The service revenue contracts of the Company meet the following practical expedients provided by ASC 606:

 

1.

The performance obligation is part of a contract that has an original expected duration of one year or less.

2.

Revenue is recognized from the satisfaction of the performance obligations in the amount billable to the customer in accordance with ASC 606-10-55-18.

 

The Company has elected these practical expedients.  As mentioned above, performance obligations related to our service revenue contracts are generally recognized over time.  For services transferred over time, revenue is recognized based on amounts invoiced to the customer as the Company has concluded that the invoice amount directly corresponds with the value of services provided to the customer.  Management considers this a faithful depiction of the transfer of control as services are substantially the same and have the same pattern of transfer over the life of the contract.  As such, revenue related to unsatisfied performance obligations that will be billed in future periods has not been disclosed.

 

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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. 

 

The potentially dilutive impact of the Company’s restricted stock awards 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.

 

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

 

 

 

 

March 31,

 

 

(In thousands, except per share amounts)

    

2019

    

2018

    

 

Net loss

 

$

(7,186)

 

$

(11,198)

 

 

Less: net income attributable to noncontrolling interest

 

 

79

 

 

100

 

 

Loss attributable to common shareholders before allocation of earnings to participating securities

 

 

(7,265)

 

 

(11,298)

 

 

Less: earnings allocated to participating securities

 

 

457

 

 

221

 

 

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

 

$

(7,722)

 

$

(11,519)

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding

 

 

70,813

 

 

70,598

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.11)

 

$

(0.16)

 

 

 

Diluted EPS attributable to common shareholders for the quarters ended March 31, 2019 and 2018 excludes 0.7 million and 0.3 million potential common shares, respectively, that could be issued under our share-based compensation plan, because the inclusion of the potential common shares would have an antidilutive effect.

 

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4.  INVESTMENTS

 

Our investments are as follows:

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

(In thousands)

    

2019

    

2018

 

Cash surrender value of life insurance policies

 

$

2,579

 

$

2,371

 

Investments at cost:

 

 

 

 

 

 

 

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

 

 

8,910

 

 

9,051

 

Other

 

 

298

 

 

298

 

Equity method investments:

 

 

 

 

 

 

 

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

 

 

18,532

 

 

17,800

 

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

 

 

7,841

 

 

7,786

 

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

 

 

29,478

 

 

29,147

 

Totals

 

$

112,038

 

$

110,853

 

 

Investments at Cost

 

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 account for these investments at our initial cost less any impairment because fair value is not readily available for these investments.  No factors of impairment existed for any of the investments during the quarters ended March 31, 2019 or 2018.  For these investments, we adjust the carrying value for any purchases or sales of our ownership interests. We record distributions received from these investments as investment income in non-operating income (expense).  For the quarters ended March 31, 2019 and 2018, we received cash distributions from these partnerships totaling $3.3 million and $3.0 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. In connection with the adoption of ASC 606 by our equity method partnerships, the value of our combined partnership interests increased $1.8 million, which is reflected in the cumulative effect adjustment to retained earnings during the three months ended March 31, 2018.  For the quarters ended March 31, 2019 and 2018, we received cash distributions from these partnerships totaling $4.0 million and $6.5 million, respectively.   

 

 

 

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

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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 March 31, 2019 and December 31, 2018 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2019

 

 

    

 

 

    

Quoted Prices

    

Significant

    

 

 

 

 

 

 

 

In Active

 

Other

 

Significant

 

 

 

 

 

 

Markets for

 

Observable

 

Unobservable

 

 

 

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

(In thousands)

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Current interest rate swap assets

 

$

1,352

 

$

 —

 

$

1,352

 

$

 —

 

Long-term interest rate swap assets

 

 

 4

 

 

 —

 

 

 4

 

 

 —

 

Long-term interest rate swap liabilities

 

 

(13,714)

 

 

 —

 

 

(13,714)

 

 

 —

 

Total

 

$

(12,358)

 

$

 —

 

$

(12,358)

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

 

    

 

 

    

Quoted Prices

    

Significant

    

 

 

 

 

 

 

 

In Active

 

Other

 

Significant

 

 

 

 

 

 

Markets for

 

Observable

 

Unobservable

 

 

 

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

(In thousands)

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Current interest rate swap assets

