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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, 2019

or

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

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-51446

Graphic

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, MattoonIllinois

61938-3987

(Address of principal executive offices)

(Zip Code)

  (217) 235-3311   

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock - $0.01 par value

CNSL

The NASDAQ Global Select Market

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 October 28, 2019, the registrant had 72,074,401 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

33

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49

Item 4.

Controls and Procedures

49

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

51

Item 6.

Exhibits

52

SIGNATURES

53

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

Nine Months Ended

September 30,

September 30,

 

2019

2018

2019

 

2018

 

Net revenues

$

333,326

$

348,064

$

1,005,507

$

1,054,324

Operating expense:

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

 

146,636

 

152,942

 

438,735

 

457,216

Selling, general and administrative expenses

 

70,100

 

85,255

 

222,615

 

252,935

Depreciation and amortization

 

93,048

 

109,119

 

289,595

 

328,759

Income from operations

 

23,542

 

748

 

54,562

 

15,414

Other income (expense):

Interest expense, net of interest income

 

(34,250)

 

(33,524)

 

(103,270)

 

(99,079)

Gain on extinguishment of debt

 

1,121

 

 

1,370

 

Investment income

 

11,254

 

8,675

 

30,605

 

28,999

Other, net

 

(74)

 

293

 

(3,095)

 

843

Income (loss) before income taxes

 

1,593

 

(23,808)

 

(19,828)

 

(53,823)

Income tax expense (benefit)

 

1,204

 

(8,993)

 

(5,719)

 

(17,250)

Net income (loss)

 

389

 

(14,815)

 

(14,109)

 

(36,573)

Less: net income attributable to noncontrolling interest

 

132

 

99

 

286

 

282

Net income (loss) attributable to common shareholders

$

257

$

(14,914)

$

(14,395)

$

(36,855)

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

$

$

(0.21)

$

(0.21)

$

(0.53)

Dividends declared per common share

$

$

0.39

$

0.39

$

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

Nine Months Ended

September 30,

September 30,

    

2019

    

2018

    

2019

    

2018

 

Net income (loss)

$

389

$

(14,815)

$

(14,109)

$

(36,573)

Pension and post-retirement obligations:

Change in net actuarial loss and prior service credit, net of tax

 

 

8,173

 

8,173

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

 

194

 

1,096

 

2,246

 

2,972

Derivative instruments designated as cash flow hedges:

Change in fair value of derivatives, net of tax

 

(2,110)

 

4,975

 

(20,945)

 

13,596

Cumulative adjustment upon adoption of ASU 2017-12

(576)

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

 

130

 

855

 

(517)

 

2,186

Comprehensive income (loss)

 

(1,397)

 

284

 

(33,901)

 

(9,646)

Less: comprehensive income attributable to noncontrolling interest

 

132

 

99

 

286

 

282

Total comprehensive income (loss) attributable to common shareholders

$

(1,529)

$

185

$

(34,187)

$

(9,928)

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,

 

2019

    

2018

 

ASSETS

Current assets:

Cash and cash equivalents

$

6,178

$

9,599

Accounts receivable, net of allowance for doubtful accounts

 

125,908

 

133,136

Income tax receivable

 

11,293

 

11,072

Prepaid expenses and other current assets

 

42,070

 

44,336

Total current assets

 

185,449

 

198,143

Property, plant and equipment, net

 

1,861,033

 

1,927,126

Investments

 

112,377

 

110,853

Goodwill

 

1,035,274

 

1,035,274

Customer relationships, net

 

180,378

 

228,959

Other intangible assets

 

10,650

 

11,483

Other assets

 

58,140

 

23,423

Total assets

$

3,443,301

$

3,535,261

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

32,241

$

32,502

Advance billings and customer deposits

 

48,122

 

47,724

Dividends payable

 

 

27,579

Accrued compensation

 

58,397

 

64,459

Accrued interest

16,783

9,232

Accrued expense

 

74,969

 

71,650

Current portion of long-term debt and finance lease obligations

 

27,869

 

30,468

Total current liabilities

 

258,381

 

283,614

Long-term debt and finance lease obligations

 

2,285,177

 

2,303,585

Deferred income taxes

 

175,021

 

188,129

Pension and other post-retirement obligations

 

286,646

 

314,134

Other long-term liabilities

 

78,372

 

30,145

Total liabilities

 

3,083,597

 

3,119,607

Commitments and contingencies (Note 12)

Shareholders’ equity:

Common stock, par value $0.01 per share; 100,000,000 shares authorized, 72,076,069 and 71,187,301 shares outstanding as of September 30, 2019 and December 31, 2018, respectively

 

721

 

712

Additional paid-in capital

 

491,012

 

513,070

Accumulated deficit

 

(65,229)

 

(50,834)

Accumulated other comprehensive loss, net

 

(73,004)

 

(53,212)

Noncontrolling interest

 

6,204

 

5,918

Total shareholders’ equity

 

359,704

 

415,654

Total liabilities and shareholders’ equity

$

3,443,301

    

$

3,535,261

See accompanying notes.