 

$

2,465

 

$

 —

 

$

2,465

 

$

 —

 

Long-term interest rate swap assets

 

 

1,524

 

 

 —

 

 

1,524

 

 

 —

 

Long-term interest rate swap liabilities

 

 

(6,647)

 

 

 —

 

 

(6,647)

 

 

 —

 

Total

 

$

(2,658)

 

$

 —

 

$

(2,658)

 

$

 —

 

 

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.  The following table presents the other financial instruments that are not carried at fair value but which require fair value disclosure as of March 31, 2019 and December 31, 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2019

 

As of December 31, 2018

 

(In thousands)

    

Carrying Value

    

Fair Value

    

Carrying Value

    

Fair Value

  

Investments, equity basis

 

$

55,851

 

 

n/a

 

$

54,733

 

 

n/a

 

Investments, at cost

 

$

53,608

 

 

n/a

 

$

53,749

 

 

n/a

 

Long-term debt, excluding finance leases

 

$

2,321,010

 

$

2,182,193

 

$

2,315,077

 

$

2,155,127

 

 

Cost & Equity Method Investments

 

Our investments as of March 31, 2019 and December 31, 2018 accounted for at cost and under the equity method 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.

 

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6.    LONG-TERM DEBT

 

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

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

(In thousands)

    

2019

    

2018

 

Senior secured credit facility:

 

 

 

 

 

 

 

Term loans, net of discounts of $6,650 and $6,994 at March 31, 2019 and December 31, 2018, respectively

 

$

1,791,825

 

$

1,796,068

 

Revolving loan

 

 

32,000

 

 

22,000

 

6.50% Senior notes due 2022, net of discount of $2,815 and $2,991 at March 31, 2019 and December 31, 2018, respectively

 

 

497,185

 

 

497,009

 

 

 

 

2,321,010

 

 

2,315,077

 

Less: current portion of long-term debt

 

 

(18,350)

 

 

(18,350)

 

Less: deferred debt issuance costs

 

 

(10,694)

 

 

(11,386)

 

Total long-term debt

 

$

2,291,966

 

$

2,285,341

 

 

Credit Agreement

 

In October 2016, the Company, through certain of its wholly owned subsidiaries, entered into a Third Amended and Restated Credit Agreement with various financial institutions (as amended, the “Credit Agreement”).  The Credit Agreement consists of a $110.0 million revolving credit facility, an initial term loan in the aggregate amount of $900.0 million (the “Initial Term Loan”) and an incremental term loan in the aggregate amount of $935.0 million (the “Incremental Term Loan”), collectively (the “Term Loans”).  The Credit Agreement also includes an incremental loan facility which provides the ability to borrow, subject to certain terms and conditions, incremental loans in an aggregate amount of up to the greater of (a) $300.0 million and (b) an amount which would cause its senior secured leverage ratio not to exceed 3.00:1.00 (the “Incremental Facility”).  Borrowings under the Credit Agreement are secured by substantially all of the assets of the Company and its subsidiaries, with the exception of Consolidated Communications of Illinois Company and our majority-owned subsidiary, East Texas Fiber Line Incorporated. 

 

The Initial Term Loan was issued in an original aggregate principal amount of $900.0 million with a maturity date of October 5, 2023, but is subject to earlier maturity on March 31, 2022 if the Company’s unsecured Senior Notes due in October 2022 are not repaid in full or redeemed in full on or prior to March 31, 2022.  The Initial Term Loan contains an original issuance discount of 0.25% or $2.3 million, which is being amortized over the term of the loan.  The Initial Term Loan requires quarterly principal payments of $2.25 million and has an interest rate of 3.00% plus the London Interbank Offered Rate (“LIBOR”) subject to a 1.00% LIBOR floor.

 

The Incremental Term Loan was issued in an original aggregate principal amount of $935.0 million and included an original issue discount of 0.50%, which is being amortized over the term of the loan. The Incremental Term Loan has the same maturity date and interest rate as the Initial Term Loan and requires quarterly principal payments of $2.34 million.   