3

Table of Contents

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

Cash dividends on common stock

 

 

 

(26,669)

 

(933)

 

 

(27,602)

Non-cash, share-based compensation

 

 

 

1,538

 

 

 

1,538

Other comprehensive income (loss)

 

 

 

 

 

5,904

 

5,904

Cumulative adjustment: adoption of ASC 606

 

 

 

 

933

 

 

933

Net income (loss)

 

 

 

 

(10,643)

 

83

 

(10,560)

Balance at June 30, 2018

 

71,252

$

713

$

565,961

$

(21,941)

$

(36,255)

$

5,838

$

514,316

Cash dividends on common stock

 

 

 

(27,602)

 

 

 

(27,602)

Non-cash, share-based compensation

 

 

 

1,538

 

 

 

1,538

Other comprehensive income (loss)

 

 

 

 

 

15,099

 

15,099

Net income (loss)

 

 

 

 

(14,914)

 

99

 

(14,815)

Balance at September 30, 2018

 

71,252

$

713

$

539,897

$

(36,855)

$

(21,156)

$

5,937

$

488,536

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

Cash dividends on common stock

 

 

 

67

 

 

 

67

Shares issued under employee plan, net of forfeitures

 

(34)

 

 

 

 

 

Non-cash, share-based compensation

 

 

 

1,814

 

 

 

1,814

Other comprehensive income (loss)

 

 

 

 

 

(11,560)

 

(11,560)

Net income (loss)

 

 

 

 

(7,387)

 

75

 

(7,312)

Balance at June 30, 2019

 

72,076

$

721

$

489,084

$

(65,486)

$

(71,218)

$

6,072

$

359,173

Non-cash, share-based compensation

 

 

 

1,928

 

 

 

1,928

Other comprehensive income (loss)

 

 

 

 

 

(1,786)

 

(1,786)

Net income (loss)

 

 

 

 

257

 

132

 

389

Balance at September 30, 2019

 

72,076

$

721

$

491,012

$

(65,229)

$

(73,004)

$

6,204

$

359,704

See accompanying notes.

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CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Amounts in thousands)

Nine Months Ended September 30,

    

2019

    

2018

 

Net cash provided by operating activities

$

248,637

$

264,036

Cash flows from investing activities:

Purchases of property, plant and equipment, net

 

(184,343)

 

(186,765)

Proceeds from sale of assets

 

14,343

 

1,640

Proceeds from business dispositions

 

 

20,999

Distributions from investments

329

233

Other

(450)

Net cash used in investing activities

 

(170,121)

 

(163,893)

Cash flows from financing activities:

Proceeds from issuance of long-term debt

 

152,000

 

136,587

Payment of finance lease obligations

 

(9,743)

 

(9,590)

Payment on long-term debt

 

(142,763)

 

(156,350)

Repurchase of senior notes

(25,986)

Dividends on common stock

 

(55,445)

 

(82,621)

Net cash used in financing activities

 

(81,937)

 

(111,974)

Change in cash and cash equivalents

 

(3,421)

 

(11,831)

Cash and cash equivalents at beginning of period

 

9,599

 

15,657

Cash and cash equivalents at end of period

$

6,178

$

3,826

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 September 30, 2019, we had approximately 854,000 voice connections, 784,000 data connections and 86,000 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.  During the quarter and nine months ended September 30, 2018, we recognized a loss of $0.2 million on the sale, net of selling costs, which is included in selling, general and administrative expense in the condensed consolidated statements of operations.  We recognized a taxable gain on the transaction resulting in current income tax expense of $0.8 during the quarter and nine months ended September 30, 2018 to reflect the tax impact of the divestiture.

Goodwill

Goodwill is evaluated for impairment annually as of November 30 of each year or more frequently if an event occurs or circumstances change that would indicate potential impairment.  At September 30, 2019 and December 31, 2018, the carrying value of goodwill was $1,035.3 million.