 

Our revolving credit facility has a maturity date of October 5, 2021 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, in each case depending on our total net leverage ratio.  Based on our leverage ratio as of March 31, 2019, the borrowing margin for the three month period ending June  30, 2019 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 March 31, 2019, borrowings of $32.0 million were outstanding under the revolving credit facility, which consisted of LIBOR-based borrowings of $20.0 million and alternate base rate borrowings of $12.0 million. At December 31, 2018,  there were borrowings of $22.0 million outstanding under the revolving credit facility, which consisted of LIBOR-based borrowings of $10.0 million and alternate base rate borrowings of $12.0 million.  Stand-by letters of credit of $16.2 million were outstanding under our revolving credit facility as of March 31, 2019.  The stand-by letters of credit are renewable annually and reduce the borrowing availability under the revolving credit facility.  As of March 31, 2019,  $61.8 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 5.53% and 5.54% as of March 31, 2019 and December 31, 2018, respectively.  Interest is payable at least quarterly.

 

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 certain 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 March 31, 2019, 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 March 31, 2019, and including the $27.9 million dividend payable on May 1, 2019, we had $310.1 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, should we be making dividend payments as of such time, 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 such 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 or interest coverage ratio as of the end of any fiscal quarter is greater than 5.25:1.00 or less than 2.25:1.00, respectively.  As of March 31, 2019, our total net leverage ratio under the Credit Agreement was 4.43:1.00, and our interest coverage ratio was 3.85:1.00.

 

Senior Notes

 

6.50% Senior Notes due 2022

 

In September 2014, we completed an offering of $200.0 million aggregate principal amount of 6.50% Senior Notes due in October 2022 (the “Existing Notes”).  The Existing Notes were priced at par, which resulted in total gross proceeds of $200.0 million.  On June 8, 2015, we completed an additional offering of $300.0 million in aggregate principal amount of 6.50% Senior Notes due 2022 (the “New Notes” and together with the Existing Notes, the “Senior Notes”).  The New Notes were issued as additional notes under the same indenture pursuant to which the Existing Notes were previously issued on in September 2014.  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 is being amortized using the effective interest method over the term of the notes. 

 

The Senior 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 Senior Notes, and we and the majority of our wholly‑owned subsidiaries have fully and unconditionally guaranteed the Senior Notes.  The Senior Notes are senior unsecured obligations of the Company. 

 

In October 2015, we completed an exchange offer to register all of the Senior Notes under the Securities Act of 1933 (“Securities Act”).  The terms of the registered Senior Notes are substantially identical to those of the Senior Notes prior to the exchange, except that the Senior Notes are now registered under the Securities Act and the transfer restrictions and registration rights previously applicable to the Senior Notes no longer apply to the registered Senior Notes.  The exchange offer did not impact the aggregate principal amount or the remaining terms of the Senior Notes outstanding.

 

Senior Notes Covenant Compliance

 

Subject to certain exceptions and qualifications, the indenture governing the Senior Notes contains customary covenants that, among other things, limits CCI’s and its restricted subsidiaries’ ability to: incur additional debt or issue certain

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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 Senior 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 not yet reflected in historical results.  As of March 31, 2019, this ratio was 4.49:1.00.  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 $571.8 million have been paid since May 30, 2012, including the quarterly dividend declared in February 2019 and payable on May 1, 2019, there was $1,145.1 million of the $1,716.9 million of cumulative consolidated cash flow since May 30, 2012 available to pay dividends as of March 31, 2019.  As of March 31, 2019, the Company was in compliance with all terms, conditions and covenants under the indenture governing the Senior Notes.

 

 

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 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.    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.

 

The following interest rate swaps were outstanding as of March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

    

Notional

    

 

    

 

 

 

(In thousands)

 

Amount

 

2019 Balance Sheet Location

 

Fair Value

 

Cash Flow Hedges:

 

 

 

 

 

 

 

 

 

Fixed to 1-month floating LIBOR (with floor)

 

$

650,000

 

Prepaid expenses and other current assets

 

$

1,352

 

Forward starting fixed to 1-month floating LIBOR (with floor)

 

$

705,000

 

Other assets

 

 

4  

 

Fixed to 1-month floating LIBOR (with floor)

 

$

500,000

 

Other long-term liabilities

 

 

(10,719)

 

Forward starting fixed to 1-month floating LIBOR (with floor)

 

$

705,000

 

Other long-term liabilities

 

 

(2,995)

 

Total Fair Values

 

 

 

 

 

 

$