Subsequent to September 30, 2019, the price of our common stock sustained historically low trading prices.  The decline in the market valuation of our common stock could impact the assumptions used in our annual evaluation of our indefinite-lived assets, including goodwill and trade names.  We will continue to monitor revenue and expense trends

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impacting our expected cash flows, interest rates and other key inputs used to estimate the fair value of these assets, which will be incorporated into our annual impairment assessment in November 2019.  The goodwill impairment test will be performed by comparing the fair value of the single reporting unit with its carrying value.  An impairment of goodwill would be recognized if it is determined that the carrying value of the reporting unit exceeds its fair value.  The fair value of the reporting unit could be adversely affected by the decline or further declines in the Company’s stock price or a significant deterioration of the operating results of the Company, which could result in a potential goodwill impairment charge during the fourth quarter of 2019 upon completion of our annual assessment.

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 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 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 (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017.  Tax effects in accumulated other comprehensive income (loss) are established at the currently enacted tax rate and reclassified to earnings in the same period in which the related pre-tax items included in accumulated other comprehensive income (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 were applied prospectively.  Upon adoption of ASU 2017-12, we recognized a

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cumulative adjustment of $0.6 million, net of tax, from accumulated other comprehensive income (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.

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 plan to adopt the new guidance on January 1, 2020 using the modified retrospective method. While we are continuing to assess the impact of the new guidance, we currently do not anticipate that the adoption will result in a material impact to 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.

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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.

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the quarters and nine months ended September 30, 2019 and 2018:

Quarter Ended

Nine Months Ended

September 30,

September 30,

(In thousands)

    

2019

    

2018

    

2019

    

2018

 

Operating Revenues

Commercial and carrier:

 

 

 

 

Data and transport services (includes VoIP)

$

88,756

$

87,633

$

265,420

$

261,261

Voice services

 

46,606

 

50,091

 

141,812

 

153,574

Other

11,828

13,906

40,394

40,006

147,190

151,630

447,626

454,841

Consumer:

Broadband (VoIP and Data)

65,456

63,865

192,609

189,521

Video services

20,463

21,790

61,540

66,689

Voice services

45,487

50,757

136,601

154,435

131,406

136,412

390,750

410,645

Subsidies

18,025

19,189

54,318

65,423

Network access

34,211

38,147

105,000

115,200

Other products and services

2,494

2,686

7,813

8,215

Total operating revenues

$

333,326

$

348,064

$

1,005,507

$

1,054,324

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

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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 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

September 30,

(In thousands)

    

2019

    

2018

Accounts receivable, net

$

125,908

$

143,077

Contract assets

 

17,578

 

9,912

Contract liabilities

 

52,709

 

54,584

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 September 30, 2019 and 2018, the Company recognized expense of $1.7 million and $0.8 million, respectively, related to deferred contract acquisition costs. During the nine months ended September 30, 2019 and 2018, the Company recognized expense of $4.4 million and $1.8 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 September 30, 2019 and 2018, the Company deferred and recognized revenues of $98.8 million and $92.2 million, respectively.  For the nine months ended September 30, 2019 and 2018, the Company deferred and recognized revenues of $285.4 million and $263.3 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 September 30, 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.

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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.

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.  Certain of the Company’s restricted stock awards are considered participating securities because holders are entitled to receive non-forfeitable dividends, if declared, 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

Nine Months Ended

September 30,

September 30,

(In thousands, except per share amounts)

   

2019

2018

2019

2018

 

Net income (loss)

$

389

$

(14,815)

$

(14,109)

$

(36,573)

Less: net income attributable to noncontrolling interest

 

132

 

99

 

286

 

282

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

 

257

 

(14,914)

 

(14,395)

 

(36,855)

Less: earnings allocated to participating securities

 

5

 

221

 

462

 

663

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

$

252

$

(15,135)

$

(14,857)

$

(37,518)

Weighted-average number of common shares outstanding

 

70,813

 

70,598

 

70,813

 

70,598

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

$

$

(0.21)

$

(0.21)

$

(0.53)

Diluted EPS attributable to common shareholders for the quarters ended September 30, 2019 and 2018 excludes 1.3 million and 0.7 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.  For the nine months ended September 30, 2019 and 2018, diluted EPS attributable to common shareholders excludes 1.1 million and 0.5 million potential common shares, respectively.

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4.  INVESTMENTS

Our investments are as follows: