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, ~~2018~~2019

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

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-51446

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

	Delaware				02-0636095
	(State or other jurisdiction				(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)

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 X 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 ~~30, 2018,~~28, 2019, the registrant had ~~71,250,590~~72,074,401 shares of Common Stock outstanding.

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,


2018

2017

2018

2017

Net revenues

$
348,064

$
363,329

$
1,054,324

$
703,214

Operating expense:

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

152,942

148,377

457,216

290,545

Selling, general and administrative expenses

85,544

91,098

252,290

162,982

Acquisition and other transaction costs

133

27,139

1,763

30,663

Depreciation and amortization

109,119

104,406

328,759

187,084

Income (loss) from operations

326

(7,691)

14,296

31,940

Other income (expense):

Interest expense, net of interest income

(33,524)

(36,307)

(99,079)

(99,896)

Investment income

8,675

9,594

28,999

23,068

Other, net

715

(279)

1,961

301

Loss before income taxes

(23,808)

(34,683)

(53,823)

(44,587)

Income tax benefit

(8,993)

(6,289)

(17,250)

(9,862)

Net loss

(14,815)

(28,394)

(36,573)

(34,725)

Less: net income attributable to noncontrolling interest

99

54

282

136

Net loss attributable to common shareholders

$
(14,914)

$
(28,448)

$
(36,855)

$
(34,861)

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

$
(0.21)

$
(0.41)

$
(0.53)

$
(0.62)

Dividends declared per common share

$
0.39

$
0.39

$
1.16

$
1.16


	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.

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,


2018

2017

2018

2017

Net loss

$
(14,815)

$
(28,394)

$
(36,573)

$
(34,725)

Pension and post-retirement obligations:

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

8,173

-

8,173

(814)

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

1,096

667

2,972

2,400

Derivative instruments designated as cash flow hedges:

Change in fair value of derivatives, net of tax

4,975

(285)

13,596

(2,829)

Reclassification of realized loss to earnings, net of tax

855

218

2,186

667

Comprehensive income (loss)

284

(27,794)

(9,646)

(35,301)

Less: comprehensive income attributable to noncontrolling interest

99

54

282

136

Total comprehensive income (loss) attributable to common shareholders

$
185

$
(27,848)

$
(9,928)

$
(35,437)


	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.

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

September 30,

December 31,


2018

2017

ASSETS

Current assets:

Cash and cash equivalents

$
3,826

$
15,657

Accounts receivable, net of allowance for doubtful accounts

143,077

121,528

Income tax receivable

12,458

21,846

Prepaid expenses and other current assets

40,588

33,318

Assets held for sale

—

21,310

Total current assets

199,949

213,659

Property, plant and equipment, net

1,955,753

2,037,606

Investments

110,672

108,858

Goodwill

1,035,274

1,038,032

Customer relationships, net

245,906

293,300

Other intangible assets

11,760

13,483

Other assets

36,706

14,188

Total assets

$
3,596,020

$
3,719,126

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$
15,717

$
24,143

Advance billings and customer deposits

50,039

42,526

Dividends payable

27,602

27,418

Accrued compensation

62,641

49,770

Accrued interest

17,873

9,343

Accrued expense

72,838

72,041

Current portion of long-term debt and capital lease obligations

31,811

29,696

Liabilities held for sale

—

1,003

Total current liabilities

278,521

255,940

Long-term debt and capital lease obligations

2,302,795

2,311,514

Deferred income taxes

207,778

209,720

Pension and other post-retirement obligations

294,423

334,193

Other long-term liabilities

23,967

33,817

Total liabilities

3,107,484

3,145,184

Commitments and contingencies (Note 11)

Shareholders’ equity:

Common stock, par value $0.01 per share; 100,000,000 shares authorized, 71,252,576 and 70,777,354 shares outstanding as of September 30, 2018 and December 31, 2017, respectively

713

708

Additional paid-in capital

539,897

615,662

Accumulated deficit

(36,855)

—

Accumulated other comprehensive loss, net

(21,156)

(48,083)

Noncontrolling interest

5,937

5,655

Total shareholders’ equity

488,536

573,942

Total liabilities and shareholders’ equity

$
3,596,020

$
3,719,126


	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.

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.

Table of Contents

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Amounts in thousands)

Nine Months Ended September 30,

2018

2017

Net cash provided by operating activities

$
264,036

$
125,224

Cash flows from investing activities:

Business acquisition, net of cash acquired

—

(862,385)

Purchases of property, plant and equipment, net

(186,765)

(119,289)

Proceeds from sale of assets

1,640

296

Proceeds from business dispositions

20,999

—

Proceeds from sale of investments

233

—

Net cash used in investing activities

(163,893)

(981,378)

Cash flows from financing activities:

Proceeds from issuance of long-term debt

136,587

1,031,325

Payment of capital lease obligations

(9,590)

(5,363)

Payment on long-term debt

(156,350)

(89,750)

Payment of financing costs

—

(16,732)

Share repurchases for minimum tax withholding

—

(41)

Dividends on common stock

(82,621)

(66,698)

Other

—

(350)

Net cash used in financing activities

(111,974)

852,391

Change in cash and cash equivalents

(11,831)

(3,763)

Cash and cash equivalents at beginning of period

15,657

27,077

Cash and cash equivalents at end of period

$
3,826

$
23,314


	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.

Table of Contents

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Accounting

Consolidated Communications Holdings, Inc. (the ~~“Company”, “we”~~“Company,” “we,” “our” or ~~“our”~~“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 ~~36,000~~37,000 fiber route miles, we offer ~~a wide range~~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 ~~communication solutions including data, voice, video, managed services,~~ cloud ~~computing and wireless backhaul.~~services. As of September 30, ~~2018,~~2019, we had approximately ~~922,000~~854,000 voice connections, ~~782,000~~784,000 data connections and ~~96,000~~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 ~~2017~~2018 Annual Report on Form 10-K filed with the SEC.

~~Recent Business Developments~~Divestitures

On July ~~3, 2017,~~31, 2018, we completed ~~our acquisition~~the sale of ~~FairPoint Communications, Inc. (“FairPoint”), pursuant to the terms of a definitive agreement and plan of merger (as amended, the “Merger Agreement”) and acquired~~ all of the issued and outstanding ~~shares~~stock of ~~FairPoint~~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 ~~exchange~~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 ~~shares~~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 ~~(the “Merger”). As a result~~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

Table of Contents

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 ~~Merger, FairPoint became a wholly owned subsidiary~~single reporting unit with its carrying value. An impairment of goodwill would be recognized if it is determined that the carrying value of the ~~Company.~~reporting unit exceeds its fair value. The ~~financial results for FairPoint have been included in our condensed consolidated financial statements as~~fair value of the ~~acquisition date. For~~reporting unit could be adversely affected by the decline or further declines in the Company’s stock price or a ~~more complete discussion~~significant deterioration of the ~~transaction, refer to Note 2.~~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.

~~Revenue Recognition~~Recent Accounting Pronouncements

Effective January 1, ~~2018,~~2019, we adopted ~~ASU~~Accounting Standards Update (“ASU”) No. ~~2014-09~~2016-02 (“ASU ~~2014-09”, “ASC 606”, or the “new standard”~~2016-02”), ~~Revenue from Contracts with Customers~~,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 ~~method~~approach on the date of adoption. Prior years presented have not been adjusted for ~~open contracts. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted~~ASU 2016-02 and continue to be reported in accordance with our ~~historic~~historical accounting ~~practices~~policy.

As part of the adoption, we elected the package of practical expedients permitted under ~~ASC 605 (“legacy GAAP”).~~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 ~~systems, processes or internal controls. The largest impact of the adoption of the new standard is~~condensed consolidated financial statements and related disclosures.

Reclassifications

Certain amounts in our 2018 condensed consolidated financial statements have been reclassified to conform to the treatment of contract acquisition costs, which were previously expensed as incurred; however, under the new standard, these costs are now deferred and amortized over the expected customer life. The adoption also resulted in additional disclosures around the nature and timing of the Company’s performance obligations, deferred revenue contract liabilities and deferred contract cost assets, as well as practical expedients used by the Company in applying the new five-step revenue model. During the nine months ended September 30, 2018, we recorded a pre-tax cumulative effect adjustment of $4.1 million related to the adoption, which increased retained earnings. Of this amount, $1.8 million was related to the increase in the value of our partnership interests as a

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~~result of the adoption of ASC 606 by our equity method partnerships. For a more complete discussion of our investments, refer to Note 4.~~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 ~~up-front~~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, ~~2018~~2019 and ~~2017:~~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

Quarter Ended

Nine Months Ended

September 30,

September 30,

(In thousands)

2018

2017

2018

2017

Operating Revenues

Commercial and carrier:

Data and transport services (includes VoIP)

$
87,633

$
85,644

$
261,261

$
188,076

Voice services

50,091

54,270

153,574

98,495

Other

13,906

13,366

40,006

22,199

151,630

153,280

454,841

308,770

Consumer:

Broadband (VoIP and Data)

63,865

63,893

189,521

120,582

Video services

21,790

23,342

66,689

68,760

Voice services

50,757

57,213

154,435

83,115

136,412

144,448

410,645

272,457

  Subsidies

19,189

20,933

65,423

41,897

Network access

38,147

41,262

115,200

69,953

  Other products and services

2,686

3,406

8,215

10,137

Total operating revenues

$
348,064

$
363,329

$
1,054,324

$
703,214

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

At
(In thousands)

September 30, 2018

Adoption
Accounts receivable, net

$
143,077

$
121,745
Contract assets

9,912

1,804
Contract liabilities

54,584

46,368



	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 ~~quarter and nine months~~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 ~~quarter~~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 ~~revenue~~revenues of ~~$92.2~~$285.4 million and $263.3 million, ~~respectively, related to deferred revenues.~~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~~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, ~~2018.~~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:

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

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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~~Financial Statement Impact of Adopting ASC 606~~

The Company has elected these practical expedients. As ~~described~~mentioned above, ~~the change in accounting for contract acquisition costs was the largest impact~~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 ~~Company upon adoption of ASC 606. On an ongoing basis, a significant amount of commission costs, which were historically expensed as incurred, will now be deferred and amortized over the expected~~ customer ~~life under the new standard. The accretive benefit to operating income anticipated in 2018 is expected to moderate in future years~~ as the ~~basis~~Company has concluded that the invoice amount directly corresponds with the value of services provided to the ~~amortization builds. For the quarter and nine months ended September 30, 2018, we recognized commission expense~~customer. Management considers this a faithful depiction of ~~$0.8 million and $1.8 million, respectively, under the new standard as compared to $3.3 million and $9.9 million, respectively, for the same periods under legacy GAAP.~~

~~Recent Accounting Pronouncements~~

~~Effective January 1, 2018, we adopted ASU 2014-09 (also known as ASC 606). The core principle of ASU 2014-09 is that a company should recognize revenue to depict~~ the transfer of ~~promised goods or~~control as services ~~to customers in an amount that reflects~~are substantially the ~~consideration to which~~same and have the ~~company expects to be entitled in exchange for those goods or services. In addition, ASU 2014-09 requires disclosures about~~same pattern of transfer over the ~~nature, amount, timing and uncertainty of revenue and cash flows~~

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~~arising from contracts with customers. For additional information on the new standard and the impact to our results of operations, refer to the Revenue Recognition section above.~~

~~Effective January 1, 2018, we adopted ASU No. 2017-09 (“ASU 2017-09”),~~ ~~Scope of Modification Accounting~~. ASU 2017-09 clarifies the modification accounting guidance for stock compensation included in Topic 718, Compensation – Stock Compensation. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award must be accounted for as a modification under Topic 718. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related disclosures.

~~Effective January 1, 2018, we adopted ASU No. 2017-07 (“ASU 2017-07”),~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 requires presentation~~life of the service cost component of net periodic benefit cost within the same income statement line item as other compensation costs arising from services rendered by relevant employees during the period, and presentation of the other cost components of net periodic benefit cost separately and outside of the income from operations subtotal. In addition, only the service cost component is eligible for capitalization. We adopted ASU 2017-07 prospectively for the capitalization of the service cost component of the net periodic benefit cost. ASU 2017-07 was applied retrospectively using the practical expedient for the presentation of the other components of net periodic benefit cost in the statement of operations and as a result, we reclassified $0.2 million of expense and $(0.2) million of benefit from cost of services and products and $0.1 million and less than $0.1 million of cost from selling, general and administrative expenses into other, net within non-operating income (expense) for the quarter and nine months ended September 30, 2017, respectively. See Note 9 for the amount of each component of net periodic pension and post-retirement benefit costs.

~~Effective January 1, 2018, we adopted ASU No. 2017-05 (“ASU 2017-05”),~~ ~~Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. ASU 2017-05 provides additional guidance~~contract. As such, revenue related to (i) clarify the scope for recognizing gains and losses from the transfer of nonfinancial assets and in substance nonfinancial assets in contracts with non-customers, and (ii) clarify the accounting for partial sales of nonfinancial assets. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related disclosures.

~~Effective January 1, 2018, we adopted ASU No. 2017-04 (“ASU 2017-04”),~~ ~~Simplifying the Accounting for Goodwill Impairment. ASU 2017-04 eliminates Step 2 from the goodwill impairment test. Under the updated guidance, the goodwill impairment test~~unsatisfied performance obligations that will be performed by comparing the fair value of a reporting unit with its carrying amount and an impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related disclosures and is not expected to have a material impact on our testing of goodwill.

~~Effective January 1, 2018, we adopted ASU No. 2017-01 (“ASU 2017-01”),~~ ~~Clarifying the Definition of a Business~~. ASU 2017-01 clarifies the definition of a business and establishes a screening process to determine whether an integrated set of assets and activities acquired is deemed the acquisition of a business or the acquisition of assets. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related disclosures.

~~Effective January 1, 2018, we adopted ASU No. 2016-16 (“ASU 2016-16”),~~ ~~Intra-Entity Transfers of Assets Other Than Inventory~~. ASU 2016-16 eliminates the existing exception prohibiting the recognition of the income tax consequences for intra-entity asset transfers until the asset has been sold to an outside party. Under ASU 2016-16, entities will be required to recognize the income tax consequences of intra-entity asset transfers other than inventory when the transfer occurs. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related disclosures.

~~Effective January 1, 2018, we adopted ASU No. 2016-15 (“ASU 2016-15”),~~ ~~Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance concerning the classification of certain cash receipts and cash payments~~billed in ~~the statement of cash flows. 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 the ASU No. 2018-15 (“ASU 2018-15”),~~ ~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract~~.

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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 interimfuture 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 the 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 2018, the FASB issued 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 new guidance is effective for annual and interim periods beginning after December 15, 2018 with early adoption permitted. We are currently evaluating the impact this update will have on our condensed consolidated financial statements and related disclosures.

~~In February 2018, the FASB issued 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. The new guidance is effective for annual and interim periods beginning after December 15, 2018 with early adoption permitted. We are currently evaluating the impact this update will have on our condensed consolidated financial statements and related disclosures and do not expect to make the optional election for reclassification of stranded tax effects from accumulated other comprehensive income (loss) to retained earnings.

~~In August 2017, the FASB issued ASU Update No. 2017-12 (“ASU 2017-12”),~~ ~~Targeted Improvements to Accounting for Hedging Activities~~. ASU 2017-12 amends current guidance on accounting for hedges mainly to align more closely an entity’s risk management activities and financial reporting relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. In addition, amendments in ASU 2017-12 simplify the application of hedge accounting by allowing more time to prepare hedge documentation and allowing effectiveness assessments to be performed on a qualitative basis after hedge inception. The new guidance is effective for annual and interim periods beginning after December 15, 2018 with early adoption permitted. We plan to adopt ASU 2017-12 as of January 1, 2019 and 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 have not yet made a decision on the timing of adoption and are currently evaluating the impact this update will have on our condensed consolidated financial statements and related disclosures.

~~In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”),~~ ~~Leases~~. ASU 2016-02 establishes a new lease accounting model for leases. Lessees will be required to recognize most leases on their balance sheets but lease expense will be recognized on the income statement in a manner similar to existing requirements. ASU 2016-02 is effective on a modified retrospective basis for annual and interim periods beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB issued ASU No. 2018-11 (“ASU 2018-11”), ~~Leases: Targeted Improvements~~, which provides an additional (and optional) transition method for adopting the new lease standard. Under this transition method, an entity initially applies the new lease standard at the adoption date and recognizes a cumulative effect adjustment to opening retained earnings in the period of adoption. Currently, we plan on adopting the new lease standard using the newly

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permitted transition method. In addition, we plan on electing the package of practical expedients permitted under the new lease standard, which among other things, allows us to carry forward the historical lease classification. We also plan on electing 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 are currently evaluating the population of our leases and anticipate that most of our operating lease commitments will be recognized on our consolidated balance sheets. We plan to adopt this update effective January 1, 2019 and are continuing to assess the potential impact of this update on our condensed consolidated financial statements and related disclosures.

~~Reclassifications~~

Certain amounts in our 2017 condensed consolidated financial statements have been reclassified to conform to the current year presentation. In accordance with the adoption of ASU 2017-07, as described above, certain components of net periodic benefit cost were reclassified from operating expense to non-operating income (expense) in our condensed consolidated statement of operations.

~~2. ACQUISITIONS AND DIVESTITURES~~

~~Acquisitions~~

~~FairPoint Communications, Inc.~~

On July 3, 2017, we completed the Merger with FairPoint and acquired all of the issued and outstanding shares of FairPoint in exchange for shares of our common stock. As a result, FairPoint became a wholly-owned subsidiary of the Company. FairPoint is an advanced communications provider to business, wholesale and residential customers within its service territory, which spans across 17 states. FairPoint owns and operates a robust fiber-based network with more than 22,000 route miles of fiber, including 17,000 route miles of fiber in northern New England. The acquisition reflects our strategy to diversify revenue and cash flows amongst multiple products and to expand our network to new markets.

At the effective time of the Merger, each share of common stock of FairPoint issued and outstanding immediately prior to the effective time of the Merger converted into and became the right to receive 0.7300 shares of common stock of Consolidated and cash in lieu of fractional shares, pursuant to the terms of the Merger Agreement. Based on the closing price of our common stock on the last complete trading day prior to the effective date of the Merger, the total value of the consideration exchanged was $431.0 million, exclusive of debt of approximately $919.3 million. On the date of the Merger, we issued an approximate aggregate total of 20.1 million shares of our common stock to the former FairPoint stockholders and we assumed approximately 2,615,153 outstanding warrants, each eligible to purchase one share of the Company’s common stock at an exercise price of $66.86 per share, subject to adjustment in accordance with the warrant agreement. On January 24, 2018, all of the warrants expired in accordance with their terms without being exercised.

In connection with the Merger, we secured committed debt financing in December 2016 through a $935.0 million incremental term loan facility, as described in Note 6, that, in addition to cash on hand and other sources of liquidity, was used to repay certain existing indebtedness of FairPoint and to pay the fees and expenses in connection with the Merger.

The acquisition was accounted for in accordance with the acquisition method of accounting for business combinations. The tangible and intangible assets acquired and liabilities assumed were recorded at their estimated fair values as of the date of the acquisition. The valuation of the net assets acquired was finalized during the quarter ended September 30, 2018.

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

(In thousands)

Cash and cash equivalents

$
56,980

Accounts receivable

72,206

Other current assets

22,012

Assets held for sale

20,843

Property, plant and equipment

1,047,000

Intangible assets

303,180

Other long-term assets

2,685

Total assets acquired

1,524,906

Current liabilities

123,109

Liabilities held for sale

443

Pension and other post-retirement obligations

219,298

Deferred income taxes

96,632

Other long-term liabilities

13,502

Total liabilities assumed

452,984

Net fair value of assets acquired

1,071,922

Goodwill

278,396

Total consideration transferred

$
1,350,318

During the quarter ended September 30, 2018, no adjustments were recorded to the valuation of the net assets acquired. Goodwill recognized from the acquisition primarily relates to the expected contributions of the entity to the overall corporate strategy and the synergies expected to be realized from the acquisition. Amortization of goodwill is not deductible for income tax purposes.

Based on the valuation analysis, the identifiable intangible assets acquired consisted of customer relationships of $300.3 million, tradenames of $1.1 million and non-compete agreements of $1.8 million. The intangible assets were valued using an income based approach (level 3 inputs) that utilized the multi-period earnings method for customer relationships, the relief from royalty method for tradenames and the with and without method for the non-compete agreements. The customer relationships are being amortized using an accelerated amortization method over their estimated useful lives of seven to eleven years depending on the nature of the customer. The tradenames and non-compete agreements are amortized using the straight-line method over their estimated useful lives of six months and one year, respectively.

As discussed in the “Divestures” section below, we committed to a formal plan to sell certain assets of FairPoint and these assets were classified as held for sale at the acquisition date. In connection with the classification as assets held for sale at the acquisition date, the carrying value of these assets was recorded at their estimated fair value of approximately $20.4 million, which was determined based on the estimated selling price less costs to sell. The sale of these assets was completed on July 31, 2018.

~~Unaudited Pro Forma Results~~

The following unaudited pro forma information presents our results of operations as if the acquisition of FairPoint occurred on January 1, 2016. The adjustments to arrive at the pro forma information below included adjustments for depreciation and amortization on the acquired tangible and intangible assets acquired, interest expense on the debt incurred to finance the acquisition and to repay certain existing indebtedness of FairPoint, and the exclusion of certain acquisition related costs. Shares used to calculate the basic and diluted earnings per share were adjusted to reflect the additional shares of common stock issued to fund the acquisition.

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Quarter Ended

Nine Months Ended

September 30,

September 30,

(Unaudited; in thousands, except per share amounts)

2017

2017

Operating revenues

$
363,329

$
1,104,261

Income from operations

$
19,282

$
51,150

Net loss

$
(628)

$
(10,576)

Less: net loss attributable to noncontrolling interest

54

136

Net loss attributable to common stockholders

$
(682)

$
(10,712)

Net loss per common share-basic and diluted

$
(0.01)

$
(0.15)

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

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

~~Divestitures~~

In August 2017, we entered into a letter of intent to sell all of the issued and outstanding stock of our subsidiaries Peoples Mutual Telephone Company and Peoples Mutual Long Distance Company (collectively, “Peoples”), which were acquired as part of the acquisition of FairPoint. Peoples operates as a local exchange carrier in Virginia and provides telecommunications services to residential and business customers. As of the FairPoint acquisition date, the net assets to be sold were classified as held for sale in the consolidated balance sheet. The estimated fair value of the net assets held for sale was determined based on the estimated selling price less costs to sell and was classified as Level 2 within the fair value hierarchy at December 31, 2017. 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.~~disclosed.

The sale of Peoples was completed on July 31, 2018 for total cash proceeds of approximately $21.0 million, net of certain contractual and customary working capital adjustments. 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 statement of operations. We recognized a taxable gain on the transaction resulting in current income tax expense of $0.8 million during the quarter and nine months ended September 30, 2018 to reflect the tax impact of the divestiture.

~~At July 31, 2018, the major classes of assets and liabilities sold consisted of the following:~~

(In thousands)

Current assets

$
219

Property, plant and equipment

4,749

Goodwill

16,098

Total assets

$
21,066

Current liabilities

$
209

Deferred taxes

148

Total liabilities

$
357

~~Table of Contents~~

3. EARNINGS (LOSS) PER SHARE

Basic and diluted earnings (loss) per common share (“EPS”) are computed using the two-class method, which is an earnings allocation method that determines EPS for each class of common stock and participating securities considering dividends declared and participation rights in undistributed earnings. ~~The~~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~~two-class method is as follows:


	Quarter Ended				Nine Months Ended
	September 30,				September 30,

									Quarter Ended				Nine Months Ended
									September 30,				September 30,
(In thousands, except per share amounts)	2018		2017		2018		2017		2019		2018		2019		2018
Net loss	$	(14,815)	$	(28,394)	$	(36,573)	$	(34,725)
Net income (loss)									$	389	$	(14,815)	$	(14,109)	$	(36,573)
Less: net income attributable to noncontrolling interest		99		54		282		136		132		99		286		282
Loss attributable to common shareholders before allocation of earnings to participating securities		(14,914)		(28,448)		(36,855)		(34,861)
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		221		127		663		291		5		221		462		663
Net loss attributable to common shareholders, after earnings allocated to participating securities	$	(15,135)	$	(28,575)	$	(37,518)	$	(35,152)

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		70,598		69,830		70,598		56,955		70,813		70,598		70,813		70,598

Net loss per common share attributable to common shareholders - basic and diluted	$	(0.21)	$	(0.41)	$	(0.53)	$	(0.62)

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 ~~and 2017~~ excludes ~~0.7~~1.3 million and ~~0.4~~ 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, ~~and 2017,~~ diluted ~~earnings (loss) per common share~~EPS attributable to common shareholders excludes ~~0.5~~1.1 million and ~~0.3~~0.5 million potential common shares, respectively.

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4. INVESTMENTS

~~4. INVESTMENTS~~

Our investments are as follows:


	September 30,		December 31,

					September 30,		December 31,
(In thousands)	2018		2017		2019		2018
Cash surrender value of life insurance policies	$	2,329	$	2,272	$	2,474	$	2,371
Investments at cost:
GTE Mobilnet of South Texas Limited Partnership (2.34% interest)		21,450		21,450		21,450		21,450
Pittsburgh SMSA Limited Partnership (3.60% interest)		22,950		22,950		22,950		22,950
CoBank, ACB Stock		9,050		9,105		8,910		9,051
Other		298		343		298		298
Equity method investments:
GTE Mobilnet of Texas RSA #17 Limited Partnership (20.51% interest)		17,610		17,375		19,511		17,800
Pennsylvania RSA 6(I) Limited Partnership (16.67% interest)		7,682		7,300		7,689		7,786
Pennsylvania RSA 6(II) Limited Partnership (23.67% interest)		29,303		28,063		29,095		29,147
Totals	$	110,672	$	108,858	$	112,377	$	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~~indictors of impairment existed for any of the investments during the quarters ~~or nine months~~ ended September 30, ~~2018~~2019 or ~~2017.~~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 September 30, ~~2018~~2019 and ~~2017,~~2018, we received cash distributions from these partnerships totaling ~~$3.1~~$6.1 million and ~~$4.3~~$3.1 million, respectively. For the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, we received cash distributions from these partnerships totaling $14.4 million and $12.2 million, ~~and $9.6 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~~3 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 nine months ended September 30, 2018. For the quarters ended September 30, ~~2018~~2019 and ~~2017,~~2018, we received cash distributions from these partnerships totaling ~~$5.0~~$4.8 million and ~~$4.3~~$5.0 million, respectively. For ~~each of~~ the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, we received cash distributions from these partnerships totaling $14.4 million and $16.6 million, ~~and $12.4 million,~~ respectively.

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The combined unaudited results of operations of our 3 equity investments in the cellular limited partnerships are summarized below:


	Nine Months Ended
	September 30,
(In thousands)	2019		2018
Total revenues	$	256,822	$	255,161
Income from operations		75,258		75,191
Net income before taxes		74,517		74,280
Net income		74,517		74,280

5. FAIR VALUE MEASUREMENTS

Our derivative instruments related to interest rate swap agreements are required to be measured at fair value on a recurring basis. The fair values of the interest rate swaps are determined using valuation models and are categorized within Level 2 of the fair value hierarchy as the valuation inputs are based on quoted prices and observable market data of similar instruments. See Note 7 for further discussion regarding our interest rate swap agreements.

Our interest rate swap agreements measured at fair value on a recurring basis as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows:


			As of September 30, 2018
			Quoted Prices		Significant
			In Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs

											As of September 30, 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)		Total		(Level 1)		(Level 2)		(Level 3)
Current interest rate swap assets	$	2,979	$	—	$	2,979	$	—
Long-term interest rate swap assets		14,573		—		14,573		—
Current interest rate swap liabilities									$	(3,352)	$	—	$	(3,352)	$	—
Long-term interest rate swap liabilities										(28,470)		—		(28,470)		—
Total	$	17,552	$	—	$	17,552	$	—	$	(31,822)	$	—	$	(31,822)	$	—


			As of December 31, 2017
			Quoted Prices		Significant
			In Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs

											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)		Total		(Level 1)		(Level 2)		(Level 3)
Current interest rate swap assets									$	2,465	$	—	$	2,465	$	—
Long-term interest rate swap assets	$	1,256	$	—	$	1,256	$	—		1,524		—		1,524		—
Current interest rate swap liabilities		(27)		—		(27)		—
Long-term interest rate swap liabilities		(1,761)		—		(1,761)		—		(6,647)		—		(6,647)		—
Total	$	(532)	$	—	$	(532)	$	—	$	(2,658)	$	—	$	(2,658)	$	—

We have not elected the fair value option for any of our ~~financial~~other 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 September 30, ~~2018~~2019 and December 31, ~~2017~~.2018.

As of September 30, 2018

As of December 31, 2017

(In thousands)

Carrying Value

Fair Value

Carrying Value

Fair Value

Investments, equity basis

$
54,595

n/a

$
52,738

n/a

Investments, at cost

$
53,748

n/a

$
53,848

n/a

Long-term debt, excluding capital leases

$
2,313,150

$
2,266,939

$
2,331,400

$
2,253,545


	As of September 30, 2019				As of December 31, 2018
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, excluding finance leases	$	2,298,319	$	2,176,254	$	2,315,077	$	2,155,127

Cost & Equity Method Investments

Our investments as of September 30, ~~2018~~2019 and December 31, ~~2017~~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.

Table of Contents

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.

~~Table of Contents~~

6. LONG-TERM DEBT

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


	September 30,		December 31,

					September 30,		December 31,
(In thousands)	2018		2017		2019		2018
Senior secured credit facility:
Term loans, net of discounts of $7,335 and $8,344 at September 30, 2018 and December 31, 2017, respectively	$	1,800,315	$	1,813,069
Term loans, net of discounts of $5,955 and $6,994 at September 30, 2019 and December 31, 2018, respectively					$	1,783,345	$	1,796,068
Revolving loan		16,000		22,000		45,000		22,000
6.50% Senior notes due 2022, net of discount of $3,165 and $3,669 at September 30, 2018 and December 31, 2017, respectively		496,835		496,331
Capital leases		33,527		23,890
		2,346,677		2,355,290
Less: current portion of long-term debt and capital leases		(31,811)		(29,696)
6.50% Senior notes due 2022, net of discount of $2,312 and $2,991 at September 30, 2019 and December 31, 2018, respectively						469,974		497,009
						2,298,319		2,315,077
Less: current portion of long-term debt						(18,350)		(18,350)
Less: deferred debt issuance costs		(12,071)		(14,080)		(9,068)		(11,386)
Total long-term debt	$	2,302,795	$	2,311,514	$	2,270,901	$	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 ~~Incremental Term Loan was issued on July 3, 2017 upon completion of the FairPoint Merger, as described below. 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, ~~including certain of the FairPoint subsidiaries acquired in the Merger,~~ 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.

In connection with the execution of the Merger Agreement, in December 2016, the Company entered into two amendments to its Credit Agreement to secure committed financing related to the acquisition of FairPoint. On December 14, 2016, we entered into Amendment No. 1 to the Credit Agreement and on December 21, 2016, the Company entered into Amendment No. 2 to the Credit Agreement, pursuant to which a syndicate of lenders agreed to provide an incremental term loan in an aggregate principal amount of up to $935.0 million under the Credit Agreement, subject to the satisfaction of certain conditions. The Incremental Term Loan was ~~made pursuant to the Incremental Facility set forth~~issued in ~~the Credit Agreement. Fees~~an original aggregate principal amount of ~~$2.5~~$935.0 million ~~paid to the lenders in connection with Amendment No. 1 are reflected as~~and included an ~~additional~~original issue discount ~~on the Initial Term Loan and are~~of 0.50%, which is being amortized over the term of the debt as interest expense. Ticking fees accrued on the incremental term loan commitments from January 15, 2017 through the July 3, 2017 Merger closing date at a rate of 3.00% plus LIBOR subject to a 1.00% LIBOR floor and became due and payable on the closing date. In connection with entering into the committed financing, commitment fees of $14.0 million were capitalized in December 2016 and were amortized to interest expense over the term of the commitment period through July 2017.

~~Table of Contents~~

In addition, effective contemporaneously with the Merger, the Company entered into Amendment No. 3 to the Credit Agreement to increase the permitted amount of outstanding letters of credit from $15.0 million to $20.0 million and to provide that certain existing letters of credit of FairPoint be deemed to be letters of credit under the Credit Agreement.

Table of Contents

borrowings of ~~$16.0~~$45.0 million were outstanding under the revolving credit ~~facility.~~ facility, which consisted of LIBOR-based borrowings of $29.0 million and alternate base rate borrowings of $16.0 million. At December 31, ~~2017,~~ t~~here~~2018, there were borrowings of $22.0 million outstanding under the revolving credit facility,which consisted of LIBOR-based borrowings of ~~$17.0~~$10.0 million and alternate base rate borrowings of ~~$5.0~~$12.0 million. Stand-by letters of credit of ~~$17.2~~ $16.0 million were outstanding under our revolving credit facility as of September 30, ~~2018.~~2019. The stand-by letters of credit are renewable annually and reduce the borrowing availability under the revolving credit facility. As of September 30, ~~2018, $76.8~~2019, $49.0 million was available for borrowing under the revolving credit facility.

The weighted-average interest rate on outstanding borrowings under our credit facility was ~~5.27%~~5.10% and ~~4.58%~~ 5.54% as of September 30, ~~2018~~2019 and December 31, ~~2017, respectively~~.2018, respectively. Interest is payable at least ~~quarterly~~.quarterly.

Credit Agreement Covenant Compliance

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 September 30, 2018, and including the $27.6 million dividend paid on November 1, 2018, we had $312.7 million in dividend availability under the credit facility covenant.

Under our Credit Agreement, if our total net leverage ratio, as defined in the Credit Agreement, as of the end of any fiscal quarter is greater than 5.10:1.00, we will be required to suspend dividends on our common stock unless otherwise permitted by an exception for dividends that may be paid from the portion of proceeds of any sale of equity not used to fund acquisitions or make other investments. During any dividend suspension period, we will be required to repay debt in an amount equal to 50.0% of any increase in available cash, among other things. In addition, we will not be permitted to pay dividends if an event of default under the Credit Agreement has occurred and is continuing. Among other things, it will be an event of default if our total net leverage ratio 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 September 30, ~~2018,~~2019, our total net leverage ratio under the Credit Agreement was ~~4.33:~~4.45:1.00 and our interest coverage ratio was ~~4.15:~~3.69:1.00. As of September 30, 2019, we were in compliance with the Credit Agreement covenants.

Senior Notes

6.50% Senior Notes due 2022

~~Table of Contents~~

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 ~~certain~~the majority of our ~~wholly‑owned subsidiaries, including certain FairPoint~~wholly-owned subsidiaries have fully and unconditionally guaranteed the Senior Notes. The Senior Notes are senior unsecured obligations of the Company.

During the quarter and nine months ended September 30, 2019, we repurchased $23.1 million and $27.7 million, respectively, of the aggregate principal amount of the Senior Notes. In ~~October 2015, we completed an exchange offer to register all~~connection with the partial repurchase of the Senior Notes, ~~under~~we paid $21.7 million and $26.0 million and recognized a gain on extinguishment of debt of $1.1 million and $1.4 million during 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 Actquarter 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.nine months ended September 30, 2019, respectively.

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 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 September 30, 2018, this ratio was 4.38:1.00. 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 $516.1 million have been paid since May 30, 2012, including the quarterly dividend declared in July 2018 and paid on November 1, 2018, there was $1,060.1 million of the $1,576.2 million of cumulative consolidated cash flow since May 30, 2012 available to pay dividends as of September 30, 2018. As of September 30, 2018,2019, the Company was in compliance with all terms, conditions and covenants under the indenture governing the Senior Notes.

~~Capital Leases~~

~~We lease certain facilities and equipment under various capital leases which expire between 2018 and 2027. As~~Table of ~~September 30, 2018, the present value of the minimum remaining lease commitments was approximately $33.5 million, of which $13.5 million was due and payable within the next twelve months.~~ ~~The leases require total remaining rental payments of~~ ~~$39.6 million as of September 30, 2018, of which $2.2 million will be paid to LATEL LLC, a related party entity.~~Contents

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~~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

~~Table of Contents~~

flow hedges of our expected future interest payments. For derivative instruments designated as a cash flow hedge, ~~the effective portion of~~ the change in the fair value is recognized as a component of accumulated other comprehensive income (loss) (“AOCI”) and is recognized as an adjustment to earnings over the period in which the hedged item impacts earnings. When an interest rate swap agreement terminates, any resulting gain or loss is recognized over the shorter of the remaining original term of the hedging instrument or the remaining life of the underlying debt obligation. If a derivative instrument is de-designated, the remaining gain or loss in AOCI on the date of de-designation is amortized to earnings over the remaining term of the hedging instrument. For derivative financial instruments that are not designated as a hedge, including those that have been de-designated, changes in fair value are recognized on a current basis in earnings. ~~The ineffective portion of the change in fair value of any hedging derivative is recognized immediately in earnings.~~ Cash flows from hedging activities are classified under the same category as the cash flows from the hedged items in our condensed consolidated statements of cash flows.

The following interest rate swaps were outstanding as of September 30, ~~2018:~~2019:


	Notional

						Notional
(In thousands)	Amount		2018 Balance Sheet Location	Fair Value		Amount		2019 Balance Sheet Location	Fair Value
Cash Flow Hedges:
Fixed to 1-month floating LIBOR (with floor)	$	600,000	Prepaid expenses and other current assets	$	2,979	$	705,000	Accrued expense	$	(3,352)
Fixed to 1-month floating LIBOR (with floor)	$	550,000	Other assets		5,976	$	500,000	Other long-term liabilities		(21,302)
Series of forward starting fixed to 1-month floating LIBOR (with floor)	$	2,010,000	Other assets		8,597
Forward starting fixed to 1-month floating LIBOR (with floor)						$	705,000	Other long-term liabilities		(7,168)
Total Fair Values				$	17,552				$	(31,822)

Our interest rate swap agreements mature on various dates between July 2020 and July 2023. The forward-starting interest rate swap agreement has a term of one year and becomes effective in July 2020.

The following interest rate swaps were outstanding as of December 31, ~~2017:~~2018:


	Notional

						Notional
(In thousands)	Amount		2017 Balance Sheet Location	Fair Value		Amount		2018 Balance Sheet Location	Fair Value
Cash Flow Hedges:
Fixed to 1-month floating LIBOR (with floor)	$	600,000	Other assets	$	873	$	650,000	Prepaid expenses and other current assets	$	2,465
Forward starting fixed to 1-month floating LIBOR (with floor)						$	705,000	Other assets		1,524
Fixed to 1-month floating LIBOR (with floor)	$	150,000	Accrued expense		(27)	$	500,000	Other long-term liabilities		(5,698)
Forward starting fixed to 1-month floating LIBOR (with floor)	$	600,000	Other assets		383	$	705,000	Other long-term liabilities		(949)
Series of forward starting fixed to 1-month floating LIBOR (with floor)	$	1,410,000	Other long-term liabilities		(1,761)
Total Fair Values				$	(532)				$	(2,658)

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

In connection with the acquisition of FairPoint, during the quarter ended June 30, 2017, we entered into a series of four deal contingent forward-starting interest rate swap agreements each with a term of one year which began at various dates between July 2017 and July 2020 and mature between July 2018 and July 2021. The forward starting interest rate swap agreements have a notional value ranging from $450.0 million to $705.0 million. These interest rate swap agreements have been designated as cash flow hedges.

During the quarter ended March 31, 2018, we entered into an interest rate swap agreement with a notional value of $500.0 million and a term of five years. The interest rate swap agreement was designated as a cash flow hedge. On

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March 12, 2018, we completed a syndication of a portion of the $500.0 million interest rate swap agreement with ~~five~~5 new counterparties. On the date of the syndication, the interest rate swap agreements were de-designated due to changes in critical terms as a result of the syndication. Prior to de-designation, the ~~effective portion of the~~ change in fair value of the

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interest rate swap was recognized in AOCI. The balance of the unrealized loss included in AOCI as of the date the swaps were de-designated is being amortized to earnings over the remaining term of the interest rate swap agreements. Changes in fair value of the de-designated swaps were immediately recognized in earnings as interest expense prior to the re-designation date. During the quarter ended June 30, 2018, the interest rate swap agreements were re-designated as a cash flow hedge. During the nine months ended September 30, 2018, a loss of $2.5 million was recognized in interest expense for the change in fair value of the de-designated swaps.

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the total pre-tax unrealized ~~gains~~gain (loss) related to our interest rate swap agreements included in AOCI was ~~$22.0~~$(26.7) million and ~~$0.6~~$3.2 million, respectively. From the balance in AOCI as of September 30, ~~2018,~~2019, we expect to recognize a loss of approximately ~~$1.1~~$6.5 million in earnings in the next twelve months.

Information regarding our cash flow hedge transactions is as follows:


	Quarter Ended		Nine Months Ended
	September 30,		September 30,
(In thousands)	2019		2019
Unrealized loss recognized in AOCI, pretax	$	(2,856)	$	(28,349)
Deferred gain (loss) reclassified from AOCI to interest expense	$	(176)	$	700

8. LEASES

We have entered into various leases for certain facilities, land, underground conduit, colocations, and equipment used in our operations. For leases with a term greater than 12 months, we recognize a right-to-use asset and a lease liability based on the present value of lease payments over the lease term. The leases have remaining lease terms of one year to 90 years and may include one or more options to renew, which can extend the lease term from one to five years or more. Operating lease expense is recognized on a straight-line basis over the lease term.

As most of our leases do not provide a readily determinable implicit rate, we use our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments. We use the implicit rate when a rate is readily determinable. Our leases may also include scheduled rent increases and options to extend or terminate the lease which is included in the determination of lease payments when it is reasonably certain that we will exercise that option. For all asset classes, we do not separate lease and nonlease components, as such we account for the components as a single lease component.

Leases with an initial term of 12 months or less are not recognized on the balance sheet and the expense for these short-term leases is recognized on a straight-line basis over the lease term. Short-term lease expense, which is recognized in cost of services and products, was not material to the condensed consolidated statements of operations for the quarter and nine months ended September 30, 2019. Variable lease payments are expensed as incurred.

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The following table summarizes the components of our lease right-of use assets and liabilities at September 30, 2019:

Quarter Ended

Nine Months Ended

September 30,

September 30,

(In thousands)

2018

2017

2018

2017

Unrealized gain (loss) recognized in AOCI, pretax

$
6,695

$
(528)

$
18,374

$
(4,658)

Deferred losses reclassified from AOCI to interest expense

$
(1,159)

$
(369)

$
(2,961)

$
(1,098)

Gain (loss) recognized in interest expense from ineffectiveness

$
142

$
269

$
1,491

$
(1,031)


(In thousands)	Balance Sheet Classification	September 30, 2019
Operating leases
Operating lease right-of-use assets	Other assets	$	27,586
Current lease liabilities	Accrued expense	$	(6,454)
Noncurrent lease liabilities	Other long-term liabilities	$	(21,276)

Finance leases
Finance lease right-of-use assets, net of accumulated depreciation of $44,582	Property, plant and equipment, net	$	21,826
Current lease liabilities	Current portion of long-term debt and finance lease obligations	$	(9,519)
Noncurrent lease liabilities	Long-term debt and finance lease obligations	$	(14,276)

Weighted-average remaining lease term
Operating leases			7.4 years
Finance leases			4.3 years
Weighted-average discount rate
Operating leases			7.20	%
Finance leases			7.30	%

The components of lease expense for the quarter and nine months ended September 30, 2019 consisted of the following:


	Quarter Ended		Nine Months Ended
(In thousands)	September 30, 2019		September 30, 2019
Finance lease cost:
Amortization of right-of-use assets	$	2,533	$	9,563
Interest on lease liabilities		541		1,601
Operating lease cost		1,236		5,661
Variable lease cost		518		1,894
Total lease cost	$	4,828	$	18,719

The following table presents supplemental cash flow information related to leases for the nine-month period ended September 30, 2019:


	Nine Months Ended
(In thousands)	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	6,550
Operating cash flows for finance leases		1,601
Financing cash flows for finance leases		9,743
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases		1,786
Finance leases		3,176

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At September 30, 2019, the aggregate maturities of our lease liabilities were as follows:


(In thousands)		Operating Leases		Finance Leases
2019	$	2,135	$	3,153
2020		7,887		9,626
2021		5,726		4,878
2022		4,992		2,917
2023		3,329		1,489
Thereafter		12,329		6,405
Total lease payments		36,398		28,468
Less: Interest		(8,668)		(4,673)
	$	27,730	$	23,795

Lessor

We have various arrangements for use of our network assets including tower space, certain colocation and dark fiber arrangements for which we are the lessor. These leases meet the criteria for operating lease classification. Lease income associated with these types of leases is not material. Occasionally, we enter into dark fiber arrangements where the term may be for a major part of the asset’s remaining economic life, which meet the criteria for sales-type lease classification. During the nine months ended September 30, 2019, we entered into a dark fiber indefeasible right of use arrangement for exclusive access to and unrestricted use of specific dark fibers. The arrangement was classified as a sales-type lease as the term of the arrangement is for a major part of the assets’ remaining economic life. During the nine months ended September 30, 2019, we recognized revenue of $0.6 million and a gain of $0.4 million related to this arrangement.

As part of the adoption of ASU 2016-02, we elected the practical expedient to combine lease and non-lease components in our lessor arrangements. We have arrangements where the non-lease component associated with the lease component is the predominant component in the contract, such as in revenue contracts that involve the customer leasing equipment from us. In such cases, we account for the combined component in accordance with ASC 606 as the service component is the predominant component in the contract.

9. EQUITY

Dividends

Our Board of Directors declared quarterly dividends of approximately $0.38738 per share during 2018. On February 18, 2019, the Board of Directors declared a dividend of approximately $0.38738 per share, paid on May 1, 2019 to stockholders of record on April 15, 2019.

On April 25, 2019, we announced the elimination of the payment of quarterly dividends on our stock beginning in the second quarter of 2019. Future dividend payments, if any, are at the discretion of our Board of Directors. Changes in our dividend program will depend on our earnings, capital requirements, financial condition, debt covenant compliance, expected cash needs and other factors considered relevant by our Board of Directors.

Share-Based Compensation

Our Board of Directors may grant share-based awards from our shareholder approved Amended and Restated Consolidated Communications Holdings, Inc. 2005 Long-Term Incentive Plan (the “Plan”). The Plan permits the issuance of awards in the form of stock options, stock appreciation rights, stock grants, stock unit grants and other equity-based awards to eligible directors and employees at the discretion of the Compensation Committee of the Board of Directors. On April 30, 2018, the shareholders approved an amendment to the Plan to increase by 2,000,000 the number of shares of our common stock authorized for issuance under the Plan and extend the term of the Plan through April 30, 2028. With the amendment, approximately 4,650,000 shares of our common stock are authorized for issuance

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under the Plan, provided that no more than 300,000 shares may be granted in the form of stock options or stock appreciation rights to any eligible employee or director in any calendar year. Unless terminated sooner, the Plan will continue in effect until April 30, 2028.

The following table summarizes total compensation costs recognized for share-based payments during the quarters and nine-month periods ended September 30, ~~2018~~2019 and ~~2017:~~2018:


	Quarter Ended				Nine Months Ended
	September 30,				September 30,

									Quarter Ended				Nine Months Ended
									September 30,				September 30,
(In thousands)	2018		2017		2018		2017		2019		2018		2019		2018
Restricted stock	$	979	$	585	$	2,393	$	1,549	$	1,094	$	979	$	3,077	$	2,393
Performance shares		559		304		1,361		770		834		559		2,163		1,361
Total	$	1,538	$	889	$	3,754	$	2,319	$	1,928	$	1,538	$	5,240	$	3,754

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

As of September 30, ~~2018,~~2019, total unrecognized compensation cost related to non-vested Restricted Stock Awards (“RSAs”) and Performance Share Awards (“PSAs”) was ~~$10.6~~ $12.6 million and will be recognized over a weighted-average period of approximately ~~1.9~~ 1.7 years.

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The following table summarizes the RSA and PSA activity for the nine-month period ended September 30, ~~2018:~~2019:


	RSAs			PSAs
		Weighted			Weighted
		Average Grant			Average Grant
	Shares	Date Fair Value		Shares	Date Fair Value
Non-vested shares outstanding - January 1, 2018	102,181	$	23.32	77,528	$	21.46

							RSAs			PSAs
								Weighted			Weighted
								Average Grant			Average Grant
							Shares	Date Fair Value		Shares	Date Fair Value
Non-vested shares outstanding - December 31, 2018							338,771	$	14.31	35,626	$	21.97
Shares granted	478,210	$	12.45	—	$	—	551,214	$	9.87	371,672	$	9.86
Shares forfeited, cancelled or retired	(1,851)	$	22.93	(1,137)	$	21.80	(25,363)	$	10.76	(8,755)	$	12.95
Non-vested shares outstanding - September 30, 2018	578,540	$	14.34	76,391	$	21.46
Non-vested shares outstanding - September 30, 2019							864,622	$	11.58	398,543	$	13.29

Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive loss, net of tax, by component for the nine-month period ended September 30, ~~2018:~~2019:


	Pension and
	Post-Retirement		Derivative
(In thousands)	Obligations		Instruments		Total
Balance at December 31, 2018	$	(55,514)	$	2,302	$	(53,212)
Other comprehensive loss before reclassifications		—		(20,945)		(20,945)
Cumulative adjustment upon adoption of ASU 2017-12		—		(576)		(576)
Amounts reclassified from accumulated other comprehensive loss		2,246		(517)		1,729
Net current period other comprehensive income (loss)		2,246		(22,038)		(19,792)
Balance at September 30, 2019	$	(53,268)	$	(19,736)	$	(73,004)

Pension and




Post-Retirement

Derivative

(In thousands)

Obligations

Instruments

Total

Balance at December 31, 2017

$
(48,464)

$
381

$
(48,083)

Other comprehensive income before reclassifications

8,173

13,596

21,769

Amounts reclassified from accumulated other comprehensive loss

2,972

2,186

5,158

Net current period other comprehensive income

11,145

15,782

26,927

Balance at September 30, 2018

$
(37,319)

$
16,163

$
(21,156)

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The following table summarizes reclassifications from accumulated other comprehensive loss for the quarters and nine-month periods ended September 30, ~~2018~~2019 and ~~2017:~~2018:



	Quarter Ended September 30,				Nine Months Ended September 30,				Affected Line Item in the
(In thousands)	2019		2018		2019		2018		Statement of Income
Amortization of pension and post-retirement items:
Prior service (cost) credit	$	(799)	$	132	$	(2,396)	$	530	(a)
Actuarial gain (loss)		549		(1,623)		(642)		(4,526)	(a)
Settlement loss		—		—		—		(46)	(a)
		(250)		(1,491)		(3,038)		(4,042)	Total before tax
		56		395		792		1,070	Tax benefit
	$	(194)	$	(1,096)	$	(2,246)	$	(2,972)	Net of tax

Gain (Loss) on cash flow hedges:
Interest rate derivatives	$	(176)	$	(1,159)	$	700	$	(2,961)	Interest expense
		46		304		(183)		775	Tax (expense) benefit
	$	(130)	$	(855)	$	517	$	(2,186)	Net of tax

Quarter Ended September 30,

Nine Months Ended September 30,

Affected Line Item in the

(In thousands)

2018

2017

2018

2017

Statement of Income

Amortization of pension and post-retirement items:

Prior service credit

$
132

$
192

$
530

$
645

(a)

Actuarial loss

(1,623)

(1,325)

(4,526)

(4,625)

(a)

Settlement loss

—

—

(46)

—

(a)

(1,491)

(1,133)

(4,042)

(3,980)

Total before tax

395

466

1,070

1,580

Tax benefit

$
(1,096)

$
(667)

$
(2,972)

$
(2,400)

Net of tax

Loss on cash flow hedges:

Interest rate derivatives

$
(1,159)

$
(369)

$
(2,961)

$
(1,098)

Interest expense

304

151

775

431

Tax benefit

$
(855)

$
(218)

$
(2,186)

$
(667)

Net of tax

~~(a) These items are included in the components of net periodic benefit cost for our pension and other post-retirement benefit plans. See Note 9~~
(a) These items are included in the components of net periodic benefit cost for our pension and other post-retirement benefit plans. See Note 10 for further discussion regarding our pension and other post-retirement benefit plans.

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9.10. PENSION PLAN AND OTHER POST-RETIREMENT BENEFITS

Defined Benefit Plans

We sponsor a3 qualified defined benefit pension ~~plan (“Retirement Plan”)~~plans that isare non-contributory covering ~~certain~~substantially all of our hourly employees under collective bargaining agreements who fulfill minimum age and service ~~requirements. Certain~~requirements and certain salaried ~~employees~~employees. The defined benefit pension plans are ~~also covered by the Retirement Plan, although these benefits are frozen. The Retirement Plan is~~ closed to all new entrants. ~~Benefits~~In November 2018, a defined benefit pension plan was amended to freeze benefit accruals under the cash balance benefit plan for ~~eligible~~certain participants under collective bargaining agreements ~~are accrued based on a cash balance benefit plan.~~

~~As part~~effective as of ~~our acquisition~~March 31, 2019. Consequently, as of ~~FairPoint, we assumed sponsorship~~April 1, 2019 all of ~~its two non-contributory qualified~~our defined benefit pension plans ~~(together, the “Qualified Pension Plan”). The Qualified Pension Plan for certain non-management~~are now frozen to all current employees, and 0 additional monthly pension benefits will accrue under collective bargaining agreements is closed to new participants and benefits are frozen. For existing participants, benefit accruals are capped at 30 years of total credited service. The Qualified Pension Plan for certain management employees is frozen and all future benefit accruals for existing participants have ceased. those plans.

We also have ~~two~~2 non-qualified supplemental retirement plans (the “Supplemental Plans” and, together with the ~~Retirement Plan and the Qualified Pension Plan,~~defined benefit pension plans, the “Pension Plans”). The Supplemental Plans provide supplemental retirement benefits to certain former employees by providing for incremental pension payments to partially offset the reduction of the amount that would have been payable under the qualified defined benefit pension plans if it were not for limitations imposed by federal income tax regulations. The Supplemental Plans are frozen so that no0 person is eligible to become a new participant. These plans are unfunded and have no0 assets. The benefits paid under the Supplemental Plans are paid from the general operating funds of the Company.

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The following table summarizes the components of net periodic pension cost for our Pension Plans for the quarters and nine-month periods ended September 30, ~~2018~~2019 and ~~2017:~~2018:


	Quarter Ended				Nine Months Ended
	September 30,				September 30,

									Quarter Ended				Nine Months Ended
									September 30,				September 30,
(In thousands)	2018		2017		2018		2017		2019		2018		2019		2018
Service cost	$	1,412	$	1,447	$	4,482	$	1,608	$	14	$	1,412	$	37	$	4,482
Interest cost		7,223		7,332		21,509		14,512		7,520		7,223		22,842		21,509
Expected return on plan assets		(9,639)		(9,251)		(28,943)		(19,209)		(8,604)		(9,639)		(25,947)		(28,943)
Net amortization loss		1,637		1,368		4,582		4,755		761		1,637		2,167		4,582
Net prior service credit amortization		(51)		(61)		(173)		(254)
Net prior service cost (credit) amortization										31		(51)		92		(173)
Settlement loss		—		—		46		—		—		—		—		46
Curtailment gain		—		—		—		(1,337)
Net periodic pension cost	$	582	$	835	$	1,503	$	75
Net periodic pension (benefit) cost									$	(278)	$	582	$	(809)	$	1,503

The components of net periodic pension cost other than the service cost component are included in other, net within other income (expense) in the condensed consolidated statements of operations.

In connection with new collective bargaining agreements ratified in August 2018, the Qualified Pension Plan for FairPoint represented employees was amended to freeze all future benefit accruals effective January 1, 2019. During the quarter ended September 30, 2018, no curtailment gain or loss was recognized as a result of the freezing of these benefits. Due to the amendment to the Qualified Pension Plan, the projected benefit obligation and assets were re-measured as of August 31, 2018 which resulted in a reduction in the pension obligation of $18.2 million during the quarter ended September 30, 2018. The discount rate used for the August 31, 2018 re-measurement was 4.25% compared to 3.78% at December 31, 2017.

In May 2017, the Retirement Plan was amended to freeze benefit accruals under the cash balance benefit plan for certain participants under collective bargaining agreements effective as of June 30, 2017. As a result of this amendment, we

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~~recognized a pre-tax curtailment gain of $1.3 million as a component of net periodic pension cost during the nine-month period ended September 30, 2017.~~

Other Non-qualified Deferred Compensation Agreements

We are also liable for deferred compensation agreements with former members of the board of directors and certain other former employees of acquired companies. Depending on the plan, benefits are payable in monthly or annual installments for a period of time based on the terms of the agreement, which range from five years up to the life of the participant or to the beneficiary upon the death of the participant, and may begin as early as age 55. Participants accrue no0 new benefits as these plans had previously been frozen. Payments related to the deferred compensation agreements totaled approximately $0.3 million and $0.2 million for ~~each of~~ the nine-month periods ended September 30, 2019 and 2018, ~~and 2017.~~ Norespectively. NaN payments were made during the quarters ended September 30, ~~2018~~2019 and ~~2017.~~2018. The net present value of the remaining obligations was approximately ~~$1.7~~ $1.4 million and ~~$1.9~~ $1.6 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, and is included in pension and other post-retirement benefit obligations in the accompanying condensed consolidated balance ~~sheets~~.sheets.

We also maintain 25 life insurance policies on certain of the participating former directors and employees. We did not recognize any life insurance proceeds during the quarters and nine-month periods ended September 30, ~~2018~~2019 and ~~2017.~~2018. The excess of the cash surrender value of the remaining life insurance policies over the notes payable balances related to these policies totaled ~~$2.3~~ $2.5 and $2.4 million as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018, respectively. These amounts are included in investments in the accompanying condensed consolidated balance sheets. Cash principal payments for the policies and any proceeds from the policies are classified as operating activities in the condensed consolidated statements of cash flows.

Post-retirement Benefit Obligations

We sponsor various healthcare and life insurance plans (“Post-retirement Plans”) that provide post-retirement medical and life insurance benefits to certain groups of retired employees. Certain plans are frozen so that no0 person is eligible to become a new participant. Retirees share in the cost of healthcare benefits, making contributions that are adjusted periodically—either based upon collective bargaining agreements or because total costs of the program have changed. Covered expenses for retiree health benefits are paid as they are incurred. Post-retirement life insurance benefits are fully insured. A majority of the healthcare plans are unfunded and have no0 assets, and benefits are paid from the general operating funds of the Company. However, a plan acquired in the purchase of another company is funded by assets that are separately designated within the ~~Retirement Plan~~Pension Plans for the sole purpose of providing payments of retiree medical benefits for this specific plan.

~~In connection with the acquisition~~22

Table of FairPoint, we acquired its post-retirement benefit plan as of the date of acquisition. The post-retirement benefit plan provides medical, dental and life insurance benefits to certain eligible employees and in some instances, to their spouses and families. The post-retirement benefit plan is unfunded and the Company funds the benefits that are paid.Contents

The following table summarizes the components of the net periodic cost for our Post-retirement Plans for the quarters and nine-month periods ended September 30, ~~2018~~2019 and ~~2017:~~2018:


	Quarter Ended				Nine Months Ended
	September 30,				September 30,

									Quarter Ended				Nine Months Ended
									September 30,				September 30,
(In thousands)	2018		2017		2018		2017		2019		2018		2019		2018
Service cost	$	31	$	126	$	285	$	373	$	484	$	31	$	717	$	285
Interest cost		996		1,121		3,053		1,912		884		996		3,173		3,053
Expected return on plan assets		(36)		(28)		(107)		(85)		(47)		(36)		(134)		(107)
Net amortization gain		(14)		(43)		(56)		(130)		(1,310)		(14)		(1,525)		(56)
Net prior service credit amortization		(81)		(131)		(357)		(391)
Net prior service cost (credit) amortization										768		(81)		2,304		(357)
Net periodic post-retirement benefit cost	$	896	$	1,045	$	2,818	$	1,679	$	779	$	896	$	4,535	$	2,818

The components of net periodic post-retirement benefit cost other than the service cost component are included in other, net within other income (expense) in the condensed consolidated statements of operations.

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Contributions

A new collective bargaining agreement ratified in August 2018 provides a new post-retirement medical benefit to certain FairPoint represented employees who meet the eligibility requirements and retire prior to June 30, 2021. As a result of this new benefit, the projected benefit obligation and net periodic post-retirement benefit cost for the FairPoint post-retirement plan were re-measured as of August 31, 2018, which resulted in an increase in the post-retirement benefit obligation of $7.1 million and net periodic post-retirement benefit cost of $0.3 million during the quarter ended September 30, 2018. The discount rate used for the August 31, 2018 re-measurement was 3.89% compared to 2.83% at December 31, 2017.

~~Contributions~~

We expect to contribute approximately ~~$26.2~~$27.5 million to our Pension Plans and ~~$10.0~~$9.5 million to our Post-retirement Plans in ~~2018.~~2019. As of September 30, ~~2018,~~2019, we have contributed ~~$20.8~~$21.7 million and ~~$7.9~~$6.3 million of the annual contribution to the Pension Plans and Post-retirement Plans, respectively.

~~10.~~11. INCOME TAXES

Our unrecognized tax benefits as of each of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 were $4.9 million and $4.3 million, respectively. The increase of $0.6 million to unrecognized tax benefits in 2018 was primarily due to the acquisition of FairPoint of which $0.3 million was recorded in purchase accounting. There was no material effect on the Company’s effective tax rate.million. The net amount of unrecognized tax benefits that, if recognized, would result in an impact to the effective tax rate is $4.7 million as of September 30, ~~2018~~2019 and ~~$4.1 million as of~~ December 31, ~~2017.~~2018. We do not expect any material change in our unrecognized tax benefits during the remainder of ~~2018.~~2019.

Our practice is to recognize interest and penalties related to income tax matters in interest expense and selling, general and administrative expenses, respectively. As of September 30, ~~2018,~~2019, we did not have a material liability for interest or penalties and had no material interest or penalty expense.

The periods subject to examination for our federal return are years ~~2015~~2016 through ~~2017.~~2018. The periods subject to examination for our state returns are years ~~2014~~2015 through ~~2017.~~2018. In addition, prior tax years may be subject to examination by federal or state taxing authorities if the ~~Company's NOL~~Company’s net operating loss carryovers from those prior years are utilized in the future. We are currently under ~~examination~~audit by state taxing authorities. We do not expect any settlement or payment that may result from the examination to have a material effect on our results or cash flows.

ASC 740 requires us to recognize the effect of the tax law changes in the period of enactment. However, on December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). SAB 118 will allow us to record provisional amounts during a measurement period which is similar to the measurement period used when accounting for business combinations. SAB 118 would allow for a measurement period of up to one year after the enactment date of the new tax legislation to finalize the recording of the related tax impacts. Any subsequent adjustment to these amounts will be recorded to tax expense in 2018 when the analysis is complete. The Company is currently evaluating and completing its analysis of the Tax Act, which is expected to be completed after the filing of the 2017 federal and state income tax returns. For each of the quarter and nine-month periods ended September 30, 2018, adjustments were made to the provisional estimates that were recorded and disclosed as of December 31, 2017 that resulted in a $4.4 million decrease to our tax provision.

Our effective tax rate was ~~37.8~~%75.6% and ~~18.1%~~37.8% for the quarters ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively and ~~32.1%~~28.8% and ~~22.1%~~32.1% for the nine-month periods ended September 30, 2019 and 2018, respectively. During the quarter ended September 30, 2019, we settled a state examination and ~~2017, respectively~~.recorded an increase of $0.6 million in state expense. During the quarter ended September 30, 2018, adjustments were made to the provisional estimates that were disclosed as of December 31, 2017 under ~~SAB~~Staff Accounting Bulletin No. 118 for the Tax Cuts and Jobs Act of 2017 that resulted in a $4.4 million decrease to our tax provision. The Company recorded additional purchase accounting tax adjustments outside the measurement period related to the acquisition of FairPoint Communications, Inc., which we acquired in July 2017 (“FairPoint”), that resulted in a $1.1 million increase to our tax provision. On July 31, 2018, we completed the sale of all the issued and outstanding stock of Peoples in a taxable transaction. We recorded an increase in income tax expense of $0.8 million to ~~our deferred tax liabilities and a corresponding increase to our deferred tax provision to~~ reflect the ~~taxable temporary differences associated with the~~

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~~excess of~~difference in the reported ~~amount of our~~ investment ~~in Peoples over~~and the underlying tax basis. For the quarter ended September 30, 2017, we recorded a net increase of $5.2 million to our net state deferred tax liabilities and a corresponding increase to our state tax provision due to the acquisition of FairPoint. The Company incurred non-deductible expenses in relation to the FairPoint acquisition that resulted in an increase to our tax provision of $2.3 million. The Company also recorded a number of purchase accounting tax adjustments, which did not impact our tax provision, related to the FairPoint acquisition that included release of a portion of the valuation allowances, state deferred tax rate changes and nondeductible transaction expenses. We recognized these in the quarter ended September 30, 2017. In addition, for the quarter and nine-month periods ended September 30, ~~2018~~2019 and ~~2017,~~2018, the effective tax rate differed from the federal and state statutory rates due to various permanent income tax differences and differences in allocable income for the Company’s state tax filings. Exclusive of these adjustments, our effective tax rate for the quarters and ~~nine months~~nine-month periods ended September 30, ~~2018~~2019 and ~~2017~~2018 would have been approximately 35.4% and 26.8% and ~~42.2%~~approximately 32.1% and ~~approximately~~ 27.2% ~~and 39.4%~~, respectively. ~~The primary driver in the difference in effective tax rates, exclusive~~

Table of ~~adjustments, in the 2018 and 2017 periods disclosed is the change in the corporate tax rate from 35% to 21% due to the enactment of the Tax Act.~~ Contents

~~11.~~12. COMMITMENTS AND CONTINGENCIES

Litigation, Regulatory Proceedings and Other Contingencies

Local Switching Support

In 2015, our subsidiary, FairPoint, filed a ~~Petition~~petition (the “Petition”) with the ~~FCC requesting~~Federal Communications Commission (“FCC”) asking the FCC to direct National Exchange Carrier Association (“NECA”) to stop subtracting frozen ~~local switching support~~Local Switching Support (“LSS”) from FairPoint’s intercarrier compensation (“ICC”) Eligible Recovery for FairPoint’s rate of return Incumbent Local Exchange Carriers (“ILECs”) that participate in the NECA pooling process. This issue is unique to rate of return affiliates of price cap carriers because such companies are considered price cap carriers for the FCC’s Connect America Fund (“CAF”) funding, but remain rate of return for ICC purposes. Effective January 1, 2012, FairPoint rate of return ILECs were placed under the price cap CAF Phase I interim support mechanism, whereby the ILECs continued to receive frozen Universal Service Fund (“USF”) support for all forms of USF support received during 2011, including LSS. The rate of return rules for ICC included LSS support in that mechanism as well; therefore, NECA subtracted the frozen LSS support from the ICC Eligible Recovery amounts in accordance with FCC rules prohibiting duplicate recovery. When FairPoint accepted CAF Phase II support effective January 1, 2015, there was no longer any duplicate support and FairPoint requested NECA to stop subtracting LSS from FairPoint’s ICC Eligible Recovery. NECA declined to make that change, which led to FairPoint filing athe Petition with the FCC asking the FCC to direct NECA to comply with FCC rules on ICC Eligible Recovery for rate of return ILECs. This issue also applies to Consolidated’s operations in Minnesota, which are also rate of return ILECs associated with a price cap company. The combined LSS support for the period from January 1, 2015 through December 31, 2017 iswas approximately $12.3 million. Our ongoing ICC Eligible Recovery support for 2018 ~~would increase~~increased by approximately $3.6 million, and thereafter, is expected to decline by 5% per year through 2021. On March 31, 2018, we obtained the required votes necessary for an approved order and on April 19, 2018, the FCC issued its order approving our ~~petition.~~Petition. As a result, during the nine months ended September 30, 2018, we recognized subsidies revenue of ~~$6.3~~$5.4 million and a contingent asset of $8.7 million as a pre-acquisition gain contingency for the FairPoint LSS revenue prior to the acquisition date.

Access Charges

In 2014, Sprint Communications Company L.P. (“Sprint”) along with MCI Communications Services, Inc. and Verizon Select Services Inc. (collectively, “Verizon”) filed lawsuits against certain ~~entities~~subsidiaries of the Company including FairPoint, and many other Local Exchange Carriers (collectively, “LECs”) throughout the country challenging the switched access charges LECs assessed Sprint and Verizon, as interexchange carriers (“IXCs”), for certain calls originating from or terminating to mobile devices that are routed to or from these LECs through these IXCs. The plaintiffs’ position is based on their interpretation of federal law, among other things, and they are seeking refunds of past access charges paid for such calls. The disputed amounts total $4.8 million and cover periods dating back as far as 2006. CenturyLink, Inc. and its LEC subsidiaries (collectively “CenturyLink”), requested that the U.S. Judicial Panel on Multidistrict Litigation (the “Panel”), which has the authority to transfer the pretrial proceedings to a single court for multiple civil cases involving common questions of fact, transfer and consolidate these cases in ~~one~~1 court. The Panel granted CenturyLink’s request and

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ordered that these cases be transferred to and centralized in the U.S. District Court for the Northern District of Texas (the “U.S. District Court”).

On November 17, 2015, the U.S. District Court dismissed these complaints based on its interpretation of federal law and held that LECs could assess switched access charges for the calls at issue (the “November 2015 Order”). The November 2015 Order also allowed the plaintiffs to amend their complaints to assert claims that arise under state laws independent of the dismissed claims asserted under federal law. While Verizon did not make such a filing, on May 16, 2016, Sprint filed amended complaints and on June 30, 2016, the LEC defendants named in such complaints filed, among other things, a Joint Motion to Dismiss them, which the U.S. District Court granted on May 3, 2017. Certain of our FairPoint LEC entities filed counterclaims against Sprint and Verizon.

Relatedly, in 2016, numerous LECs across the country, including a number of our legacy Consolidated and FairPoint LEC entities, filed complaints in various U.S. district courts against Level 3 Communications, LLC and certain of its

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affiliates (collectively, “Level 3”) for its failure to pay access charges for certain calls that the November 2015 Order held could be assessed by LECs. The Company’s LEC entities, including FairPoint, sought from Level 3 a total amount of at least $2.3 million, excluding attorneys’ fees. These complaint cases were transferred to and included in the above-referenced consolidated proceeding before the U.S. District Court. Level 3 filed a Motion to Dismiss these complaints that, in part, repeated arguments, which the November 2015 Order rejected. On March 22, 2017, the U.S. District Court denied Level 3’s Motion to Dismiss.

On March 12, 2018, a motion for summary judgment was filed by various LECs with counterclaims against Verizon and Sprint. On March 26, 2018, a motion for summary judgment was filed by various LECs with claims against Level 3. On May 15, 2018, the U.S. District Court granted all pending motions for summary judgment against Sprint, Verizon, and Level 3, and directed the entry of formal judgments in these cases.

On July 17, 2018, the U.S. District Court entered a judgment of $0.7 million in favor of our legacy Consolidated LEC entities and against Level 3. Level 3 filed a notice of appeal of this judgment with the U.S. Court of Appeals for the Fifth Circuit (the “Fifth Circuit”) on July 24, 2018. On August 15, 2018, the U.S. District Court entered a judgment of over $1.2 million in favor of our FairPoint LEC entities and against Level 3. Level 3 filed a notice of appeal of this judgment with the ~~U.S. Court of Appeals for the~~ Fifth Circuit on August 20, 2018. On September 21, 2018, all of our ~~Consolidated and FairPoint~~ LECs entered into a settlement agreement with Level 3 to resolve the dispute with respect to all past-due amounts at issue in the litigation. The settlement did not result in a material impact to our financial statements. As part of the settlement, the parties filed on October 18, 2018 joint stipulations ~~of dismissal~~to dismiss with prejudice the related ~~Consolidated and FairPoint LECs’~~ complaints by our LECs against Level 3 with the U.S. District Court and a joint motion to voluntarily dismiss the Level 3 appeal against our ~~Consolidated and FairPoint~~ LECs with the Fifth Circuit. ~~When the U.S. District Court processes the joint stipulations of dismissal and the~~The Fifth Circuit ~~grants of~~granted this motion on October 25, 2018 by dismissing the ~~joint motion, which is expected to occur in the fourth quarter of 2018, the litigation between our Consolidated and FairPoint LECs and~~ Level 3 ~~will be closed.~~appeal.

Formal judgments were entered in the Verizon and Sprint cases on June 7, 2018. Verizon and Sprint filed notices of appeal of these judgments with the ~~U.S. Court of Appeals for the~~ Fifth Circuit on June 28 and June 29, 2018, respectively. Those appeals remain pending. Absent a decision by an appellate court that overturns these orders, it could be difficult for Sprint or Verizon to succeed on its claims against us. Therefore, we do not expect any potential settlement or judgment to have a material adverse impact on our financial results or cash flows.

Gross Receipts Tax

~~Two~~NaN of our subsidiaries, Consolidated Communications of Pennsylvania Company LLC (“CCPA”) and Consolidated Communications Enterprise Services Inc. (“CCES”), have, at various times, received Assessment Notices and/or Audit Assessment Notices from the Commonwealth of Pennsylvania Department of Revenue (“DOR”) increasing the amounts owed for the Pennsylvania Gross Receipts Tax, and have had audits performed for the tax years of 2008 through 2016. For our CCES and CCPA subsidiaries, the total additional tax ~~liability~~liabilities calculated by the DOR auditors for the tax years 2008 through 2016, including interest, isare approximately ~~$6.3~~$6.1 million and ~~$7.5~~$7.4 million, respectively. We filed Petitions for Reassessment with the DOR’s Board of Appeals for the tax years 2008 through 2016, contesting these audit assessments. These cases remain pending and are in various stages of appeal.

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In May 2017, we entered into an agreement to guarantee any potential ~~liability~~liabilities to the DOR up to $5.0 million. We believe that certain of the DOR’s findings regarding ~~the Company’s~~CCPA’s and CCES’s additional tax ~~liability~~liabilities for the tax years 2008 through 2016, for which we have filed appeals, continue to lack merit. However, in January 2018, CCES and CCPA submitted initial settlement offers to the Pennsylvania Office of Attorney General proposing to settle the intrastate and interstate cases at a reduced tax ~~liability of the total assessed tax liability under dispute~~liabilities for the tax years 2008 through 2013. The settlement offers ~~are currently under review and~~were subject to negotiation with the Commonwealth of ~~Pennsylvania.~~Pennsylvania, with final approvals required from the Pennsylvania Office of Attorney General and DOR. The approvals have been obtained and the necessary settlement documents drafted for our review. The Commonwealth Court of Pennsylvania has imposed a deadline in ~~the fourth quarter of 2018~~December 2019 for the parties to ~~reach an~~finalize their agreement and file stipulations for judgment. While we continue to believe a settlement of all disputed claims is possible, we cannot anticipate at this time what the ultimate resolution of these cases will be, nor can we evaluate the likelihood of a favorable or unfavorable outcome or the potential losses (or gains) should such an outcome occur.

Based on the initial settlement offers for the tax years 2008 through 2013 and the Company’s best estimate of the potential additional tax liabilities for the tax years 2014 through 2018, we have reserved ~~$3.2~~$3.8 million and ~~$1.4~~$1.8 million,

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including interest, for our CCES and CCPA subsidiaries, respectively. We expect a settlement with the DOR to be filed in November 2019 finalizing the filings for the tax years 2008 through 2013. We expect the filings for the tax years 2014 through 2018 to be settled at a later date similar to the initial settlement. We do not believe that the outcome of these claims will have a material adverse impact on our financial results or cash flows.

~~12. SUBSEQUENT EVENT~~

In October 2018, Hurricane Michael made landfall on the coast of Florida impacting the Company’s service areas in this region. In response to the impending hurricane, the Company implemented its emergency preparedness plans in an effort to quickly respond to customers’ needs and any potential damages to our network infrastructure. Any disruption in our networks and infrastructure, including those from severe weather conditions, could cause delays or interruptions of service, which could cause us to lose customers and incur additional expenses. The Company estimates the storm initially impacted approximately 3,500 of its 21,000 customers located in Florida, which represented less than one percent of the Company’s overall customer base. We do not expect the recovery costs incurred as a result of Hurricane Michael to be material to our results of operations during the quarter ended December 31, 2018.

13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Consolidated Communications, Inc. is the primary obligor under the unsecured Senior Notes. We and substantially all of our subsidiaries, including our FairPoint subsidiaries, have jointly and severally guaranteed the Senior Notes. All of the subsidiary guarantors are 100% direct or indirect wholly owned subsidiaries of the parent, and all guarantees are full, unconditional and joint and several with respect to principal, interest and liquidated damages, if any. As such, we present condensed consolidating balance sheets as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, condensed consolidating statements of operations for the quarters and nine-month periods ended September 30, ~~2018~~2019 and ~~2017~~2018 and condensed consolidating statements of cash flows for the nine-month periods ended September 30, ~~2018~~2019 and ~~2017~~2018 for each of the Company (Parent), Consolidated Communications, Inc. (Subsidiary Issuer), guarantor subsidiaries and other non-guarantor subsidiaries with any consolidating adjustments. See Note 6 for more information regarding our Senior Notes.

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Condensed Consolidating Balance Sheets

(In thousands)


	September 30, 2019
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
ASSETS

Current assets:
Cash and cash equivalents	$	—	$	6,167	$	10	$	1	$	—	$	6,178
Accounts receivable, net		—		—		117,070		8,936		(98)		125,908
Income taxes receivable		5,737		17,647		—		—		(12,091)		11,293
Prepaid expenses and other current assets		—		—		41,939		131		—		42,070
Total current assets		5,737		23,814		159,019		9,068		(12,189)		185,449

Property, plant and equipment, net		—		—		1,794,830		66,203		—		1,861,033

Intangibles and other assets:
Investments		—		8,863		103,514		—		—		112,377
Investments in subsidiaries		3,558,290		3,516,368		16,724		—		(7,091,382)		—
Goodwill		—		—		969,093		66,181		—		1,035,274
Customer relationships, net		—		—		180,378		—		—		180,378
Other intangible assets		—		—		1,563		9,087		—		10,650
Advances due to/from affiliates, net		—		2,339,203		849,545		104,831		(3,293,579)		—
Deferred income taxes		80,325		7,150		—		—		(87,475)		—
Other assets		3,011		—		54,562		567		—		58,140
Total assets	$	3,647,363	$	5,895,398	$	4,129,228	$	255,937	$	(10,484,625)	$	3,443,301

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	—	$	32,241	$	—	$	—	$	32,241
Advance billings and customer deposits		—		—		46,803		1,319		—		48,122
Accrued compensation		—		—		57,552		845		—		58,397
Accrued interest		—		15,643		1,140		—		—		16,783
Accrued expense		284		3,450		70,580		753		(98)		74,969
Current portion of long term debt and finance lease obligations		—		18,350		9,351		168		—		27,869
Income tax payable		—		—		8,674		3,417		(12,091)		—
Total current liabilities		284		37,443		226,341		6,502		(12,189)		258,381

Long-term debt and finance lease obligations		—		2,270,901		14,149		127		—		2,285,177
Advances due to/from affiliates, net		3,293,579		—		—		—		(3,293,579)		—
Deferred income taxes		—		—		240,548		21,948		(87,475)		175,021
Pension and postretirement benefit obligations		—		—		273,755		12,891		—		286,646
Other long-term liabilities		—		28,765		48,751		856		—		78,372
Total liabilities		3,293,863		2,337,109		803,544		42,324		(3,393,243)		3,083,597
Shareholders’ equity:
Common Stock		721		—		17,411		30,000		(47,411)		721
Other shareholders’ equity		352,779		3,558,289		3,302,069		183,613		(7,043,971)		352,779
Total Consolidated Communications Holdings, Inc. shareholders’ equity		353,500		3,558,289		3,319,480		213,613		(7,091,382)		353,500
Noncontrolling interest		—		—		6,204		—		—		6,204
Total shareholders’ equity		353,500		3,558,289		3,325,684		213,613		(7,091,382)		359,704
Total liabilities and shareholders’ equity	$	3,647,363	$	5,895,398	$	4,129,228	$	255,937	$	(10,484,625)	$	3,443,301

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Condensed Consolidating Balance ~~Sheets~~Sheet

(In thousands)


	September 30, 2018
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated

													December 31, 2018
													Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	2,060	$	1,765	$	1	$	—	$	3,826	$	—	$	9,616	$	—	$	1	$	(18)	$	9,599
Accounts receivable, net		—		—		133,989		9,223		(135)		143,077		—		—		122,743		10,430		(37)		133,136
Income taxes receivable		—		14,566		4,196		—		(6,304)		12,458		10,272		—		790		10		—		11,072
Prepaid expenses and other current assets		—		2,979		37,302		307		—		40,588		—		2,465		41,547		324		—		44,336
Total current assets		—		19,605		177,252		9,531		(6,439)		199,949		10,272		12,081		165,080		10,765		(55)		198,143


Property, plant and equipment, net		—		—		1,888,980		66,773		—		1,955,753		—		—		1,861,009		66,117		—		1,927,126


Intangibles and other assets:
Investments		—		8,673		101,999		—		—		110,672		—		8,673		102,180		—		—		110,853
Investments in subsidiaries		3,628,467		3,523,025		19,152		—		(7,170,644)		—		3,587,612		3,505,477		15,949		—		(7,109,038)		—
Goodwill		—		—		969,093		66,181		—		1,035,274		—		—		969,093		66,181		—		1,035,274
Customer relationships, net		—		—		245,906		—		—		245,906		—		—		228,959		—		—		228,959
Other intangible assets		—		—		2,673		9,087		—		11,760		—		—		2,396		9,087		—		11,483
Advances due to/from affiliates, net		—		2,387,229		669,778		94,383		(3,151,390)		—		—		2,379,079		760,310		97,898		(3,237,287)		—
Deferred income taxes		33,416		—		—		—		(33,416)		—		76,758		—		—		—		(76,758)		—
Other assets		2,938		14,572		18,503		693		—		36,706		—		1,524		18,237		651		3,011		23,423
Total assets	$	3,664,821	$	5,953,104	$	4,093,336	$	246,648	$	(10,361,889)	$	3,596,020	$	3,674,642	$	5,906,834	$	4,123,213	$	250,699	$	(10,420,127)	$	3,535,261


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	—	$	15,717	$	—	$	—	$	15,717	$	—	$	—	$	32,502	$	—	$	—	$	32,502
Advance billings and customer deposits		—		—		48,520		1,519		—		50,039		—		—		46,316		1,408		—		47,724
Dividends payable		27,602		—		—		—		—		27,602		27,579		—		—		—		—		27,579
Accrued compensation		—		—		61,724		917		—		62,641		—		—		63,688		771		—		64,459
Accrued interest		—		17,109		764		—		—		17,873		—		8,430		802		—		—		9,232
Accrued expense		30		135		71,747		1,061		(135)		72,838		40		37		70,365		1,263		(55)		71,650
Current portion of long term debt and capital lease obligations		—		18,350		13,310		151		—		31,811
Income tax payable		3,200		—		—		3,104		(6,304)		—
Current portion of long term debt and finance lease obligations														—		18,350		11,968		150		—		30,468
Total current liabilities		30,832		35,594		211,782		6,752		(6,439)		278,521		27,619		26,817		225,641		3,592		(55)		283,614

Long-term debt and capital lease obligations		—		2,282,730		19,770		295		—		2,302,795

Long-term debt and finance lease obligations														—		2,285,341		17,988		256		—		2,303,585
Advances due to/from affiliates, net		3,151,390		—		—		—		(3,151,390)		—		3,237,287		—		—		—		(3,237,287)		—
Deferred income taxes		—		6,312		213,888		20,994		(33,416)		207,778		—		122		239,880		21,874		(73,747)		188,129
Pension and postretirement benefit obligations		—		—		282,968		11,455		—		294,423		—		—		295,815		18,319		—		314,134
Other long-term liabilities		—		—		23,045		922		—		23,967		—		6,942		22,305		898		—		30,145
Total liabilities		3,182,222		2,324,636		751,453		40,418		(3,191,245)		3,107,484		3,264,906		2,319,222		801,629		44,939		(3,311,089)		3,119,607
Shareholders’ equity:
Common Stock		713		—		17,411		30,000		(47,411)		713		712		—		17,411		30,000		(47,411)		712
Other shareholders’ equity		481,886		3,628,468		3,318,535		176,230		(7,123,233)		481,886		409,024		3,587,612		3,298,255		175,760		(7,061,627)		409,024
Total Consolidated Communications Holdings, Inc. shareholders’ equity		482,599		3,628,468		3,335,946		206,230		(7,170,644)		482,599		409,736		3,587,612		3,315,666		205,760		(7,109,038)		409,736
Noncontrolling interest		—		—		5,937		—		—		5,937		—		—		5,918		—		—		5,918
Total shareholders’ equity		482,599		3,628,468		3,341,883		206,230		(7,170,644)		488,536		409,736		3,587,612		3,321,584		205,760		(7,109,038)		415,654
Total liabilities and shareholders’ equity	$	3,664,821	$	5,953,104	$	4,093,336	$	246,648	$	(10,361,889)	$	3,596,020	$	3,674,642	$	5,906,834	$	4,123,213	$	250,699	$	(10,420,127)	$	3,535,261

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~~Condensed Consolidating Balance Sheet~~

~~(In thousands)~~

December 31, 2017


Parent

Subsidiary Issuer

Guarantors

Non-Guarantors

Eliminations

Consolidated

ASSETS

Current assets:

Cash and cash equivalents

$
—

$
8,919

$
6,738

$
—

$
—

$
15,657

Accounts receivable, net

—

—

114,303

7,701

(476)

121,528

Income taxes receivable

20,275

—

1,571

—

—

21,846

Prepaid expenses and other current assets

—

—

33,188

130

—

33,318

Assets held for sale

—

—

—

21,310

—

21,310

Total current assets

20,275

8,919

155,800

29,141

(476)

213,659

Property, plant and equipment, net

—

—

1,972,190

65,416

—

2,037,606

Intangibles and other assets:

Investments

—

8,495

100,363

—

—

108,858

Investments in subsidiaries

3,643,930

2,133,049

35,374

—

(5,812,353)

—

Goodwill

—

—

971,851

66,181

—

1,038,032

Customer relationships, net

—

—

293,300

—

—

293,300

Other intangible assets

—

—

4,396

9,087

—

13,483

Advances due to/from affiliates, net

—

2,441,690

555,332

92,615

(3,089,637)

—

Deferred income taxes

21,244

—

—

—

(21,244)

—

Other assets

—

1,307

12,844

37

—

14,188

Total assets

$
3,685,449

$
4,593,460

$
4,101,450

$
262,477

$
(8,923,710)

$
3,719,126

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$
—

$
—

$
24,143

$
—

$
—

$
24,143

Advance billings and customer deposits

—

—

41,026

1,500

—

42,526

Dividends payable

27,418

—

—

—

—

27,418

Accrued compensation

—

—

48,795

975

—

49,770

Accrued interest

—

8,824

519

—

—

9,343

Accrued expense

107

504

70,976

930

(476)

72,041

Current portion of long term debt and capital lease obligations

—

18,350

11,150

196

—

29,696

Liabilities held for sale

—

—

—

1,003

—

1,003

Total current liabilities

27,525

27,678

196,609

4,604

(476)

255,940

Long-term debt and capital lease obligations

—

2,298,970

12,139

405

—

2,311,514

Advances due to/from affiliates, net

3,089,637

—

—

—

(3,089,637)

—

Deferred income taxes

—

750

209,116

21,098

(21,244)

209,720

Pension and postretirement benefit obligations

—

—

315,129

19,064

—

334,193

Other long-term liabilities

—

1,761

31,030

1,026

—

33,817

Total liabilities

3,117,162

2,329,159

764,023

46,197

(3,111,357)

3,145,184

Shareholders’ equity:

Common Stock

708

—

17,411

30,000

(47,411)

708

Other shareholders’ equity

567,579

2,264,301

3,314,361

186,280

(5,764,942)

567,579

Total Consolidated Communications Holdings, Inc. shareholders’ equity

568,287

2,264,301

3,331,772

216,280

(5,812,353)

568,287

Noncontrolling interest

—

—

5,655

—

—

5,655

Total shareholders’ equity

568,287

2,264,301

3,337,427

216,280

(5,812,353)

573,942

Total liabilities and shareholders’ equity

$
3,685,449

$
4,593,460

$
4,101,450

$
262,477

$
(8,923,710)

$
3,719,126

~~Table of Contents~~

Condensed Consolidating Statements of Operations

(In thousands)


	Quarter Ended September 30, 2018
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated

													Quarter Ended September 30, 2019
													Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	—	$	—	$	337,963	$	13,233	$	(3,132)	$	348,064	$	—	$	—	$	324,546	$	11,899	$	(3,119)	$	333,326
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)		—		—		152,162		3,795		(3,015)		152,942		—		—		145,888		3,754		(3,006)		146,636
Selling, general and administrative expenses		1,569		—		81,083		3,009		(117)		85,544		2,115		—		65,975		2,123		(113)		70,100
Acquisition and other transaction costs		133		—		—		—		—		133
Depreciation and amortization		—		—		106,625		2,494		—		109,119		—		—		90,690		2,358		—		93,048
Operating income (loss)		(1,702)		—		(1,907)		3,935		—		326		(2,115)		—		21,993		3,664		—		23,542
Other income (expense):
Interest expense, net of interest income		(28)		(34,199)		684		19		—		(33,524)		(52)		(34,268)		42		28		—		(34,250)
Intercompany interest income (expense)		—		14,727		(14,710)		(17)		—		—		—		14,727		(14,705)		(22)		—		—
Gain on extinguishment of debt														—		1,121		—		—		—		1,121
Investment income		—		—		8,675		—		—		8,675		—		—		11,254		—		—		11,254
Equity in earnings of subsidiaries, net		(13,645)		865		377		—		12,403		—		1,982		14,801		357		—		(17,140)		—
Other, net		—		—		677		38		—		715		—		8		(53)		(29)		—		(74)
Income (loss) before income taxes		(15,375)		(18,607)		(6,204)		3,975		12,403		(23,808)		(185)		(3,611)		18,888		3,641		(17,140)		1,593
Income tax expense (benefit)		(461)		(4,962)		(4,292)		722		—		(8,993)		(442)		(5,593)		6,134		1,105		—		1,204
Net income (loss)		(14,914)		(13,645)		(1,912)		3,253		12,403		(14,815)		257		1,982		12,754		2,536		(17,140)		389
Less: net income attributable to noncontrolling interest		—		—		99		—		—		99		—		—		132		—		—		132
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	(14,914)	$	(13,645)	$	(2,011)	$	3,253	$	12,403	$	(14,914)	$	257	$	1,982	$	12,622	$	2,536	$	(17,140)	$	257


Total comprehensive income (loss) attributable to common shareholders	$	185	$	1,454	$	7,090	$	3,422	$	(11,966)	$	185	$	(1,529)	$	196	$	12,741	$	2,611	$	(15,548)	$	(1,529)

Table of Contents


	Quarter Ended September 30, 2018
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	—	$	—	$	337,963	$	13,233	$	(3,132)	$	348,064
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)		—		—		152,162		3,795		(3,015)		152,942
Selling, general and administrative expenses		1,702		—		80,661		3,009		(117)		85,255
Depreciation and amortization		—		—		106,625		2,494		—		109,119
Operating income (loss)		(1,702)		—		(1,485)		3,935		—		748
Other income (expense):
Interest expense, net of interest income		(28)		(34,199)		684		19		—		(33,524)
Intercompany interest income (expense)		—		14,727		(14,710)		(17)		—		—
Investment income		—		—		8,675		—		—		8,675
Equity in earnings of subsidiaries, net		(13,645)		865		377		—		12,403		—
Other, net		—		—		255		38		—		293
Income (loss) before income taxes		(15,375)		(18,607)		(6,204)		3,975		12,403		(23,808)
Income tax expense (benefit)		(461)		(4,962)		(4,292)		722		—		(8,993)
Net income (loss)		(14,914)		(13,645)		(1,912)		3,253		12,403		(14,815)
Less: net income attributable to noncontrolling interest		—		—		99		—		—		99
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	(14,914)	$	(13,645)	$	(2,011)	$	3,253	$	12,403	$	(14,914)

Total comprehensive income (loss) attributable to common shareholders	$	185	$	1,454	$	7,090	$	3,422	$	(11,966)	$	185


	Quarter Ended September 30, 2017
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated

														Nine Months Ended September 30, 2019
														Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	—	$	—	$	351,693	$	14,806	$	(3,170)	$	363,329		$	—	$	—	$	978,534	$	36,350	$	(9,377)	$	1,005,507
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)		—		—		148,352		3,086		(3,061)		148,377			—		—		436,972		10,801		(9,038)		438,735
Selling, general and administrative expenses		552		20		87,062		3,573		(109)		91,098			5,782		(193)		210,282		7,083		(339)		222,615
Acquisition and other transaction costs		27,139		—		—		—		—		27,139
Depreciation and amortization		—		—		101,779		2,627		—		104,406			—		—		282,282		7,313		—		289,595
Operating income (loss)		(27,691)		(20)		14,500		5,520		—		(7,691)			(5,782)		193		48,998		11,153		—		54,562
Other income (expense):
Interest expense, net of interest income		—		(36,041)		(317)		51		—		(36,307)			(107)		(102,984)		(215)		36		—		(103,270)
Intercompany interest income (expense)		—		14,728		(14,706)		(22)		—		—			—		44,181		(44,120)		(61)		—		—
Gain on extinguishment of debt															—		1,370		—		—		—		1,370
Investment income		—		—		9,594		—		—		9,594			—		190		30,415		—		—		30,605
Equity in earnings of subsidiaries, net		(7,137)		(2,975)		727		—		9,385		—			(10,109)		29,245		775		—		(19,911)		—
Other, net		—		—		(330)		51		—		(279)			1		50		(3,086)		(60)		—		(3,095)
Income (loss) before income taxes		(34,828)		(24,308)		9,468		5,600		9,385		(34,683)			(15,997)		(27,755)		32,767		11,068		(19,911)		(19,828)
Income tax expense (benefit)		(6,380)		(9,905)		6,622		3,374		—		(6,289)			(1,602)		(17,646)		10,105		3,424		—		(5,719)
Net income (loss)		(28,448)		(14,403)		2,846		2,226		9,385		(28,394)			(14,395)		(10,109)		22,662		7,644		(19,911)		(14,109)
Less: net income attributable to noncontrolling interest		—		—		54		—		—		54	��		—		—		286		—		—		286
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	(28,448)	$	(14,403)	$	2,792	$	2,226	$	9,385	$	(28,448)		$	(14,395)	$	(10,109)	$	22,376	$	7,644	$	(19,911)	$	(14,395)


Total comprehensive income (loss) attributable to common shareholders	$	(27,848)	$	(13,803)	$	3,335	$	2,350	$	8,118	$	(27,848)		$	(34,187)	$	(29,901)	$	24,411	$	7,855	$	(2,365)	$	(34,187)


	Nine Months Ended September 30, 2018
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	—	$	—	$	1,021,141	$	42,610	$	(9,427)	$	1,054,324
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)		—		—		454,261		12,050		(9,095)		457,216
Selling, general and administrative expenses		4,570		—		239,236		9,461		(332)		252,935
Depreciation and amortization		—		—		321,246		7,513		—		328,759
Operating income (loss)		(4,570)		—		6,398		13,586		—		15,414
Other income (expense):
Interest expense, net of interest income		(81)		(100,507)		1,397		112		—		(99,079)
Intercompany interest income (expense)		—		44,181		(44,128)		(53)		—		—
Investment income		—		178		28,821		—		—		28,999
Equity in earnings of subsidiaries, net		(33,396)		8,188		5,147		—		20,061		—
Other, net		—		—		765		78		—		843
Income (loss) before income taxes		(38,047)		(47,960)		(1,600)		13,723		20,061		(53,823)
Income tax expense (benefit)		(1,192)		(14,564)		(4,769)		3,275		—		(17,250)
Net income (loss)		(36,855)		(33,396)		3,169		10,448		20,061		(36,573)
Less: net income attributable to noncontrolling interest		—		—		282		—		—		282
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	(36,855)	$	(33,396)	$	2,887	$	10,448	$	20,061	$	(36,855)

Total comprehensive income (loss) attributable to common shareholders	$	(9,928)	$	(6,469)	$	13,523	$	10,957	$	(18,011)	$	(9,928)

Nine Months Ended September 30, 2018


Parent

Subsidiary Issuer

Guarantors

Non-Guarantors

Eliminations

Consolidated

Net revenues

$
—

$
—

$
1,021,141

$
42,610

$
(9,427)

$
1,054,324

Operating expenses:

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

—

—

454,261

12,050

(9,095)

457,216

Selling, general and administrative expenses

2,807

—

240,345

9,470

(332)

252,290

Acquisition and other transaction costs

1,763

—

—

—

—

1,763

Depreciation and amortization

—

—

321,246

7,513

—

328,759

Operating income (loss)

(4,570)

—

5,289

13,577

—

14,296

Other income (expense):

Interest expense, net of interest income

(81)

(100,507)

1,397

112

—

(99,079)

Intercompany interest income (expense)

—

44,181

(44,128)

(53)

—

—

Investment income

—

178

28,821

—

—

28,999

Equity in earnings of subsidiaries, net

(33,396)

8,188

5,147

—

20,061

—

Other, net

—

—

1,874

87

—

1,961

Income (loss) before income taxes

(38,047)

(47,960)

(1,600)

13,723

20,061

(53,823)

Income tax expense (benefit)

(1,192)

(14,564)

(4,769)

3,275

—

(17,250)

Net income (loss)

(36,855)

(33,396)

3,169

10,448

20,061

(36,573)

Less: net income attributable to noncontrolling interest

—

—

282

—

—

282

Net income (loss) attributable to Consolidated Communications Holdings, Inc.

$
(36,855)

$
(33,396)

$
2,887

$
10,448

$
20,061

$
(36,855)

Total comprehensive income (loss) attributable to common shareholders

$
(9,928)

$
(6,469)

$
13,523

$
10,957

$
(18,011)

$
(9,928)

Nine Months Ended September 30, 2017


Parent

Subsidiary Issuer

Guarantors

Non-Guarantors

Eliminations

Consolidated

Net revenues

$
—

$
—

$
669,597

$
43,161

$
(9,544)

$
703,214

Operating expenses:

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

—

—

291,531

8,231

(9,217)

290,545

Selling, general and administrative expenses

1,815

30

151,719

9,745

(327)

162,982

Acquisition and other transaction costs

30,663

—

—

—

—

30,663

Depreciation and amortization

—

—

179,338

7,746

—

187,084

Operating income (loss)

(32,478)

(30)

47,009

17,439

—

31,940

Other income (expense):

Interest expense, net of interest income

6

(99,232)

(767)

97

—

(99,896)

Intercompany interest income (expense)

—

44,182

(44,121)

(61)

—

—

Investment income

—

157

22,911

—

—

23,068

Equity in earnings of subsidiaries, net

(10,182)

17,931

949

—

(8,698)

—

Other, net

—

3

130

168

—

301

Income (loss) before income taxes

(42,654)

(36,989)

26,111

17,643

(8,698)

(44,587)

Income tax expense (benefit)

(7,793)

(19,541)

10,643

6,829

—

(9,862)

Net income (loss)

(34,861)

(17,448)

15,468

10,814

(8,698)

(34,725)

Less: net income attributable to noncontrolling interest

—

—

136

—

—

136

Net income (loss) attributable to Consolidated Communications Holdings, Inc.

$
(34,861)

$
(17,448)

$
15,332

$
10,814

$
(8,698)

$
(34,861)

Total comprehensive income (loss) attributable to common shareholders

$
(35,437)

$
(18,024)

$
16,620

$
11,112

$
(9,708)

$
(35,437)

Condensed Consolidating Statements of Cash Flows

(In thousands)


	Nine Months Ended September 30, 2018
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Consolidated

											Nine Months Ended September 30, 2019
											Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Consolidated
Net cash (used in) provided by operating activities	$	8,584	$	(41,559)	$	285,975	$	11,036	$	264,036	$	(847)	$	(47,687)	$	283,255	$	13,916	$	248,637


Cash flows from investing activities:
Purchases of property, plant and equipment		—		—		(178,774)		(7,991)		(186,765)		—		—		(177,459)		(6,884)		(184,343)
Proceeds from sale of assets		—		—		1,636		4		1,640		—		—		14,332		11		14,343
Proceeds from business dispositions		20,999		—		—		—		20,999
Proceeds from sale of investments		—		—		233		—		233
Distributions from investments												—		—		329		—		329
Other												—		—		(450)		—		(450)
Net cash used in investing activities		20,999		—		(176,905)		(7,987)		(163,893)		—		—		(163,248)		(6,873)		(170,121)


Cash flows from financing activities:
Proceeds from issuance of long-term debt		—		136,587		—		—		136,587		—		152,000		—		—		152,000
Payment of capital lease obligation		—		—		(9,434)		(156)		(9,590)
Payment of finance lease obligation												—		—		(9,632)		(111)		(9,743)
Payment on long-term debt		—		(156,350)		—		—		(156,350)		—		(142,763)		—		—		(142,763)
Repurchase of senior notes												—		(25,986)		—		—		(25,986)
Dividends on common stock		(82,621)		—		—		—		(82,621)		(55,445)		—		—		—		(55,445)
Transactions with affiliates, net		53,038		54,463		(104,609)		(2,892)		—		56,292		60,987		(110,347)		(6,932)		—
Net cash provided by (used in) financing activities		(29,583)		34,700		(114,043)		(3,048)		(111,974)		847		44,238		(119,979)		(7,043)		(81,937)
Increase (decrease) in cash and cash equivalents		—		(6,859)		(4,973)		1		(11,831)		—		(3,449)		28		—		(3,421)
Cash and cash equivalents at beginning of period		—		8,919		6,738		—		15,657		—		9,616		(18)		1		9,599
Cash and cash equivalents at end of period	$	—	$	2,060	$	1,765	$	1	$	3,826	$	—	$	6,167	$	10	$	1	$	6,178


	Nine Months Ended September 30, 2017
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Consolidated

											Nine Months Ended September 30, 2018
											Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Consolidated
Net cash (used in) provided by operating activities	$	(23,187)	$	(30,870)	$	157,051	$	22,230	$	125,224	$	8,584	$	(41,559)	$	285,975	$	11,036	$	264,036


Cash flows from investing activities:
Business acquisition, net of cash acquired		(862,385)		—		—		—		(862,385)
Purchases of property, plant and equipment		—		—		(108,816)		(10,473)		(119,289)		—		—		(178,774)		(7,991)		(186,765)
Proceeds from sale of assets		—		—		269		27		296		—		—		1,636		4		1,640
Net cash provided by (used in) investing activities		(862,385)		—		(108,547)		(10,446)		(981,378)

Proceeds from business dispositions												20,999		—		—		—		20,999
Distributions from investments												—		—		233		—		233
Net cash used in investing activities												20,999		—		(176,905)		(7,987)		(163,893)

Cash flows from financing activities:
Proceeds from issuance of long-term debt		—		1,031,325		—		—		1,031,325		—		136,587		—		—		136,587
Payment of capital lease obligation		—		—		(5,224)		(139)		(5,363)
Payment of finance lease obligation												—		—		(9,434)		(156)		(9,590)
Payment on long-term debt		—		(89,750)		—		—		(89,750)		—		(156,350)		—		—		(156,350)
Payment of financing costs		—		(16,732)		—		—		(16,732)
Share repurchases for minimum tax withholding		(41)		—		—		—		(41)
Dividends on common stock		(66,698)		—		—		—		(66,698)		(82,621)		—		—		—		(82,621)
Transactions with affiliates, net		952,661		(903,240)		(37,777)		(11,644)		—		53,038		54,463		(104,609)		(2,892)		—
Other		(350)		—		—		—		(350)
Net cash provided by (used in) financing activities		885,572		21,603		(43,001)		(11,783)		852,391		(29,583)		34,700		(114,043)		(3,048)		(111,974)
Increase (decrease) in cash and cash equivalents		—		(9,267)		5,503		1		(3,763)		—		(6,859)		(4,973)		1		(11,831)
Cash and cash equivalents at beginning of period		—		27,064		13		—		27,077		—		8,919		6,738		—		15,657
Cash and cash equivalents at end of period	$	—	$	17,797	$	5,516	$	1	$	23,314	$	—	$	2,060	$	1,765	$	1	$	3,826

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. Certain statements in this Quarterly Report on Form 10-Q, including those which relate to the impact on future revenue sources, pending and future regulatory orders, continued expansion of the telecommunications network and expected changes in the sources of our revenue and cost structure resulting from our entrance into new communications markets, are forward-looking statements and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These forward-looking statements reflect, among other things, our current expectations, plans, strategies and anticipated financial results. There are a number of risks, uncertainties and conditions that may cause our actual results to differ materially from those expressed or implied by these forward-looking statements. Many of these circumstances are beyond our ability to control or predict. Moreover, forward-looking statements necessarily involve assumptions on our part. These forward-looking statements generally are identified by the words ~~“believe”, “expect”, “anticipate”, “estimate”, “project”, “intend”, “plan”, “should”, “may”, “will”, “would”,~~“believe,” “expect,” “anticipate,” “estimate,” “project,” “intend,” “plan,” “should,” “may,” “will, ~~be”,~~” “would,” “will be,” “will continue” or similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Consolidated Communications Holdings, Inc. and its subsidiaries (“~~Consolidated”,~~Consolidated,” the ~~“Company”,~~“Company,” “we” or “our”) to be different from those expressed or implied in the forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements that appear throughout this report. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward–looking statements is included in our ~~2017~~2018 Annual Report on Form 10-K filed with the SEC. Furthermore, undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made. Except as required under federal securities laws or the rules and regulations of the SEC, we disclaim any intention or obligation to update or revise publicly any forward-looking statements. Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes to the financial statements (“Notes”) as of and for the quarter and nine months ended September 30, ~~2018~~2019 included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Throughout this MD&A, we refer to certain measures that are not measures of financial performance in accordance with accounting principles generally accepted in the United States (“US GAAP” or “GAAP”). We believe the use of these non-GAAP measures on a consolidated basis provides the reader with additional information that is useful in understanding our operating results and trends. These measures should be viewed in addition to, rather than as a substitute for, those measures prepared in accordance with GAAP. See the “Non-GAAP Measures” section below for a more detailed discussion on the use and calculation of these measures.

Overview

Consolidated ~~Communications~~ is a broadband and business communications provider offering a wide range of communication solutions to consumer, commercial and carrier customers across a 23-state service ~~area and~~area. We operate an advanced fiber network spanning ~~more than 36,000~~approximately 37,000 fiber route ~~miles.~~miles across many rural areas and metro communities. 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. We provide wholesale solutions to wireless and wireline carriers and other service providers including data, voice, network connections and custom fiber builds and last mile connections. 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. We provide wholesale solutions to carriers and other service providers including data, voice and network connections.

We generate the majority of our consolidated operating revenues primarily from monthly subscriptions to our ~~video,~~broadband, data and transport services (collectively “broadband services”) marketed to business and residential customers. Our acquisition of FairPoint Communications, Inc. (“FairPoint”) in 2017 provides us significantly greater scale and an expanded fiber network which allows for additional growth opportunities and expansion. Commercial and carrier services represent the largest source of our operating revenues and are expected to be key growth areas in the future. We ~~continue to focus~~are focused on expanding our broadband and commercial ~~growth opportunities~~product suite and are continually enhancing our ~~broadband services and expanding our~~ commercial product offerings ~~for both small and large businesses in order~~ to ~~capitalize on technological advances in~~meet the ~~industry. Our acquisition~~needs of ~~FairPoint Communications, Inc. (“FairPoint”), as described below, provides us significantly greater scale and an expanded fiber network which allows for additional growth~~

~~opportunities and expansion.~~our business customers. We leverage our advanced fiber ~~networks~~network and tailor our

Table of Contents

services ~~for business customers~~ by developing solutions to fit their specific ~~needs.~~needs and leveraging a value-based sales approach. In ~~addition,~~2018, we launched new, innovative business services in our northern New England markets including BusinessOne, a high-speed data and voice solution designed for small and medium-sized businesses; software defined wide area network (“SD-WAN”); and multi-protocol label switching (“MPLS”). Additionally, we are ~~expanding~~continuously enhancing our suite of managed and cloud services, which increases efficiency and enables greater scalability and reliability for businesses. We anticipate future momentum in commercial and carrier services as these products gain traction as well as from the demand from customers for additional bandwidth and data-based services.

We market our residential services by leading with broadband or bundled ~~services. Our “triple play” bundle~~services, which includes high-speed Internet, video and phone services. As consumer demands for bandwidth continue to increase, our focus is on enhancing our broadband services and progressively increasing ~~consumer data~~broadband speeds. We offer data speeds of up to 1 Gbps in select markets, and up to 100 Mbps in markets where 1 Gbps is not yet available, depending on the geographical region. AsAs of September 30, ~~2018,~~2019, approximately 42% of the homes we serve on our legacy Consolidated network had availability to broadband speeds of up to 100 Mbps. The majority of the homes in our ~~former FairPoint~~northern New England service areas have availability to broadband speeds of 20 mbps or less. As part of our integration initiatives ~~of FairPoint,~~in 2018, we ~~plan to increase~~upgraded broadband speeds to more than 500,000 ~~residents~~homes and small businesses across ~~the Northern~~our northern New England service ~~area by the end of 2018.~~area. The upgrades ~~are expected to~~ enable customers to receive broadband speeds up to three times ~~the speeds currently available and provide nearly 100,000 additional homes with access to data speeds of 1 Gbps.~~ faster than what was previously available.

Our competitive ~~consumer~~ broadband speeds ~~allow~~enable us to continue to meet the ~~needs of our customers and~~need for higher bandwidth from the growing consumer demand for ~~higher speeds driven by Over-The-Top (“OTT”)~~streaming live programming or in-demand content ~~viewing. The availability of higher broadband speeds also complements our TV Everywhere service, which allows our video subscribers to watch their favorite shows, movies and livestreams~~ on any device. ~~In addition, we offer other in-demand OTT content, including: DIRECTV®, DIRECTV NOWSM, fuboTV, Philo, HBO NOW®, FlixFling and VEMOX.~~

The ~~consumer~~consumers’ demand for ~~OTT~~streaming services, either to augment their current video subscription ~~viewing~~plan or to entirely replace their video subscription may impact our future video subscriber base ~~which could result in a decline in~~and, accordingly, reduce our video revenue as well as ~~a reduction in~~our video programing costs. Total video connections decreased 9%10% as of September 30, ~~2018~~2019 compared to the same period in ~~2017.~~2018. We believe the trend in changing consumer viewing habits will continue to impact our business results and complement our strategy of providing consumers with higher broadband ~~speed~~speeds to facilitate ~~OTT content viewing.~~streaming content. In 2019, we launched in select markets CCiTV, which is a customizable, cloud-enabled video service that supports a wide variety of viewing habits. Content can be delivered in high-definition quality to a big-screen TV, as well as to tablets and mobile devices. CCiTV helps align our product offering with consumer habits using an app-based approach to video as well as reduce our operating costs.

Operating revenues also continue to be impacted by the anticipated industry-wide trend of ~~a decline~~declines in voice services, access lines and related network access revenue. Many customers are choosing to subscribe to alternative communication services and competition for these subscribers continues to increase. Total voice connections decreased 7% as of September 30, ~~2018~~2019 compared to the same period in ~~2017.~~2018. Competition from wireless providers, Competitive Local Exchange Carriers and cable television providers has increased in recent years in the markets we serve. We have been able to mitigate some of the access line losses through marketing initiatives and product offerings, such as our VoIP service.

As discussed in the “Regulatory Matters” section below, our operating revenues are impacted by legislative or regulatory changes at the federal and state levels, which could reduce or eliminate the current subsidies revenue we receive. A number of proceedings and recent orders relate to universal service reform, intercarrier compensation and network access charges. There are various ongoing legal challenges to the orders that have been issued. As a result, it is not yet possible to fully determine the impact of the regulatory changes on our operations.

~~Significant~~ Recent Developments

~~Acquisitions~~Divestitures

~~FairPoint Communications, Inc.~~

On July ~~3, 2017,~~31, 2018, we completed ~~our merger with FairPoint (the “Merger”) and, pursuant to~~ the ~~terms~~sale of ~~a definitive agreement and plan~~all of ~~merger (as amended, the “Merger Agreement”), acquired all~~ the issued and outstanding shares of FairPoint in exchange for shares of our common stock. As a result, FairPoint became a wholly-owned subsidiary of the Company. FairPoint is an advanced communications provider to business, wholesale and residential customers within its service territory, which spans across 17 states. FairPoint owns and operates a robust fiber-based network with more than

~~Table of Contents~~

22,000 route miles of fiber, including 17,000 route miles of fiber in northern New England. The financial results for FairPoint have been included in our consolidated financial statements as of the acquisition date. The acquisition reflects our strategy to diversify revenue and cash flows among multiple products and to expand our network to new markets.

~~At the effective time of the Merger, each share of common~~ stock of FairPoint issued and outstanding immediately prior to the effective time of the Merger converted into and became the right to receive 0.7300 shares of common stock of Consolidated and cash in lieu of fractional shares, pursuant to the terms of the Merger Agreement. Based on the closing price of our common stock on the last complete trading day prior to the effective date of the Merger, the total value of the consideration exchanged was approximately $431.0 million, exclusive of debt of approximately $919.3 million. On the date of the Merger, we issued an approximate aggregate total of 20.1 million shares of our common stock to the former FairPoint stockholders and we assumed approximately 2,615,153 outstanding warrants, each eligible to purchase one share of the Company’s common stock at an exercise price of $66.86 per share, subject to adjustment in accordance with the warrant agreement. On January 24, 2018, all of the warrants expired in accordance with their terms without being exercised.

To finance the Merger, in December 2016, we secured committed debt financing through a $935.0 million incremental term loan facility, as described in the “Liquidity and Capital Resources” section below, that, in addition to cash on hand and other sources of liquidity, was used to repay and redeem certain existing indebtedness of FairPoint and pay the fees and expenses in connection with the Merger.

~~Divestitures~~

~~In connection with our acquisition of FairPoint, in August 2017, we entered into a letter of intent to sell~~ our subsidiaries Peoples Mutual Telephone Company and Peoples Mutual Long Distance Company (collectively, “Peoples”)~~, which were acquired as part~~ for total cash proceeds of ~~the acquisition~~approximately $21.0 million, net of ~~FairPoint.~~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. ~~In November 2017,~~The sale of Peoples has not been reported as discontinued operations in the ~~Company entered into an agreement to sell all~~condensed consolidated statements of operations as the annual revenue of these operations is less than 1% of the ~~issued and outstanding stock~~consolidated operating revenues. During the

Table of ~~Peoples in exchange for cash of approximately $21.0 million, net of certain contractual and customary working capital adjustments. The sale was completed on July 31, 2018 and during the~~ Contents

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 ~~statement~~statements of operations. We recognized a taxable gain on the transaction resulting in current income tax expense of $0.8 ~~million~~ during the quarter and nine months ended September 30, 2018 to reflect the tax impact of the divestiture.

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Results of Operations

The following tables reflect our financial results on a consolidated basis and key operating metrics as of and for the quarters and nine months ended September 30, ~~2018~~2019 and ~~2017.~~2018.

Financial Data

Quarter Ended September 30,

Nine Months Ended September 30,

(In millions, except for percentages)

2018

2017

$
Change

%
Change


2018

2017

$
Change

%
Change

Operating Revenues

Commercial and carrier:

Data and transport services (includes VoIP)

$
87.7

$
85.6

$
2.1

2
%

$
261.3

$
188.0

$
73.3

39
%

Voice services

50.1

54.3

(4.2)

(8)

153.6

98.5

55.1

56

Other

13.9

13.4

0.5

4

40.0

22.3

17.7

79

151.7

153.3

(1.6)

(1)

454.9

308.8

146.1

47

Consumer:

Broadband (VoIP and Data)

63.9

63.9

—

—

189.5

120.6

68.9

57

Video services

21.8

23.4

(1.6)

(7)

66.7

68.8

(2.1)

(3)

Voice services

50.7

57.2

(6.5)

(11)

154.4

83.1

71.3

86

136.4

144.5

(8.1)

(6)

410.6

272.5

138.1

51

  Subsidies

19.2

20.9

(1.7)

(8)

65.4

41.9

23.5

56

Network access

38.1

41.2

(3.1)

(8)

115.2

69.9

45.3

65

  Other products and services

2.7

3.4

(0.7)

(21)

8.2

10.1

(1.9)

(19)

Total operating revenues

348.1

363.3

(15.2)

(4)

1,054.3

703.2

351.1

50

Operating Expenses

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

152.9

148.3

4.6

3

457.2

290.5

166.7

57

Selling, general and administrative costs

85.6

91.2

(5.6)

(6)

252.3

163.0

89.3

55

Acquisition and other transaction costs

0.2

27.1

(26.9)

(99)

1.8

30.6

(28.8)

(94)

Depreciation and amortization

109.1

104.4

4.7

5

328.7

187.1

141.6

76

Total operating expenses

347.8

371.0

(23.2)

(6)

1,040.0

671.2

368.8

55

Income (loss) from operations

0.3

(7.7)

8.0

104

14.3

32.0

(17.7)

(55)

Interest expense, net

(33.5)

(36.3)

(2.8)

(8)

(99.0)

(99.9)

(0.9)

(1)

Other income

9.4

9.3

0.1

1

31.0

23.3

7.7

33

Income tax benefit

(9.0)

(6.3)

(2.7)

(43)

(17.2)

(9.9)

(7.3)

(74)

Net loss

(14.8)

(28.4)

13.6

48

(36.5)

(34.7)

(1.8)

(5)

Net income attributable to noncontrolling interest

0.1

—

0.1

100

0.3

0.1

0.2

200

Net loss attributable to common shareholders

$
(14.9)

$
(28.4)

$
13.5

48

$
(36.8)

$
(34.8)

$
(2.0)

(6)

Adjusted EBITDA (1)

$
133.7

$
137.3

$
(3.6)

(3)
%

$
404.9

$
280.9

$
124.0

44
%

~~(1)~~

~~A non-GAAP measure. See the “Non-GAAP Measures” section below for additional information and reconciliation to the most directly comparable GAAP measure.~~

~~Table of Contents~~

~~Key Operating Statistics~~

As of September 30,


2018

2017

Change

% Change

Consumer customers

641,845

683,519

(41,674)

(6)
%

Voice connections

921,896

990,162

(68,266)

(7)

Data connections

781,912

783,945

(2,033)

(0)

Video connections

95,889

105,480

(9,591)

(9)

Total connections

1,799,697

1,879,587

(79,890)

(4)
%

The comparability of our consolidated results of operations was impacted by the FairPoint acquisition that closed on July 3, 2017, as described above. FairPoint’s results are included in our consolidated financial statements as of the date of the acquisition.

~~Revenue from Contracts with Customers~~

~~We account for revenue in accordance with ASC 606 (“ASC 606” or the “new standard”),~~ ~~Revenue from Contracts with Customers~~, which we adopted on January 1, 2018. Promised services in our revenue contracts with customers are considered distinct and are accounted for as separate performance obligations. Revenue is recognized when or as performance obligations are satisfied. The impact on revenue as a result of the adoption of ASC 606 was not material.

In accordance with ASC 606, contract acquisition costs are deferred and amortized over the expected customer life. Historically, these costs were expensed as incurred. The change in accounting for contract acquisition costs was the largest impact to the Company upon adoption of ASC 606.

~~For a more complete discussion of the adoption impacts, refer to Note 1 to the Condensed Consolidated Financial Statements, included in this report in Part I - Item 1 “Financial Statements”.~~

~~Operating Revenues~~

~~Commercial and Carrier~~

~~Data and Transport Services~~

We provide a variety of business communication services to small, medium and large business customers, including many services over our advanced fiber network. The services we offer include scalable high speed broadband Internet access and VoIP phone services, which range from basic service plans to virtual hosted systems. In addition to Internet and VoIP services, we also offer private line data services to businesses that include dedicated Internet access through our Metro Ethernet network. Wide Area Network products include point-to-point and multi-point deployments from 2.5 Mbps to 10 Gbps to accommodate the growth patterns of our business customers. Data center and disaster recovery solutions provide a reliable and local colocation option for commercial customers. We also offer wholesale services to regional and national interexchange and wireless carriers, including cellular backhaul and other fiber transport solutions.

Data and transport services revenues increased $2.1 million and $73.3 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017 primarily due to the acquisition of FairPoint. Excluding the addition of FairPoint revenues for the first six months of 2018, data and transport services revenues increased $7.0 million during the nine months ended September 30, 2018 compared to the same period in 2017, primarily due to continued growth in Metro Ethernet and VoIP services.

~~Table of Contents~~

~~Voice Services~~

Voice services include basic local phone and long-distance service packages for business customers. The plans include options for voicemail, conference calling, linking multiple office locations and other custom calling features such as caller ID, call forwarding, speed dialing and call waiting. Services can be charged at a fixed monthly rate, a measured rate or can be bundled with selected services at a discounted rate. Through the acquisition of FairPoint, we are now a full service 9-1-1 provider and have installed and now maintain two turn-key, state of the art statewide next-generation emergency 9-1-1 systems. These systems, located in Maine and Vermont, have processed over a million calls relying on the caller's location information for routing. Next-generation emergency 9-1-1 systems are an improvement over traditional 9-1-1 and are expected to provide the foundation to handle future communication modes such as texting and video.

Voice services revenues decreased $4.2 million and increased $55.1 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017 primarily due to the acquisition of FairPoint. Excluding the addition of FairPoint revenues for the first six months of 2018, voice services revenues decreased $6.9 million during the nine months ended September 30, 2018 compared to the same period in 2017 due to a 6% decline in access lines as commercial customers are increasingly choosing alternative technologies, including our own VoIP product, and the broad range of features that Internet based voice services can offer.

~~Other~~

~~Other services include business equipment sales~~ ~~and related hardware and~~ ~~maintenance support, rental income of customer premise equipment,~~ ~~video services and other miscellaneous revenues~~. Other services revenues increased $0.5 million and $17.7 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017 primarily due to the acquisition of FairPoint. Excluding the addition of FairPoint revenues for the first six months of 2018, other services revenues increased $1.4 million during the nine months ended September 30, 2018 compared to the same period in 2017 due to a non-recurring fee recognized in the third quarter of 2018 as well as an increase in business system sales.

~~Consumer~~

~~Broadband Services~~

Broadband services include revenues from residential customers for subscriptions to our VoIP and data products. We offer high speed Internet access at speeds of up to 1 Gbps, depending on the nature of the network facilities that are available, the level of service selected and the location. Our VoIP digital phone service is also available in certain markets as an alternative to the traditional telephone line. Broadband services revenues increased $68.9 million during the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to the acquisition of FairPoint. Excluding the addition of FairPoint revenues for the first six months of 2018, broadband services revenues increased $0.2 million during the nine months ended September 30, 2018 compared to the same period in 2017 despite a 5% decrease in data connections as a result of price increases implemented during 2018. However, the increase in data revenue was offset by a decline in VoIP revenue during the same periods due to a 10% decline in connections as more consumers continue to rely exclusively on wireless service.

~~Table of Contents~~

~~Video Services~~

Depending on geographic market availability, our video services range from limited basic service to advanced digital television, which includes several plans, each with hundreds of local, national and music channels including premium and pay-per-view channels as well as video on-demand service. Certain customers may also subscribe to our advanced video services, which consist of high-definition television, digital video recorders (“DVR”) and/or a whole home DVR. Video services revenues decreased $1.6 million and $2.1 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017. Excluding the addition of FairPoint revenues for the first six months of 2018, video services revenues decreased $5.3 million during the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to a 10% decrease in connections as consumers are choosing to subscribe to alternative video services such as OTT content.

~~Voice Services~~

We offer several different basic local phone service packages and long-distance calling plans, including unlimited flat-rate calling plans. The plans include options for voicemail and other custom calling features such as caller ID, call forwarding and call waiting. Voice services revenues decreased $6.5 million and increased $71.3 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017 primarily due to the acquisition of FairPoint. Excluding the addition of FairPoint revenues for the first six months of 2018, voice services revenues decreased $8.6 million during the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to a 10% decline in access lines. The number of local access lines in service directly affects the recurring revenues we generate from end users and continues to be impacted by the industry-wide decline in access lines. We expect to continue to experience erosion in voice connections due to competition from alternative technologies, including our own competing VoIP product.

~~Subsidies~~

Subsidies consist of both federal and state subsidies, which are designed to promote widely available, quality broadband services at affordable prices with higher data speeds in rural areas. Subsidies revenues decreased $1.7 million and increased $23.5 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017 primarily due to the acquisition of FairPoint and a settlement for frozen local switching support (“LSS”) of $6.3 million recognized during the nine months ended September 30, 2018. The increase was reduced in part by the scheduled reductions in the annual Connect America Fund (“CAF”) Phase II funding rate in August 2018 and 2017, as well as a decrease in state funding support for our Texas Incumbent Local Exchange Carrier (“ILEC”). See the “Regulatory Matters” section below for further discussion of the LSS matter as well as the subsidies we receive.

~~Network Access Services~~

Network access services include interstate and intrastate switched access revenues, network special access services and end user access. Switched access revenues include access services to other communications carriers to terminate or originate long-distance calls on our network. Special access circuits provide dedicated lines and trunks to business customers and interexchange carriers. Network access revenues decreased $3.1 million and increased $45.3 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017 primarily due to the acquisition of FairPoint. Excluding the addition of FairPoint revenues for the first six months of 2018, network access services revenues decreased $6.4 million during the nine months ended September 30, 2018 compared to the same period in 2017 primarily as a result of the continuing decline in minutes of use, voice connections and carrier circuits; however, a portion of the decrease can be attributed to carriers shifting to our fiber Metro Ethernet product, contributing to the growth in that area.

~~Other Products and Services~~

Other products and services include revenues from telephone directory publishing, video advertising, billing and support services and other miscellaneous revenue. Other products and services revenues decreased $0.7 million and $1.9 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017.

~~Table of Contents~~

Excluding the addition of FairPoint revenues for the first six months of 2018, other products and services revenues decreased $2.6 million during the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to a decline in telephone directory advertising and ad insertion revenues.


	Quarter Ended September 30,								Nine Months Ended September 30,
(In millions, except for percentages)	2019		2018		$ Change		% Change		2019		2018		$ Change		% Change
Operating Revenues
Commercial and carrier:
Data and transport services (includes VoIP)	$	88.7	$	87.7	$	1.0	1	%	$	265.4	$	261.3	$	4.1	2	%
Voice services		46.6		50.1		(3.5)	(7)			141.8		153.6		(11.8)	(8)
Other		11.8		13.9		(2.1)	(15)			40.4		40.0		0.4	1
		147.1		151.7		(4.6)	(3)			447.6		454.9		(7.3)	(2)
Consumer:
Broadband (Data and VoIP)		65.5		63.9		1.6	3			192.7		189.5		3.2	2
Video services		20.5		21.8		(1.3)	(6)			61.5		66.7		(5.2)	(8)
Voice services		45.5		50.7		(5.2)	(10)			136.6		154.4		(17.8)	(12)
		131.5		136.4		(4.9)	(4)			390.8		410.6		(19.8)	(5)
Subsidies		18.1		19.2		(1.1)	(6)			54.3		65.4		(11.1)	(17)
Network access		34.2		38.1		(3.9)	(10)			105.0		115.2		(10.2)	(9)
Other products and services		2.5		2.7		(0.2)	(7)			7.8		8.2		(0.4)	(5)
Total operating revenues		333.4		348.1		(14.7)	(4)			1,005.5		1,054.3		(48.8)	(5)

Operating Expenses	~~Cost of Services and Products~~
Cost of services and products ~~increased $4.6 million~~(exclusive of depreciation and ~~$166.7 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017 due to the acquisition of FairPoint which accounted for $156.7 million~~ ~~of the year-to-date increase~~. Cost of goods sold related to equipment sales increased as a result of an increase in business system sales in the current year periods. Access expense increased due to new recurring circuit and co-location costs as a result of an increase in commercial services. Employee costs also increased primarily due to an increase in employee salaries and benefits in 2018. amortization)		~~Selling, General and Administrative Costs~~146.6		152.9		(6.3)	(4)			438.7		457.2		(18.5)	(4)
Selling, general and administrative costs ~~decreased $5.6 million and increased $89.3 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017~~ ~~primarily due to the addition of the operations for FairPoint for the first six months of 2018, which accounted for $89.8 million of the year-to-date increase~~. The decline in selling, general and administrative costs was primarily due to a reduction in sales commissions as a result of the adoption of ASC 606 in 2018, which requires contract acquisition costs to be deferred and amortized over the contract performance period. In 2017, these costs were expensed as incurred. Advertising expense also decreased due to a reduction in radio advertising and marketing promotions in the third quarter of 2018. However, these declines in expense were offset in part by integration costs incurred in 2018 associated with the FairPoint acquisition which included severance costs of $3.8 million and $5.7 million during the quarter and nine months ended September 30, 2018, respectively. In addition, professional fees increased in 2018 for legal, audit and tax services.		~~Acquisition and Other Transaction Costs~~70.1		Acquisition and other transaction costs decreased $26.9 million and $28.8 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017 as a result of the acquisition of FairPoint, which closed in July 2017. Transaction costs consist primarily of legal, finance and other professional fees incurred in connection with the Merger as well as expenses related to change-in-control payments to former employees of the acquired company.85.4		~~Depreciation and Amortization~~(15.3)	(18)			222.6		253.0		(30.4)	(12)
Depreciation and amortization		93.1		109.1		(16.0)	(15)			289.6		328.7		(39.1)	(12)
Total operating expenses		309.8		347.4		(37.6)	(11)			950.9		1,038.9		(88.0)	(8)
Income from operations		23.6		0.7		22.9	3,271			54.6		15.4		39.2	255
Interest expense, ~~increased $4.7 million~~net		(34.3)		(33.5)		0.8	2			(103.3)		(99.0)		4.3	4
Gain on extinguishment of debt		1.1		—		1.1	100			1.4		—		1.4	100
Other income		11.2		9.0		2.2	24			27.5		29.9		(2.4)	(8)
Income tax expense (benefit)		1.2		(9.0)		10.2	113			(5.7)		(17.2)		11.5	67
Net income (loss)		0.4		(14.8)		15.2	103			(14.1)		(36.5)		22.4	61
Net income attributable to noncontrolling interest		0.1		0.1		—	—			0.3		0.3		—	—
Net income (loss) attributable to common shareholders	$	0.3	$	(14.9)	$	15.2	102		$	(14.4)	$	(36.8)	$	22.4	61

Adjusted EBITDA⁽¹⁾	$	131.0	$	133.7	$	(2.7)	(2)	%	$	392.7	$	404.9	$	(12.2)	(3)	%

(1)

A non-GAAP measure. See the “Non-GAAP Measures” section below for additional information and ~~$141.6 million during the quarter and nine months ended September 30, 2018, respectively, compared~~reconciliation to the same periods in 2017, primarily as a result of the acquisition of FairPoint which accounted for $144.8 million of the year-to-date increase. The remaining change in depreciation and amortization expense during the quarter and nine months ended September 30, 2018 was primarily due to ongoing capital expenditures related to network enhancements and success-based capital projects for consumer and commercial services as well as an increase in amortization expense for customer relationships acquired in the FairPoint acquisition. These increases in depreciation and amortization expense were largely offset by certain assets and intangibles becoming fully depreciated or amortized in 2017.

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~~Reclassifications~~

~~Certain amounts in our 2017 condensed consolidated financial statements have been reclassified to conform to the current year presentation. In accordance with the adoption of ASU No. 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~, certain components of net periodic benefit cost were reclassified from operating expense to non-operating income (expense) in our condensed consolidated statement of operations. In addition, the classifications of certain operating revenues have been reclassified amongst the revenue categories based on a new methodology following the acquisition of FairPoint. These reclassifications had no effect on total revenue or net income.

~~Regulatory Matters~~

most directly comparable GAAP measure.

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Key Operating Statistics


	As of September 30,
	2019	2018	Change	% Change
Consumer customers	602,482	641,845	(39,363)	(6)	%

Voice connections	854,430	921,896	(67,466)	(7)
Data connections	784,151	781,912	2,239	0
Video connections	86,446	95,889	(9,443)	(10)
Total connections	1,725,027	1,799,697	(74,670)	(4)	%

Operating Revenues

Commercial and Carrier

Data and Transport Services

We provide a variety of business communication services to business customers of all sizes, including many services over our advanced fiber network. The services we offer include scalable high-speed broadband Internet access and VoIP phone services, which range from basic service plans to virtual hosted systems. In addition to Internet and VoIP services, we also offer a variety of commercial data connectivity services in select markets including Ethernet services; private line data services; SD-WAN and MPLS. Our networking services include point-to-point and multi-point deployments from 2.5 Mbps to 10 Gbps to accommodate the growth patterns of our business customers. We offer a suite of cloud-based services, which includes a hosted unified communications solution that replaces the customer’s on-site phone systems and data networks, managed network security services and data protection services. Data center and disaster recovery solutions provide a reliable and local colocation option for commercial customers. We also offer wholesale services to regional and national interexchange and wireless carriers, including cellular backhaul and other fiber transport solutions.

Data and transport services revenues increased $1.0 million and $4.1 million during the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to continued growth in Metro Ethernet and VoIP services.

Voice Services

Voice services include basic local phone and long-distance service packages for business customers. The plans include options for voicemail, conference calling, linking multiple office locations and other custom calling features such as caller ID, call forwarding, speed dialing and call waiting. Services can be charged at a fixed monthly rate, a measured rate or can be bundled with selected services at a discounted rate. We are also a full service 9-1-1 provider and have installed and now maintain two turn-key, state of the art statewide next-generation emergency 9-1-1 systems. These systems, located in Maine and Vermont, have processed over three million calls relying on the caller's location information for routing. Next-generation emergency 9-1-1 systems are an improvement over traditional 9-1-1 and are expected to provide the foundation to handle future communication modes such as texting and video.

Voice services revenues decreased $3.5 million and $11.8 million during the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to an 8% decline in access lines as commercial customers are increasingly choosing alternative technologies, including our own VoIP product, and the broad range of features that Internet based voice services can offer.

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Other

Other services include business equipment sales and related hardware and maintenance support, video services and other miscellaneous revenues. Other services revenues decreased $2.1 million during the quarter ended September 30, 2019, compared to the same period in 2018 primarily related to a decrease in business system sales as well as a non-recurring fee recognized in the third quarter of 2018. During the nine months ended September 30, 2019, other services revenues increased $0.4 million, compared to the same period in 2018 primarily related to an increase in custom construction and structured cabling projects as well as business system sales.

Consumer

Broadband Services

Broadband services include revenues from residential customers for subscriptions to our VoIP and data products. We offer high-speed Internet access at speeds of up to 1 Gbps, depending on the nature of the network facilities that are available, the level of service selected and the location. Our VoIP digital phone service is also available in certain markets as an alternative to the traditional telephone line. Broadband services revenues increased $1.6 million and $3.2 million during the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 despite a decrease in data and VoIP connections of 5% and 13%, respectively, primarily as a result of price increases implemented during 2019.

Video Services

Depending on geographic market availability, our video services range from limited basic service to advanced digital television, which includes several plans, each with hundreds of local, national and music channels including premium and Pay-Per-View channels as well as video On-Demand service. Certain customers may also subscribe to our advanced video services, which consist of high-definition television, digital video recorders (“DVR”) and/or a whole home DVR. Our TV Everywhere service allows our video subscribers to watch their favorite shows, movies and livestreams on any device. In addition, we offer other in-demand streaming content including: DIRECTV®, DIRECTV NOW^SM, fuboTV, Philo, HBO NOW®, FlixFling and VEMOX.

Video services revenues decreased $1.3 million and $5.2 million during the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to a 10% decrease in connections as consumers are choosing to subscribe to alternative video services such as over-the-top streaming services.

Voice Services

We offer several different basic local phone service packages and long-distance calling plans, including unlimited flat-rate calling plans. The plans include options for voicemail and other custom calling features such as caller ID, call forwarding and call waiting. Voice services revenues decreased $5.2 million and $17.8 million during the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to a 9% decline in access lines. The number of local access lines in service directly affects the recurring revenues we generate from end users and continues to be impacted by the industry-wide decline in access lines. We expect to continue to experience erosion in voice connections due to competition from alternative technologies, including our own competing VoIP product.

Subsidies

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Phase II funding rate in August 2018. See the “Regulatory Matters” section below for further discussion of the LSS matter as well as the subsidies we receive.

Network Access Services

Network access services include interstate and intrastate switched access revenues, network special access services and end user access. Switched access revenues include access services to other communications carriers to terminate or originate long-distance calls on our network. Special access circuits provide dedicated lines and trunks to business customers and interexchange carriers. Network access revenues decreased $3.9 million and $10.2 million during the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily as a result of the continuing decline in minutes of use, voice connections and carrier circuits; however, a portion of the decrease can be attributed to carriers shifting to our fiber Metro Ethernet product, contributing to the growth in that area.

Other Products and Services

Other products and services include revenues from telephone directory publishing, video advertising, billing and support services and other miscellaneous revenue. Other products and services revenues decreased $0.2 million and $0.4 million during the quarter and nine-months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to a decline in telephone directory advertising revenue.

Operating Expenses

Cost of Services and Products

Cost of services and products decreased $6.3 million and $18.5 million during the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to a decline in employee salaries and benefits in 2019 as a result of a reduction in headcount through cost savings initiatives. Pension costs also decreased as a result of the freezing of certain benefit plans in connection with new collective bargaining agreements ratified in 2018. Access expense decreased due to a decline in usage and rates. Video programming costs also decreased as a result of 10% decline in video connections, which was offset in part by an increase in programming costs per channel as costs continue to rise as a result of annual rate increases.

Selling, General and Administrative Costs

Selling, general and administrative costs decreased $15.3 million and $30.4 million during the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to operating synergies achieved in connection with the integration of FairPoint during 2018 which resulted in a reduction in operating costs and decline in integration and severance costs in 2019. The decline in selling, general and administrative costs was also due to a decline in employee salaries and benefits in 2019 as a result of a reduction in headcount as well as a decrease in incentive compensation. In addition, real estate taxes also decreased due to property tax abatements received in 2019.

Depreciation and Amortization

Depreciation and amortization expense decreased $16.0 million and $39.1 million during the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to outside plant and network cable assets and certain intangibles becoming fully depreciated or amortized, which was offset in part by ongoing capital expenditures related to network enhancements and success-based capital projects for consumer and commercial services as well as an increase in amortization expense for customer relationships.

Reclassifications

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

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Regulatory Matters

Our revenues are subject to broad federal and/or state regulation, which include such telecommunications services as local telephone service, network access service and toll service and are derived from various sources, including:


	●		Business and residential subscribers of basic exchange services;


	●		Surcharges mandated by state commissions and the Federal Communications Commission (“FCC”);

●

~~Business and residential subscribers of basic exchange services;~~


			~~Surcharges mandated by state commissions and the Federal Communications Commission (“FCC”);~~


			Long distance carriers for ~~network access service;~~


			~~Competitive access providers and commercial customers for network access service; and~~


			~~Support payments from federal or state programs.~~

The telecommunications industry is subject to extensive federal, state and local regulation. Under the Telecommunications Act of 1996, federal and state regulators share responsibility for implementing and enforcing statutes and regulations designed to encourage competition and to preserve and advance widely available, quality telephone service at affordable prices.

At the federal level, the FCC generally exercises jurisdiction over facilities and services of local exchange carriers, such as our rural telephone companies, to the extent they are used to provide, originate or terminate interstate or international communications. The FCC has the authority to condition, modify, cancel, terminate or revoke our operating authority for failure to comply with applicable federal laws or FCC rules, regulations and policies. Fines or penalties also may be imposed for any of these violations.

●

Competitive access providers and other local government agencies regulate the public rights-of-way necessary to install and operate networks. State regulators can sanction our rural telephone companies or revoke our certifications if we violate relevant laws or regulations.

~~FCC Matters~~

~~In general, telecommunications service in rural areas is more costly to provide than service in urban areas. The lower customer density means that switching and other facilities serve fewer~~commercial customers and loops are typically longer, requiring greater expenditures per customer to build and maintain. By supporting the high-cost of operations in rural markets, Universal Service Fund (“USF”) subsidies promote widely available, quality telephone service at affordable prices in rural areas.

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existing ICC scheme, established the CAF to replace support revenues provided by the current USF and redirected support from voice services to broadband services. In 2012, CAF Phase I was implemented, which froze USF support to price cap carriers until the FCC implemented a broadband cost model to shift support from voice services to broadband services. The Order also modified the methodology used for ICC traffic exchanged between carriers. The initial phase of ICC reform was effective on July 1, 2012, beginning the transition of our terminating switched access rates to bill-and-keep over a seven year period for our price cap study areas and nine years for our rate of return study areas, and as a result, we anticipate that our network access ~~revenue for 2018 will be reduced by approximately $3.0 million.~~ service; and


	●		Support payments from federal or state programs.

State regulatory commissions generally exercise jurisdiction over carriers’ facilities and services to the extent they are used to provide, originate or terminate intrastate communications. In particular, state regulatory agencies have substantial oversight over interconnection and network access by competitors of our incumbent local exchange companies. In addition, municipalities and other local government agencies regulate the public rights-of-way necessary to install and operate networks. State regulators can sanction our rural telephone companies or revoke our certifications if we violate relevant laws or regulations.

FCC Matters

In general, telecommunications service in rural areas is more costly to provide than service in urban areas. The lower customer density means that switching and other facilities serve fewer customers and loops are typically longer, requiring greater expenditures per customer to build and maintain. By supporting the high-cost of operations in rural markets, Universal Service Fund (“USF”) subsidies promote widely available, quality telephone service at affordable prices in rural areas.

An order adopted by the FCC in 2011 (the “Order”) has significantly impacted the amount of support revenue we receive from the USF, CAF and intercarrier compensation (“ICC”). The Order reformed core parts of the USF, broadly recast the existing ICC scheme, established the CAF to replace support revenues provided by the current USF and redirected support from voice services to broadband services. In 2012, CAF Phase I was implemented, which froze USF support to price cap carriers until the FCC implemented a broadband cost model to shift support from voice services to broadband services. The Order also modified the methodology used for ICC traffic exchanged between carriers. The initial phase of ICC reform was effective on July 1, 2012, beginning the transition of our terminating switched access rates to bill-and-keep over a seven year period for our price cap study areas and a nine year period for our rate of return study areas, and, as a result, we anticipate that our network access revenue for 2019 will be reduced by approximately $1.1 million.

In December 2014, the FCC released a report and order that addressed, among other things, the transition to CAF Phase II funding for price cap carriers and the acceptance criteria for CAF Phase II funding. For companies that accept the CAF Phase II funding, there is a three year transition period in instances where their current CAF Phase I funding

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exceeds the CAF Phase II funding. If CAF Phase II funding exceeds CAF Phase I funding, the transitional support is waived and CAF Phase II funding begins immediately. Companies are required to commit to a statewide build out requirement to 10 Mbps downstream and 1 Mbps upstream in funded locations.

We accepted the CAF Phase II funding in August 2015, which was effective as of January 1, 2015. The annual funding under CAF Phase I of $36.6 million was replaced by annual funding under CAF Phase II of $13.9 million through 2020. With the sale of our Iowa ILEC in 2016, this amount was further reduced to $11.5 million through 2020. Subsequently, with the acquisition of FairPoint, this amount increased to $48.9 million through 2020. With the sale of our Virginia ILEC in 2018, this amount was reduced to $48.1 million through 2020. The acceptance of CAF Phase II funding at a level lower than the frozen CAF Phase I support results in CAF Phase II transitional funding over a three year period based on the difference between the CAF Phase I funding and the CAF Phase II funding at the rates of 75% in the first year, 50% in the second year and 25% in the third year. We accepted CAF Phase II support in all of our operating states except Colorado and Kansas where the offered CAF Phase II support was declined. We continue to receive frozen CAF Phase I support in Colorado and Kansas until such time as the FCC CAF Phase II auction assigns support to another provider. The FCC auction process for CAF Phase II funding occurred during the third quarter of 2018. The winners have been announced and the impact to our future funding is expected to be determined in the fourth quarter of 2019.

The specific obligations associated with CAF Phase II funding include the obligation to serve approximately 124,500 locations by December 31, 2020 (with interim milestones of 40%, 60% and 80% completion by December 2017, 2018 and 2019, respectively); to provide broadband service to those locations with speeds of 10 Mbps downstream and 1 Mbps upstream; to achieve latency of less than 100 milliseconds; to provide data of at least 100 gigabytes per month; and to offer pricing reasonably comparable to pricing in urban areas. The Company met the milestones for 2017 and 2018 and currently is on target to achieve the 2019 milestone for all states where it operates.

The annual FCC price cap filing was made on June 17, 2019 and became effective on July 1, 2019. This filing reflects the phase out of CAF ICC support for our price cap companies. There is no change for our rate of return companies. The net impact is an increase of $0.5 million in support funding for the July 2019 through June 2020 tariff period.

In April 2019, the FCC Chairman Pai announced plans for the Rural Digital Opportunity Fund (also known as the CAF Phase III), a $20.4 billion fund to bring speeds of 25 Mbps downstream and 3 Mbps upstream to unserved and underserved areas of America. The Commission issued a Notice of Proposed Rulemaking (“NPRM”) at their August 2019 Open Commission Meeting. The NPRM is seeking comments on broadband mapping, CAF Phase II transitioning and the auction process. We are participating in the comment process.

Local Switching Support

In 2015, our subsidiary, FairPoint, which we acquired in July 2017, filed a petition (the “Petition”) with the FCC asking the FCC to direct National Exchange Carrier Association (“NECA”) to stop subtracting frozen LSS from FairPoint’s ICC Eligible Recovery for FairPoint’s rate of return ILECs that participate in the NECA pooling process. This issue is unique to rate of return affiliates of price cap carriers because such companies are considered price cap carriers for the FCC’s CAF funding, but remain rate of return for ICC purposes. Effective January 1, 2012, FairPoint rate of return ILECs were placed under the price cap CAF Phase I interim support mechanism, whereby the ILECs continued to receive frozen USF support for all forms of USF support received during 2011, including LSS. The rate of return rules for ICC included LSS support in that mechanism as well; therefore, NECA subtracted the frozen LSS support from the ICC Eligible Recovery amounts in accordance with FCC rules prohibiting duplicate recovery. When FairPoint accepted CAF Phase II support effective January 1, 2015, there was no longer any duplicate support and FairPoint requested NECA to stop subtracting LSS from FairPoint’s ICC Eligible Recovery. NECA declined to make that change, which led to FairPoint filing the Petition with the FCC asking the FCC to direct NECA to comply with FCC rules on ICC Eligible Recovery for rate of return ILECs. This issue also applies to Consolidated’s operations in Minnesota, which are also rate of return ILECs associated with a price cap company. The combined LSS support for the period from January 1, 2015 through December 31, 2017 was approximately $12.3 million. Our ongoing ICC Eligible Recovery support for 2018 increased by approximately $3.6 million, and thereafter, is expected to decline by 5% per year through 2021. On March 31, 2018, we obtained the required votes necessary for an approved order and on April 19, 2018, the FCC issued its order

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approving our Petition. As a result, during the nine months ended September 30, 2018, we recognized subsidies revenue of $5.4 million and a contingent asset of $8.7 million as a pre-acquisition gain contingency for the FairPoint LSS revenue prior to the acquisition date.

FCC Rules for Business Data Services

On April 20, 2017, the FCC adopted new rules for Business Data Services (“BDS”) which went into effect on August 1, 2017. BDS services are high speed data services provided on a point to point basis. The rules apply to interstate BDS services in areas served by price cap carriers. Under the new BDS rules, all packet-switched services and all transport services, channel terminations connecting wholesale customers to our networks and end user channel terminations in counties deemed competitive are competitive. End user channel terminations for DS0, DS1 and DS3 services are non-competitive in counties deemed by the FCC to be non-competitive, but are eligible for Phase I price flexibility. The FCC published a list of counties deemed competitive and non-competitive. Geographic areas previously under Phase II price flexibility will not be rate regulated for any BDS services.

In our price cap operations, we can continue to offer competitive BDS services under tariff or we can remove the services from tariff. All competitive services must be de-tariffed within three years of the effective date of the BDS rules. We have complete price flexibility for BDS services deemed competitive. As of October 23, 2018, the FCC issued an order giving rate of return carriers the option to elect a similar regulatory framework for their BDS services beginning in July 2019 and we have elected this option for all of our rate of return companies.

BDS services are subject to vigorous competition. We cannot determine the impact of the BDS rules on our revenues or operations.

State Matters

California

In an ongoing proceeding relating to the New Regulatory Framework, the California Public Utilities Commission (“CPUC”) adopted Decision 06-08-030 in 2006, which grants carriers broader pricing freedom in the provision of telecommunications services, bundling of services, promotions and customer contracts. This decision adopted a new regulatory framework, the Uniform Regulatory Framework (“URF”), which among other things (i) eliminates price regulation and allows full pricing flexibility for all new and retail services, (ii) allows new forms of bundles and promotional packages of telecommunication services, (iii) allocates all gains and losses from the sale of assets to shareholders and (iv) eliminates almost all elements of rate of return regulation, including the calculation of shareable earnings. In December 2010, the CPUC issued a ruling to initiate a new proceeding to assess whether, or to what extent, the level of competition in the telecommunications industry is sufficient to control prices for the four largest ILECs in the state. Subsequently, the CPUC issued a ruling temporarily deferring the proceeding. When the CPUC may open this proceeding is unclear and on hold at this time. The CPUC’s actions in this and future proceedings could lead to new rules and an increase in government regulation. The Company will continue to monitor this matter.

New York

With the acquisition of FairPoint, we assumed grants from the NY Broadband Program (the “NYBB”). In 2015, New York established the $500 million NYBB to provide state grant funding to support projects that deliver high-speed Internet access to unserved and underserved areas with a goal of achieving statewide broadband access in New York.

FairPoint received and accepted award letters in March 2017 for grant awards totaling $36.7 million from the NYBB Phase 2 grants. These grants supported, in part, the extension and upgrading of high-speed broadband services to over 10,321 locations in our New York service territory in 2018. We accounted for the Phase 2 reimbursements as a contribution in aid of construction given the nature of the arrangement.During the second quarter of 2017, a bid for Phase 3 grants was submitted by FairPoint, the final phase of the NYBB grants. On January 31, 2018, the state notified us that we were awarded a portion of our Phase 3 bid. However, based on a reduction in the number of locations awarded under the bid, we did not accept the Phase 3 grant.

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To be eligible for the grant, the network must be capable of delivering speeds of 100 Mbps or greater in unserved and underserved locations. As a condition of the grant, we are required to offer the NYBB’s Required Pricing Tier as a service option to residential users for a period of five years from completion of construction of the network. This pricing requirement will provide for broadband Internet service at minimum speeds of 25 Mbps downstream and 4 Mbps upstream.

FairPoint Merger Requirements

As part of our acquisition of FairPoint, we have regulatory commitments that vary by state, some of which require capital investments in our network over several years through 2020. The requirements include improved data speeds and other service quality improvements in select locations primarily in our northern New England, New York and Illinois markets. In New Hampshire and Vermont, we are required to invest 13% and 14%, respectively, of total state revenues in capital improvements per year for 2018, 2019 and 2020. For our service territory in Maine, we are required to make capital expenditures of $16.4 million per year from 2018 through 2020. In addition, we are required to invest an incremental $1.0 million per year in each of these three states for service quality improvements. In New York, we are required to invest $4.0 million over three years to expand the broadband network to over 300 locations. In Illinois, we were required to invest an additional $1.0 million by the end of 2018 to increase broadband availability and speeds in areas served by the FairPoint Illinois ILECs. We met all of the regulatory commitments for 2017 and 2018, and we currently expect to achieve all of the regulatory commitments for 2019.

Other Regulatory Matters

We are also subject to a number of regulatory proceedings occurring at the federal and state levels that may have a material impact on our operations. The FCC and state commissions have authority to issue rules and regulations related to our business. A number of proceedings are pending or anticipated that are related to such telecommunications issues as competition, interconnection, access charges, intercarrier compensation, broadband deployment, consumer protection and universal service reform. Some proceedings may authorize new services to compete with our existing services. Proceedings that relate to our cable television operations include rulemakings on set top boxes, carriage of programming, industry consolidation and ways to promote additional competition. There are various on-going legal challenges to the scope or validity of FCC orders that have been issued. As a result, it is not yet possible to fully determine the impact of the related FCC rules and regulations on our operations.

Non-Operating Items

Other Income and Expense, Net

Interest expense, net of interest income, increased $0.8 million and $4.3 million during the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to an increase in variable interest rates in the current year. The increase in interest expense was offset in part by a loss recognized on the change in the fair value of our re-designated interest rate swap agreements during the nine months ended September 30, 2018.

During the quarter and nine months ended September 30, 2019, we repurchased $23.1 million and $27.7 million, respectively, of the aggregate principal amount of our 6.50% Senior Notes due 2022, as described in the “Liquidity and Capital Resources” section below. In connection with the partial repurchase of the Senior Notes, we recognized a gain on extinguishment of debt of $1.1 million and $1.4 million during the quarter and nine months ended September 30, 2019, respectively.

Other income increased $2.2 million and decreased $2.4 million during the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. Investment income increased $2.6 million and $1.6 million during the quarter and nine months ended September 30, 2019, respectively, from our wireless partnership interests. However, pension and post-retirement expense increased $3.4 million during the nine months ended September 30, 2019 primarily due to a new post-retirement medical benefit provided to certain eligible represented employees as part of a new collective bargaining agreement ratified in August 2018.

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Income Taxes

Income taxes increased $10.2 million and $11.5 million during the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. Our effective tax rate was 75.6% and 37.8% for the quarters ended September 30, 2019 and 2018, respectively, and 28.8% and 32.1% for the nine months ended September 30, 2019 and 2018, respectively. During the quarter ended September 30, 2019, we settled a state examination and recorded an increase of $0.6 million in state tax expense. During the quarter ended September 30, 2018, adjustments were made to the provisional estimates that were disclosed as of December 31, 2017 under Staff Accounting Bulletin No. 118 for the Tax Cuts and Jobs Act of 2017 that resulted in a $4.4 million decrease to our tax provision. The Company recorded additional purchase accounting tax adjustments outside the measurement period related to the acquisition of FairPoint that resulted in a $1.1 million increase to our tax provision. On July 31, 2018, we completed the sale of all the issued and outstanding stock of Peoples in a taxable transaction. We recorded an increase in income tax expense of $0.8 million to reflect the difference in the reported investment and underlying tax basis. In addition, for the quarters and nine months ended September 30, 2019 and 2018, the effective tax rate differed from the federal and state statutory rates due to various permanent income tax differences and differences in allocable income for the Company’s state tax filings. Exclusive of these adjustments, our effective tax rate for the quarters and nine months ended September 30, 2019 and 2018 would have been approximately 35.4% and 26.8% and approximately 32.1% and 27.2%, respectively.

Non-GAAP Measures

In addition to the results reported in accordance with US GAAP, we also use certain non-GAAP measures such as EBITDA and adjusted EBITDA to evaluate operating performance and to facilitate the comparison of our historical results and trends. These financial measures are not measures of financial performance under US GAAP and should not be considered in isolation or as a substitute for net income as a measure of performance and net cash provided by operating activities as a measure of liquidity. They are not, on their own, necessarily indicative of cash available to fund cash needs as determined in accordance with GAAP. The calculation of these non-GAAP measures may not be comparable to similarly titled measures used by other companies. Reconciliations of these non-GAAP measures to the most directly comparable financial measures presented in accordance with GAAP are provided below.

EBITDA is defined as net earnings before interest expense, income taxes and depreciation and amortization. Adjusted EBITDA is comprised of EBITDA, adjusted for certain items as permitted or required under our credit facility as described in the reconciliations below. These measures are a common measure of operating performance in the telecommunications industry and are useful, with other data, as a means to evaluate our ability to fund our estimated uses of cash.

The following table is a reconciliation of net income (loss) to adjusted EBITDA for the quarters and nine months ended September 30, 2019 and 2018:


	Quarter Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, unaudited)	2019		2018		2019		2018
Net income (loss)	$	389	$	(14,815)	$	(14,109)	$	(36,573)
Add (subtract):
Interest expense, net of interest income		34,250		33,524		103,270		99,079
Income tax expense (benefit)		1,204		(8,993)		(5,719)		(17,250)
Depreciation and amortization		93,048		109,119		289,595		328,759
EBITDA		128,891		118,835		373,037		374,015

Adjustments to EBITDA:
Other, net ⁽¹⁾		(9,630)		5,208		(13,075)		(1,655)
Investment distributions ⁽²⁾		10,905		8,121		28,823		28,815
Gain on extinguishment of debt		(1,121)		—		(1,370)		—
Non-cash, stock-based compensation ⁽³⁾		1,928		1,538		5,240		3,754
Adjusted EBITDA	$	130,973	$	133,702	$	392,655	$	404,929

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(1)

Includes the FCC released a report and order that addressed, among other things, the transition to CAF Phase II funding for price cap carriers and the acceptance criteria for CAF Phase II funding. For companies that accept the CAF Phase II funding, there is a three year transition period in instances in which their current CAF Phase I funding exceeds the CAF Phase II funding. If CAF Phase II funding exceeds CAF Phase I funding, the transitional support is waived and CAF Phase II funding begins immediately. Companies are required to commit to a statewide build out requirement to 10 Mbps downstream and 1 Mbps upstream in funded locations.

We accepted the CAF Phase II funding in August 2015, which was effective as of January 1, 2015. The annual funding under CAF Phase I of $36.6 million was replaced by annual funding under CAF Phase II of $13.9 million through 2020. With the sale of our Iowa ILEC in 2016, this amount was further reduced to $11.5 million through 2020. Subsequently, with the acquisition of FairPoint, this amount increased to $48.9 million through 2020. With the sale of our Virginia ILEC in 2018, this amount was reduced to $48.1 million through 2020. The acceptance of CAF Phase II funding at a level lower than the frozen CAF Phase I support results in CAF Phase II transitional funding over a three year period based on the difference between the CAF Phase I funding and the CAF Phase II funding at the rates of 75% in the first year, 50% in the second year and 25% in the third year. We accepted CAF Phase II support in all of our operating states except Colorado and Kansas where the offered CAF Phase II support was declined. We continue to receive frozen CAF Phase I support in Colorado and Kansas until such time as the FCC CAF Phase II auction assigns support to another provider. The FCC auction process for CAF Phase II funding occurred during the quarter ended September 30, 2018. The winners have been announced and funding is expected to occur in the first half of 2019.

The specific obligations associated with CAF Phase II funding include the obligation to serve approximately 124,500 locations by December 31, 2020 (with interim milestones of 40%, 60% and 80% completion by December 2017, 2018 and 2019, respectively); to provide broadband service to those locations with speeds of 10 Mbps per second down and 1 Mbps up; to achieve latency of less than 100 milliseconds; to provide data of at least 100 gigabytes per month; and to offer pricing reasonably comparable to pricing in urban areas. The Company met this milestone for 2017 and as of September 30, 2018, we are on target to achieve the 2018 milestone.

The annual FCC price cap filing was made on June 18, 2018 and became effective on July 3, 2018. This filing reflects incorporating the Consolidated and FairPoint holding companies, which once combined changed the revenue threshold and amounts allocated to the price cap subsidiaries. The changes allowed some properties to raise their access recovery charge rates and was offset by a decrease in CAF ICC support. The net impact is an increase of $1.8 million in support funding for the July 2018 through June 2019 tariff period.

~~Local Switching Support~~

In 2015, FairPoint filed a Petition with the FCC asking the FCC to direct National Exchange Carrier Association (“NECA”) to stop subtracting frozen LSS from FairPoint’s ICC Eligible Recovery for FairPoint’s rate of return ILECs that participate in the NECA pooling process. This issue is unique to rate of return affiliates of price cap carriers because such companies are considered price cap carriers for the FCC’s CAF funding, but remain rate of return for ICC purposes. Effective January 1, 2012, FairPoint rate of return ILECs were placed under the price cap CAF Phase I interim support mechanism, whereby the ILECs continued to receive frozen USF support for all forms of USF support received during 2011, including LSS. The rate of return rules for ICC included LSS support in that mechanism as well; therefore, NECA subtracted the frozen LSS support from the ICC Eligible Recovery amounts in accordance with FCC rules prohibiting duplicate recovery. When FairPoint accepted CAF Phase II support effective January 1, 2015, there was no longer any duplicate support and FairPoint requested NECA to stop subtracting LSS from FairPoint’s ICC Eligible Recovery. NECA declined to make that change, which led to FairPoint filing a Petition with the FCC asking the FCC to direct NECA to comply with FCC rules on ICC

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Eligible Recovery for rate of return ILECs. This issue also applies to Consolidated’s operations in Minnesota, which are also rate of return ILECs associated with a price cap company. The combined LSS support for the period from January 1, 2015 through December 31, 2017 is approximately $12.3 million. Our ongoing ICC Eligible Recovery support for 2018 would increase by approximately $3.6 million, and thereafter, decline by 5% per year through 2021. On March 31, 2018, we obtained the required votes necessary for an approved order and on April 19, 2018, the FCC issued its order approving our petition. As a result, during the nine months ended September 30, 2018, we recognized subsidies revenue of $6.3 million and a contingent asset of $8.7 million as a pre-acquisition gain contingency for the FairPoint LSS revenue prior to the acquisition date.

~~FCC Rules for Business Data Services~~

On April 20, 2017, the FCC adopted new rules for Business Data Services (“BDS”) which went into effect August 1, 2017. BDS services are high speed data services provided on a point to point basis. The rules apply to interstate BDS services in areas served by price cap carriers. Under the new BDS rules, all packet-switched services and all transport services, channel terminations connecting wholesale customers to our networks and end user channel terminations in counties deemed competitive are competitive. End user channel terminations for DS0, DS1 and DS3 services are non-competitive in counties deemed by the FCC to be non-competitive, but are eligible for Phase I price flexibility. The FCC published a list of counties deemed competitive and non-competitive. Geographic areas previously under Phase II price flexibility will not be rate regulated for any BDS services.

In our price cap operations we can continue to offer competitive BDS services under tariff or we can remove the services from tariff. All competitive services must be detariffed within three years of the effective date of the BDS rules. We have complete price flexibility for BDS services deemed competitive.

BDS services are subject to vigorous competition. We cannot determine the impact of the BDS rules on our revenues or operations. The FCC has issued a Notice of Proposed Rulemaking to address BDS services for rate of return companies. The timing of an order is unknown at this time.

~~State Matters~~

~~California~~

~~Texas~~

The Texas Public Utilities Regulatory Act (“PURA”) directs the Public Utilities Commission of Texas (“PUCT”) to adopt and enforce rules requiring local exchange carriers to contribute to a state universal service fund that helps telecommunications providers offer basic local telecommunications service at reasonable rates in high-cost rural areas. The Texas Universal Service Fund is also used to reimburse telecommunications providers for revenues lost by providing lifeline service. Our Texas rural telephone companies receive disbursements from this fund.

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Our Texas ILECs have historically received support from two state funds, the small and rural incumbent local exchange company plan High Cost Fund (“HCF”) and the High Cost Assistance Fund (“HCAF”). The HCF is a line-based fund used to keep local rates low. The rate is applied on all residential lines and up to five single business lines. The amount we receive from the HCAF is a frozen monthly amount that was originally developed to offset high intrastate toll rates.

In September 2011, the Texas state legislature passed Senate Bill No. 980/House Bill No. 2603 which, among other things, mandated the PUCT to review the Universal Service Fund and issue recommendations by January 1, 2013 with the intent to effectively reduce the size of the Universal Service Fund. ��This would be accomplished by implementing an urban floor to offset state funding reductions with a phase-in period of four years. The PUCT recommended that (i) frozen line counts be lifted effective September 1, 2013 and (ii) rural and urban local rate benchmarks be developed. The large company fund review was completed in September 2012 and the PUCT addressed the small fund participants in Docket 41097 ~~Rate Rebalancing~~ ~~(“Docket 41097”), as discussed below.~~

In June 2013, the Texas state legislature passed Senate Bill No. 583 (“SB 583”). The provisions of SB 583 were effective September 1, 2013 and froze HCF and HCAF support for the remainder of 2013. As of January 1, 2014, our annual $1.4 million HCAF support was eliminated and the frozen HCF support returned to funding on a per line basis. In July 2013, the Company entered into a settlement agreement with the PUCT on Docket 41097, which was approved by the PUCT in August 2013. In accordance with the provisions of the settlement agreement, the HCF draw will be reduced by approximately $1.2 million annually over a four year period beginning June 1, 2014 through 2018. However, we have the ability to fully offset this reduction with increases to residential rates where market conditions allow.

In addition, the PUCT is required to develop a needs test for post-2017 funding and has held workshops on various proposals. The PUCT issued its recommendation to the Texas state commissioners in May 2014, which was approved in December 2014. The needs test allows for a one-time disaggregation of line rates from a per line flat rate, then a competitive test must be met to receive funding. The Company filed its submission for the needs test on December 28, 2016. The PUCT issued docket 46699 on January 4, 2017 to review the filing and a decision was granted in the second quarter of 2017. The order eliminated per line support for two of our exchanges resulting in a decline in annual revenues of approximately $0.4 million in 2018. All other exchanges continue to receive per line support.

~~New York~~

With the acquisition of FairPoint, we assumed grants from the NY Broadband Program (the "NYBB"). In 2015, New York established the $500 million NYBB to provide state grant funding to support projects that deliver high-speed Internet access to unserved and underserved areas with a goal of achieving statewide broadband access in New York by the end of 2018.

FairPoint received and accepted award letters in March 2017 for grant awards totaling $36.7 million from the NYBB Phase 2 grants. These grants will support, in part, the extension and upgrading of high-speed broadband services to over 10,321 locations in our New York service territory. During the second quarter of 2017, a bid for Phase 3 grants was submitted by FairPoint, the final phase of the NYBB grants. On January 31, 2018, the state notified us that we were awarded a portion of our Phase 3 bid. However, based on a reduction in the number of locations awarded under the bid, we did not accept the Phase 3 grant. We expect to treat the Phase 2 reimbursements as a contribution in aid of construction given the nature of the arrangement.

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~~FairPoint Merger Requirements~~

As part of our acquisition of FairPoint, we have regulatory commitments that vary by state, some of which require capital investments in our network over several years through 2020. The requirements include improved data speeds and other service quality improvements in select locations primarily in our Northern New England, New York and Illinois markets. In New Hampshire and Vermont, we are required to invest 13% and 14%, respectively, of total state revenues in capital improvements per year for 2018, 2019 and 2020. For our service territory in Maine, we are required to make capital expenditures of $16.4 million per year from 2018 through 2020. In addition, we are required to invest an incremental $1.0 million per year in each of these three states for service quality improvements. In New York, we are required to invest $4.0 million over three years to expand the broadband network to over 300 locations. In Illinois, we are required to invest an additional $1.0 million by December 31, 2018 to increase broadband availability and speeds in areas we serve by the FairPoint Illinois ILECs. We achieved all of the 2017 requirements and, as of September 30, 2018, we expect to achieve all of the 2018 requirements by December 31, 2018.

~~Other Regulatory Matters~~

~~Non-Operating Items~~

~~Other Income and Expense, Net~~

Interest expense, net of interest income, decreased $2.8 million and $0.9 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017 primarily due to ticking fees and the amortization of commitment fees incurred in 2017 related to the committed financing secured for the acquisition of FairPoint, as described in the “Liquidity and Capital Resources” section below. These increases were largely reduced by additional interest expense from the issuance of the $935.0 million incremental term loan discussed below during the quarter ended September 30, 2017 and an increase in variable interest rates in the current year.

Other income increased $0.1 million and $7.7 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017 primarily due to changes in investment incomeequity earnings from our ~~wireless partnership interests. Pension~~investments, dividend income, income attributable to noncontrolling interests in subsidiaries, acquisition and transaction related costs, including severance, non-cash pension and post-retirement ~~expense also declined in the current year periods.~~

~~Income Taxes~~

~~Income taxes decreased $2.7 million~~benefits and $7.3 million during the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017. Our effective tax rate was 37.8% and 18.1% for the quarters ended September 30, 2018 and 2017, respectively and 32.1% and 22.1% for the nine-month periods ended September 30, 2018 and 2017, respectively. During the quarter ended September 30, 2018, adjustments were made to the provisional estimates that were disclosed as of December 31, 2017 under Staff Accounting Bulletin No. 118 (“SAB 118”) for the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) that resulted in a $4.4 million decrease to our tax provision. The Company recorded additional purchase accounting tax adjustments outside the measurement period related to the acquisition of FairPoint that resulted in a $1.1 million increase to our tax provision. On July 31, 2018, we completed the sale of all the issued and outstanding stock of Peoples in a taxable transaction. We recorded an increase of $0.8 million to our deferred tax liabilities and a corresponding increase to our deferred tax provision to reflect the taxable temporary differences associated with the excess of the reported amount of its investment in Peoples over the underlying tax basis. For the quarter ended September 30, 2017, we recorded a net increase of $5.2 million to our net state deferred tax liabilities and a corresponding increase to

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our state tax provision due to the acquisition of FairPoint. The Company incurred non-deductible expenses in relation to the FairPoint acquisition that resulted in an increase to our tax provision of $2.3 million. The Company also recorded a number of purchase accounting tax adjustments, which did not impact our tax provision, related to the FairPoint acquisition that included release of a portion of the valuation allowances, state deferred tax rate changes and nondeductible transaction expenses. We recognized these in the quarter ended September 30, 2017. In addition, for the quarter and nine-month periods ended September 30, 2018 and 2017, the effective tax rate differed from the federal and state statutory rates due to various permanent income tax differences and differences in allocable income for the Company’s state tax filings. Exclusive of these adjustments, our effective tax rate would have been approximately 26.8% and 42.2% for the quarters ended September 30, 2018 and 2017, respectively and 27.2% and 39.4% for the nine-month periods ended September 30, 2018 and 2017, respectively. The primary driver in the difference in effective tax rates, exclusive of adjustments, in the 2018 and 2017 periods disclosed is the change in the corporate tax rate from 35% to 21% due to the enactment of the Tax Act.

~~Non-GAAP Measures~~

~~In addition to the results reported in accordance with US GAAP, we also use~~ certain non-GAAP measures such as EBITDA and adjusted EBITDA to evaluate operating performance and to facilitate the comparison of our historical results and trends. These financial measures are not measures of financial performance under US GAAP and should not be considered in isolation or as a substitute for net income as a measure of performance and net cash provided by operating activities as a measure of liquidity. They are not, on their own, necessarily indicative of cash available to fund cash needs as determined in accordance with GAAP. The calculation of these non-GAAP measures may not be comparable to similarly titled measures used by other ~~companies. Reconciliations of these non-GAAP measures to the most directly comparable financial measures presented in accordance with GAAP are provided below.~~miscellaneous items.

~~The following table is a reconciliation of net loss to adjusted EBITDA for the quarters and nine months ended September 30, 2018 and 2017:~~

Quarter Ended

Nine Months Ended

September 30,

September 30,

(In thousands, unaudited)

2018

2017

2018

2017

Net loss

$
(14,815)

$
(28,394)

$
(36,573)

$
(34,725)

Add (subtract):

Interest expense, net of interest income

33,524

36,307

99,079

99,896

Income tax benefit

(8,993)

(6,289)

(17,250)

(9,862)

Depreciation and amortization

109,119

104,406

328,759

187,084

EBITDA

118,835

106,030

374,015

242,393

Adjustments to EBITDA:

Other, net (1)

5,208

21,797

(1,655)

14,216

Investment distributions (2)

8,121

8,641

28,815

22,021

Non-cash, stock-based compensation (3)

1,538

889

3,754

2,319

Adjusted EBITDA

$
133,702

$
137,357

$
404,929

$
280,949

~~(1)~~

Includes the equity earnings from our investments, dividend income, income attributable to noncontrolling interests in subsidiaries, acquisition and transaction related costs, including severance, non-cash pension and post-retirement benefits and certain other miscellaneous items.

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~~(2)~~

(2) Includes all cash dividends and other cash ~~distributions received from our investments.~~

~~(3)~~

~~Represents compensation expenses in connection with the issuance of stock awards, which, because of the non-cash nature of these expenses, are excluded from adjusted EBITDA.~~

~~Liquidity and Capital Resources~~

~~Outlook and Overview~~

Our operating requirements have historically been funded from cash flows generated from our business and borrowings under our credit facilities. We expect that our future operating requirements will continue to be funded from cash flows from operating activities, existing cash and cash equivalents and, if needed, borrowings under our revolving credit facility and our ability to obtain future external financing. We anticipate that we will continue to use a substantial portion of our cash flow to fund capital expenditures, meet scheduled payments of long-term debt, make dividend payments and invest in future business opportunities.

~~The following table summarizes our cash flows:~~

Nine Months Ended September 30,
(In thousands)

2018

2017
Cash flows provided by (used in):

Operating activities

$
264,036

$
125,224
Investing activities

(163,893)

(981,378)
Financing activities

(111,974)

852,391
Decrease in cash and cash equivalents

$
(11,831)

$
(3,763)

~~Cash Flows Provided by Operating Activities~~

Net cash provided by operating activities was $264.0 million during the nine-month period ended September 30, 2018, an increase of $138.8 million compared to the same period in 2017. Cash flows provided by operating activities increased primarily as a result of the additional cash flows provided by the addition of the FairPoint operations as of July 2017 as well as additional transaction costs paid in 2017 related to the acquisition of FairPoint. Cash distributions received from our wireless partnerships also increased $6.8 million during the nine-month period ended September 30, 2018 compared to the same period in 2017. In addition, income tax refunds increased approximately $10.1 million from prior year. However, cash contributions to our defined benefit pension plans increased $16.9 million in 2018 compared to 2017 of which $11.8 million is attributable to the acquisition of FairPoint. investments.

~~Cash Flows Used In Investing Activities~~

~~Net cash used in investing activities was $163.9 million during the nine-month period ended September 30, 2018 and consisted primarily of cash used for capital expenditures.~~

~~Capital Expenditures~~

Capital expenditures continue to be our primary recurring investing activity and were $186.8 million during the nine-month period ended September 30, 2018, an increase of $67.5 million compared to the same period in 2017 driven by the acquisition of FairPoint in the quarter ended September 30, 2017. Capital expenditures for the remainder of 2018 are expected to be $53.0 million to $58.0 million, of which approximately 50% is planned for success-based capital projects for consumer and commercial initiatives. Capital expenditures for the remainder of 2018 and subsequent years will depend on various factors, including competition, changes in technology, regulatory changes and the timing in the deployment of new services. We expect to continue to invest in existing and new services and the expansion of our fiber network in order to retain and acquire more customers through a broader set of products and an expanded network footprint.

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~~Business Dispositions~~

~~During the quarter ended September 30, 2018, we received cash proceeds of $21.0 million for the sale of Peoples, our local exchange carrier in Virginia.~~

~~Cash Flows Used In Financing Activities~~

~~Net cash used in financing activities consists primarily of our proceeds from and principal payments on long-term borrowings and the payment of dividends.~~

~~Long-term Debt~~

~~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 Incremental Term Loan was issued on July 3, 2017 upon completion of the FairPoint Merger, as described below. 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, including certain of the FairPoint subsidiaries acquired in the Merger, with the exception of Consolidated Communications of Illinois Company and our majority-owned subsidiary, East Texas Fiber Line Incorporated.

In connection with the execution of the Merger Agreement, in December 2016, the Company entered into two amendments to its Credit Agreement to secure committed financing related to the acquisition of FairPoint. On December 14, 2016, we entered into Amendment No. 1 to the Credit Agreement and on December 21, 2016, the Company entered into Amendment No. 2 to the Credit Agreement, pursuant to which a syndicate of lenders agreed to provide an incremental term loan in an aggregate principal amount of up to $935.0 million under the Credit Agreement, subject to the satisfaction of certain conditions. The Incremental Term Loan was made pursuant to the Incremental Facility set forth in the Credit Agreement. Fees of $2.5 million paid to the lenders in connection with Amendment No. 1 are reflected as an additional discount on the Initial Term Loan and are being amortized over the term of the debt as interest expense. Ticking fees accrued on the incremental term loan commitments from January 15, 2017 through the July 3, 2017 Merger closing date at a rate of 3.00% plus LIBOR subject to a 1.00% LIBOR floor and became due and payable on the closing date. In connection with entering into the committed financing, commitment fees of $14.0 million were capitalized in December 2016 and were amortized to interest expense over the term of the commitment period through July 2017.

On July 3, 2017, the Merger with FairPoint was completed and the net proceeds from the incurrence of the Incremental Term Loan were used, in part, to repay and redeem certain existing indebtedness of FairPoint and to pay certain fees and
(3) Represents compensation expenses in connection with the ~~Merger and the related financing.  The Incremental Term Loan included an original issue discount~~issuance of ~~0.50% and has the same maturity date and interest rate as the Initial Term Loan.  The Incremental Term Loan requires quarterly principal payments of $2.34 million~~stock awards, which, ~~began in December 2017.~~
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In addition, effective contemporaneously with the Merger, the Company entered into Amendment No. 3 to the Credit Agreement to increase the permitted amount of outstanding letters of credit from $15.0 million to $20.0 million and to provide that certain existing letters of credit of FairPoint be deemed to be letters of credit under the Credit Agreement.
~~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 September 30, 2018, the borrowing margin for the three month period ending December 31, 2018 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~~ ~~September 30, 2018, alternate base rate borrowings of $16.0 million were outstanding under the revolving credit facility.~~ ~~At December 31, 2017,~~ t~~here were borrowings of $22.0 million outstanding under the revolving credit facility,which consisted of LIBOR-based borrowings of $17.0 million and alternate base rate borrowings of $5.0 million.  Stand-by letters of credit of~~ ~~$17.2~~ million were outstanding under our revolving credit facility as of September 30, 2018.  The stand-by letters of credit are renewable annually and reduce the borrowing availability under the revolving credit facility.  As of September 30, 2018, $76.8 million was available for borrowing under the revolving credit facility.
~~The weighted-average interest rate on outstanding borrowings under our credit facility was 5.27% and 4.58%~~ ~~as of September 30, 2018 and~~ ~~December 31, 2017, 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 September 30, 2018, 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 September 30, 2018, and including the $27.6 million dividend paid on November 1, 2018, we had $312.7 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~~because of the end of any fiscal quarter is greater than 5.10:1.00, we will be required to suspend dividends on our common stock unless otherwise permitted by an exception for dividends that may be paid from the portion of proceeds of any sale of equity not used to fund acquisitions or make other investments.  During any dividend suspension period, we will be required to repay debt in an amount equal to 50.0% of any increase in available cash, among other things.  In addition, we will not be permitted to pay dividends if an event of default under the Credit Agreement has occurred and is continuing.  Among other things, it will be an event of default if our total net leverage ratio 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 September 30, 2018, our total net leverage ratio under the Credit Agreement was 4.33:1.00, and our interest coverage ratio was 4.15:1.00.
~~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 certain of our
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~~wholly‑owned subsidiaries, including certain FairPoint subsidiaries, have fully and unconditionally guaranteed the Senior Notes.  The Senior Notes are senior unsecured obligations of the Company.~~
~~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 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 September 30, 2018, this ratio was 4.38:1.00.  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 $516.1 million have been paid since May 30, 2012, including the quarterly dividend declared in July 2018 and paid on November 1, 2018, there was $1,060.1 million of the $1,576.2 million of cumulative consolidated cash flow since May 30, 2012 available to pay dividends as of September 30, 2018.  As of September 30, 2018, the Company was in compliance with all terms, conditions and covenants under the indenture governing the Senior Notes.
~~Capital Leases~~
We lease certain facilities and equipment under various capital leases which expire between 2018 and 2027.  As of September 30, 2018, the present value of the minimum remaining lease commitments was approximately $33.5 million, of which $13.5 million was due and payable within the next twelve months. ~~The leases require total remaining rental payments of~~ ~~$39.6 million as of September 30, 2018, of which $2.2 million will be paid to LATEL LLC, a related party entity.~~
~~Dividends~~
We paid $82.6 million and $66.7 million in dividend payments to stockholders during the nine-month periods ended September 30, 2018 and 2017, respectively.  In July 2018, our board of directors declared a quarterly dividend of $0.38738 per common share, which was paid on November 1, 2018 to stockholders of record at the close of business on October 15, 2018.  In addition, on October 29, 2018, our board of directors declared its next quarterly dividend of $0.38738 per common share, which is payable on February 1, 2019 to stockholders of record at the close of business on January 15, 2019.  Our current annual dividend rate is approximately $1.55 per share.
The cash required to fund dividend payments is in addition to our other expected cash needs, which we expect to fund with cash flows from our operations.  In addition, we expect we will have sufficient availability under our revolving credit facility to fund dividend payments in addition to any expected fluctuations in working capital and other cash needs, although we do not intend to borrow under this facility to pay dividends.
We believe that our dividend policy will limit, but not preclude, our ability to grow.  If we continue paying dividends at the level currently anticipated under our dividend policy, we may not retain a sufficient amount of cash, and may need to seek refinancing to fund a material expansion of our business, including any significant acquisitions or to pursue growth opportunities requiring capital expenditures significantly beyond our current expectations.  In addition, because we expect a significant portion of cash available will be distributed to holders of common stock under our dividend policy, our ability
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~~to pursue any material expansion of our business will depend more than it otherwise would on our ability to obtain third-party financing.~~
~~Sufficiency of Cash Resources~~
~~The following table sets forth selected information regarding our financial condition.~~

September 30,

December 31,
��
(In thousands, except for ratio)

2018

2017

Cash and cash equivalents

$
3,826

$
15,657

Working capital (deficit)

(78,572)

(42,281)

Current ratio

0.72

0.83

Our net working capital position declined $36.3 million as of September 30, 2018 compared to December 31, 2017 primarily as a result of an increase in accrued compensation related to the timing of expenditures and an increase in accrued interest related to the timing of the semi-annual interest payments for our Senior Notes.  In addition, income tax receivable decreased $9.4 million as a result of tax refunds received during the nine months ended September 30, 2018.
Our most significant uses of funds in the remainder of 2018 are expected to be for: (i) dividend payments of approximately $27.6 million; (ii) interest payments on our indebtedness of approximately $41.0 million and principal payments on debt of $4.6 million; and (iii) capital expenditures of between $53.0 million and $58.0 million.  In the future our ability to use cash may be limited by our other expected uses of cash, including our dividend policy, and our ability to incur additional debt will be limited by our existing and future debt agreements.
We believe that cash flows from operating activities, together with our existing cash and borrowings available under our revolving credit facility, will be sufficient for at least the next twelve months to fund our current anticipated uses of cash.  After that, our ability to fund these expected uses of cash and to comply with the financial covenants under our debt agreements will depend on the results of future operations, performance and cash flow.  Our ability to fund these expected uses from the results of future operations will be subject to prevailing economic conditions and to financial, business, regulatory, legislative and other factors, many of which are beyond our control.
We may be unable to access the cash flows of our subsidiaries since certain of our subsidiaries are parties to credit or other borrowing agreements, or are subject to statutory or regulatory restrictions, that restrict the payment of dividends or making intercompany loans and investments, and those subsidiaries are likely to continue to be subject to such restrictions and prohibitions for the foreseeable future.  In addition, future agreements that our subsidiaries may enter into governing the terms of indebtedness may restrict our subsidiaries’ ability to pay dividends or advance cash in any other manner to us.
To the extent that our business plans or projections change or prove to be inaccurate, we may require additional financing or require financing sooner than we currently anticipate.  Sources of additional financing may include commercial bank borrowings, other strategic debt financing, sales of nonstrategic assets, vendor financing or the private or public sales of equity and debt securities.  There can be no assurance that we will be able to generate sufficient cash flows from operations in the future, that anticipated revenue growth will be realized or that future borrowings or equity issuances will be available in amounts sufficient to provide adequate sources of cash to fund our expected uses of cash.  Failure to obtain adequate financing, if necessary, could require us to significantly reduce our operations or level of capital expenditures which could have a material adverse effect on our financial condition and the results of operations.
~~Surety Bonds~~
In the ordinary course of business, we enter into surety, performance and similar bonds as required by certain jurisdictions in which we provide services.  As of September 30, 2018, we had approximately $5.7 millionnon-cash nature of these ~~bonds outstanding.~~
~~Defined Benefit Pension Plans~~
As required, we contribute to a qualified defined pension plan (the “Retirement Plan”) and non-qualified supplemental retirement plans (the “Supplemental Plans”) and other post-retirement benefit plans, which provide retirement benefits to
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certain eligible employees. In connection with the acquisition of FairPoint, we have assumed sponsorship of its two non-contributory qualified defined benefit pension plans (collectively with the Retirement Plan and Supplemental Plans, the “Pension Plans”) and post-retirement benefit plan as of the date of acquisition as described in the Note 9 to the Condensed Consolidated Financial Statements, included in this report in Part I – Item 1 “Financial Statements”. Contributionsexpenses, are ~~intended to provide for benefits attributed to service to date. Our funding policy is to contribute annually an actuarially determined amount consistent with applicable federal income tax regulations.~~
The cost to maintain our Pension Plans and future funding requirements are affected by several factors including the expected return on investment of the assets held by the Pension Plans, changes in the discount rate used to calculate pension expense and the amortization of unrecognized gains and losses. Returns generated on the Pension Plans assets have historically funded a significant portion of the benefits paid under the Pension Plans. We estimate the weighted average long-term rate of return on assets will be 7.03%. The Pension Plans invest in marketable equity securities which are exposed to changes in the financial markets. If the financial markets experience a downturn and returns fall below our estimate, we could be required to make a material contribution to the Pension Plans, which could adversely affect our cash flowsexcluded from ~~operations.~~
In 2018, we expect to make contributions totaling approximately $26.2 million to our Pension Plans and $10.0 million to our other post-retirement benefit plans, which represents an increase of $17.2 million from the total contributions made in 2017 of which $11.8 million is attributable to the acquisition of FairPoint. As of September 30, 2018, we have contributed $20.8 million and $7.9 million to our Pension Plans and our other post-retirement benefit plans, respectively. Our contribution amounts meet the minimum funding requirements as set forth in employee benefit and tax laws.
~~Income Taxes~~
The timing of cash payments for income taxes, which is governed by the Internal Revenue Service and other taxing jurisdictions, will differ from the timing of recording tax expense and deferred income taxes, which are reported in accordance with GAAP. For example, tax laws in effect regarding accelerated or “bonus” depreciation for tax reporting resulted in less cash payments than the GAAP tax expense. Acceleration of tax deductions could eventually result in situations where cash payments will exceed GAAP tax expense.
~~Regulatory Matters~~
adjusted EBITDA.

Liquidity and Capital Resources

Outlook and Overview

Our operating requirements have historically been funded from cash flows generated from our business and borrowings under our credit facilities. We expect that our future operating requirements will continue to be funded from cash flows from operating activities, existing cash and cash equivalents and, if needed, borrowings under our revolving credit facility and our ability to obtain future external financing. We anticipate that we will continue to use a substantial portion of our cash flow to fund capital expenditures, pay down long-term debt and invest in future business opportunities.

The following table summarizes our cash flows:


	Nine Months Ended September 30,
(In thousands)	2019		2018
Cash flows provided by (used in):
Operating activities	$	248,637	$	264,036
Investing activities		(170,121)		(163,893)
Financing activities		(81,937)		(111,974)
Change in cash and cash equivalents	$	(3,421)	$	(11,831)

Cash Flows Provided by Operating Activities

Net cash provided by operating activities was $248.6 million during the nine-month period ended September 30, 2019, a decrease of $15.4 million compared to the same period in 2018. Cash flows provided by operating activities decreased as a result of a slight decline in EBITDA primarily from of a decline in revenue which was mitigated in part by a reduction in operating expenses. Net cash provided by operating activities for the nine-month period ended September 30, 2018 also included income tax refunds of $9.2 million compared to income tax payments of $0.6 million during the nine-month period in 2019. In addition, interest payments increased approximately $6.4 million from prior year due to an increase in variable interest rates.

Cash Flows Used In Investing Activities

Net cash used in investing activities was $170.1 million during the nine-month period ended September 30, 2019 and consisted primarily of cash used for capital expenditures and cash proceeds from the sale of assets.

Capital expenditures continue to be our primary recurring investing activity and were $184.3 million and $186.8 million during the nine-month periods ended September 30, 2019 and 2018, respectively. Capital expenditures for the remainder of 2019 are expected to be $36.0 million to $41.0 million, of which approximately 65% is planned for success-based capital projects for consumer and commercial initiatives. Capital expenditures for the remainder of 2019 and subsequent years will depend on various factors, including competition, changes in technology, regulatory changes and the timing in the deployment of new services. We expect to continue to invest in existing and new services and the expansion of our fiber network in order to retain and acquire more customers through a broader set of products and an expanded network footprint.

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Cash proceeds from the sale of assets and business dispositions decreased $8.3 million during the nine-month period ended September 30, 2019 compared to the same period in 2018. During the nine-month period ended September 30, 2019, we received cash proceeds of approximately $12.4 million for the sale of utility poles located in the state of Vermont. We received cash proceeds of $21.0 million for the sale of Peoples, our local exchange carrier in Virginia, during the nine-month period ended September 30, 2018.

Cash Flows Used In Financing Activities

Net cash used in financing activities consists primarily of our proceeds from and principal payments on long-term borrowings, repurchases of debt, and the payment of dividends, prior to the elimination of our quarterly dividend payments.

Long-term Debt

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 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 September 30, 2019, the borrowing margin for the three month period ending December 31, 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 September 30, 2019, borrowings of $45.0 million were outstanding under the revolving credit facility, which consisted of LIBOR-based borrowings of $29.0 million and alternate base rate borrowings of $16.0 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 $16.0 million were outstanding under our revolving credit facility as of September 30, 2019. The stand-by letters of credit are renewable annually and reduce the borrowing availability under the revolving credit facility. As of September 30, 2019, $49.0 million was available for borrowing under the revolving credit facility.

The weighted-average interest rate on outstanding borrowings under our credit facility was 5.10% and 5.54% at September 30, 2019 and December 31, 2018, respectively. Interest is payable at least quarterly.

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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. 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 September 30, 2019, our total net leverage ratio under the Credit Agreement was 4.45:1.00, and our interest coverage ratio was 3.69:1.00. As of September 30, 2019, we were in compliance with the Credit Agreement covenants.

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

During the quarter and nine months ended September 30, 2019, we repurchased $23.1 million and $27.7 million, respectively, of the aggregate principal amount of the Senior Notes. In connection with the partial repurchase of the Senior Notes, we paid $21.7 million and $26.0 million and recognized a gain on extinguishment of debt of $1.1 million and $1.4 million during the quarter and nine months ended September 30, 2019, respectively.

Senior Notes Covenant Compliance

Finance Leases

We lease certain facilities and equipment under various finance leases which expire between 2019 and 2027. As of September 30, 2019, the present value of the minimum remaining lease commitments was approximately $23.8 million, of which $9.5 million was due and payable within the next twelve months. The leases require total remaining rental payments of $28.5 million as of September 30, 2019.

Dividends

We paid $55.4 million and $82.6 million in dividend payments to stockholders during the nine-month periods ended September 30, 2019 and 2018, respectively. On April 25, 2019, we announced the elimination of the payment of

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quarterly dividends on our stock beginning in the second quarter of 2019 in order to focus on deleveraging and create long-term value for our stockholders. Future dividend payments, if any, are at the discretion of our Board of Directors. Changes in our dividend program will depend on our earnings, capital requirements, financial condition, debt covenant compliance, expected cash needs and other factors considered relevant by our Board of Directors.

Sufficiency of Cash Resources

The following table sets forth selected information regarding our financial condition.


	September 30,		December 31,
(In thousands, except for ratio)	2019		2018
Cash and cash equivalents	$	6,178	$	9,599
Working capital (deficit)		(72,932)		(85,471)
Current ratio		0.72		0.70

Our net working capital deficit decreased $12.5 million as of September 30, 2019 compared to December 31, 2018 primarily as a result of the elimination during the nine months ended September 30, 2019 of the quarterly dividend of approximately $27.6 million and a decrease in accrued compensation of $6.1 million related to the timing of expenditures. These reductions in the working capital deficit were offset in part by the recognition of current lease liabilities of $6.5 million at September 30, 2019 as part of the adoption on January 1, 2019 of ASU No. 2016-02, Leases. Working capital was also impacted by an increase in accrued interest of $7.6 million at September 30, 2019 related to the timing of the semi-annual interest payments for our Senior Notes and a decline in accounts receivable of $7.2 million compared to December 31, 2018.

Our most significant uses of funds in the remainder of 2019 are expected to be for: (i) interest payments on our indebtedness of approximately $39.0 million and principal payments on debt of $4.6 million; and (ii) capital expenditures of between $36.0 million and $41.0 million. Based on available cash, we may utilize a portion of the dividend savings to reduce our long term debt or repurchase additional amounts of our Senior Notes in the open market or in private transactions if such purchases can be made on economically favorable terms. In the future, our ability to use cash may be limited by our other expected uses of cash and our ability to incur additional debt will be limited by our existing and future debt agreements.

We believe that cash flows from operating activities, together with our existing cash and borrowings available under our revolving credit facility, will be sufficient for at least the next twelve months to fund our current anticipated uses of cash. After that, our ability to fund these expected uses of cash and to comply with the financial covenants under our debt agreements will depend on the results of future operations, performance and cash flow. Our ability to fund these expected uses from the results of future operations will be subject to prevailing economic conditions and to financial, business, regulatory, legislative and other factors, many of which are beyond our control.

We may be unable to access the cash flows of our subsidiaries since certain of our subsidiaries are parties to credit or other borrowing agreements, or are subject to statutory or regulatory restrictions, that restrict the payment of dividends or making intercompany loans and investments, and those subsidiaries are likely to continue to be subject to such restrictions and prohibitions for the foreseeable future. In addition, future agreements that our subsidiaries may enter into governing the terms of indebtedness may restrict our subsidiaries’ ability to pay dividends or advance cash in any other manner to us.

To the extent that our business plans or projections change or prove to be inaccurate, we may require additional financing or require financing sooner than we currently anticipate. Sources of additional financing may include commercial bank borrowings, other strategic debt financing, sales of nonstrategic assets, vendor financing or the private or public sales of equity and debt securities. There can be no assurance that we will be able to generate sufficient cash flows from operations in the future, that anticipated revenue growth will be realized or that future borrowings or equity issuances will be available in amounts sufficient to provide adequate sources of cash to fund our expected uses of cash. Failure to obtain adequate financing, if necessary, could require us to significantly reduce our operations or level of capital expenditures which could have a material adverse effect on our financial condition and the results of operations.

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Surety Bonds

In the ordinary course of business, we enter into surety, performance and similar bonds as required by certain jurisdictions in which we provide services. As of September 30, 2019, we had approximately $5.7 million of these bonds outstanding.

Defined Benefit Pension Plans

As required, we contribute to qualified defined pension plans and non-qualified supplemental retirement plans (collectively the “Pension Plans”) and other post-retirement benefit plans, which provide retirement benefits to certain eligible employees as described in the Note 10 to the Condensed Consolidated Financial Statements, included in this report in Part I – Item 1 “Financial Statements”. Contributions are intended to provide for benefits attributed to service to date. Our funding policy is to contribute annually an actuarially determined amount consistent with applicable federal income tax regulations.

The cost to maintain our Pension Plans and future funding requirements are affected by several factors including the expected return on investment of the assets held by the Pension Plans, changes in the discount rate used to calculate pension expense and the amortization of unrecognized gains and losses. Returns generated on the Pension Plans assets have historically funded a significant portion of the benefits paid under the Pension Plans. We estimate the long-term rate of return on assets will be approximately 7.00%. The Pension Plans invest in marketable equity securities which are exposed to changes in the financial markets. If the financial markets experience a downturn and returns fall below our estimate, we could be required to make a material contribution to the Pension Plans, which could adversely affect our cash flows from operations.

In 2019, we expect to make contributions totaling approximately $27.5 million to our Pension Plans and $9.5 million to our other post-retirement benefit plans. As of September 30, 2019, we have contributed $21.7 million and $6.3 million to our Pension Plans and our other post-retirement benefit plans, respectively. Our contribution amounts meet the minimum funding requirements as set forth in employee benefit and tax laws.

Income Taxes

The timing of cash payments for income taxes, which is governed by the Internal Revenue Service and other taxing jurisdictions, will differ from the timing of recording tax expense and deferred income taxes, which are reported in accordance with GAAP. For example, tax laws in effect regarding accelerated or “bonus” depreciation for tax reporting resulted in less cash payments than the GAAP tax expense. Acceleration of tax deductions could eventually result in situations where cash payments will exceed GAAP tax expense.

Regulatory Matters

As discussed in the “Regulatory Matters” section above, in December 2014, the FCC released a report and order that significantly impacts the amount of support revenue we receive from the USF, CAF and ICC by redirecting support from voice services to broadband services. The annual funding under CAF Phase I of $36.6 million was replaced by annual funding under CAF Phase II of $13.9 million through 2020. With the sale of our Iowa ILEC in 2016, this amount was further reduced to $11.5 million through 2020. Subsequently, with the acquisition of FairPoint in July 2017, this amount increased to $48.9 million through 2020. With the sale of our Virginia ILEC in 2018, our annual funding was reduced to $48.1 million through 2020. The acceptance of CAF Phase II funding at a level lower than the frozen CAF Phase I support results in CAF Phase II Transitional funding over a three year period based on the difference between the CAF Phase I funding and the CAF Phase II funding at the rates of 75% in the first year, 50% in the second year and 25% in the third year.

The Order also modifies the methodology used for ICC traffic exchanged between carriers. As a result of implementing the provisions of the Order, our network access revenue decreased approximately $0.8 million and $2.4 million for the quarter and nine months ended September 30, 2018, respectively, compared to the same periods in 2017. We anticipate that network access revenue will continue to decline as a result of the Order through 2018 by as much as $3.0 million.

As discussed in the “Regulatory Matters” section above, the LSS matter settled in our favor during the nine months ended September 30, 2018. The combined LSS support for the period from January 1, 2015 through December 31, 2017 is approximately $12.3 million. Our ongoing ICC Eligible Recovery support for 2018 is expected to increase by approximately $3.6 million, and thereafter, decline by 5% per year through 2021. During the nine months ended September 30, 2018, we recognized subsidies revenue of $6.3 million and a contingent asset of $8.7 million as a pre-acquisition gain contingency for the FairPoint LSS revenue prior to the acquisition date.

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~~Critical Accounting Estimates~~

Our condensed consolidated financial statements and accompanying notes are prepared in accordance with US GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Our judgments are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making estimates about the carrying values of assets and liabilities that are not readily apparent from other sources. For a full discussion of our accounting estimates and assumptions that we have identified as critical in the preparation of our condensed consolidated financial statements, refer to our 2017 Annual Report on Form 10-K filed with the SEC.

~~Recent Accounting Pronouncements~~

For information regarding the impact of certain recent accounting pronouncements, see Note 1 “Summary of Significant Accounting Policies” to the Condensed Consolidated Financial Statements, included in this report in Part I - Item 1 “Financial Statements”.

~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

Our exposure to market risk is primarily related to the impact of interest rate fluctuations on our debt obligations. Market risk is the potential loss arising from adverse changes in market interest rates on our variable rate obligations. In order to manage the volatility relating to changes in interest rates, we utilize derivative financial instruments such as interest rate swaps to maintain a mix of fixed and variable rate debt. We do not use derivatives for trading or speculative purposes. 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. We calculate the potential change in interest expense caused by changes in market interest rates by determining the effect of the hypothetical rate increase on the portion of our variable rate debt that is not subject to a variable rate floor or hedged through the interest rate swap agreements.

As of September 30, 2018, the majority of our variable rate debt was subject to a 1.00% London Interbank Offered Rate floor thereby reducing the impact of fluctuations in interest rates. Based on our variable rate debt outstanding as of September 30, 2018, a 1.00% change in market interest rates would increase or decrease annual interest expense by approximately $6.5 million.

As of September 30, 2018, the fair value of our interest rate swap agreements amounted to a net asset of $17.6 million. Total pre-tax deferred gains related to our interest rate swap agreements included in accumulated other comprehensive loss was $22.0 million as of September 30, 2018.

~~ITEM 4. CONTROLS AND PROCEDURES~~

The Order also modifies the methodology used for ICC traffic exchanged between carriers. As a result of implementing the provisions of the Order, our network access revenue decreased approximately $0.3 million and $0.9 million for the quarter and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. We anticipate that network access revenue will continue to decline as a result of the Order through 2019 by as much as $1.1 million.

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As discussed in the “Regulatory Matters” section above, the LSS matter settled in our favor during the first quarter of 2018. Our ongoing ICC Eligible Recovery support for 2019 is approximately $3.4 million and is expected to decline by 5% per year through 2021. During the quarter and nine months ended September 30, 2019, we recognized subsidies revenue of $0.9 million and $2.7 million, respectively, related to our ongoing ICC Eligible Recovery support.

Critical Accounting Estimates

Recent Accounting Pronouncements

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 30, 2019, the majority of our variable rate debt was subject to a 1.00% London Interbank Offered Rate floor thereby reducing the impact of fluctuations in interest rates. Based on our variable rate debt outstanding as of September 30, 2019, a 1.00% change in market interest rates would increase or decrease annual interest expense by approximately $6.1 million.

As of September 30, 2019, the fair value of our interest rate swap agreements amounted to a net liability of $31.8 million. Total pre-tax deferred losses related to our interest rate swap agreements included in accumulated other comprehensive loss was $26.7 million as of September 30, 2019.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. In connection with the filing of this Form 10-Q, management evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design to

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provide reasonable assurance of achieving their objectives and operation of our disclosure controls and procedures as of September 30, 2019. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of September 30, 2019.

Changes in Internal Control Over Financial Reporting

Based upon the evaluation performed by our management, which was conducted with the participation of our Chief Executive Officer and Chief Financial Officer, there have been no changes in our internal controls over financial reporting during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

We are responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control systems are designed to provide reasonable assurance to the Company’s management, Board of Directors and Audit Committee regarding the reliability of financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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ITEM 6. EXHIBITS

31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as ~~appropriate,~~adopted pursuant to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overridingSection 906 of the ~~controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance~~Sarbanes-Oxley Act of ~~achieving their control objectives. In connection with the filing of this~~2002.

101

The following financial information from Consolidated Communications Holdings, Inc. Quarterly Report on Form 10-Q management evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design to provide reasonable assurance of achieving their objectives and operation of our disclosure controls and procedures as of September 30, 2018. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of September 30, 2018.

~~Table of Contents~~

~~Changes in Internal Control Over Financial Reporting~~

Based upon the evaluation performed by our management, which was conducted with the participation of our Chief Executive Officer and Chief Financial Officer, there have been no changes in our internal controls over financial reporting duringfor the quarter ended September 30, ~~2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except as noted below.~~

During the quarter ended March 31, 2018, we completed our migration of the enterprise resource planning (“ERP”) system used by FairPoint for financial reporting and human resources to the Company’s ERP system. This effort now provides a single platform for the Company to process financial information and human resources. The combined processes include accounts payable, purchasing, property, plant and equipment, payroll, general ledger and financial reporting. We believe that the migration to the single ERP system enhanced our internal controls over financial reporting and disclosure controls and procedures. As of September 30, 2018, management is2019, formatted in ~~the process of integrating FairPoint’s internal controls over financial reporting.~~

~~Limitations on the Effectiveness of Controls~~

~~Table of Contents~~

~~PART II. OTHER INFORMATION~~

~~ITEM 1. LEGAL PROCEEDINGS~~

From time to time we may be involved in litigation that we believe is of the type common to companies in our industry, including regulatory issues. While the outcome of these claims cannot be predicted with certainty, we do not believe that the outcome of any of these legal matters will have a material adverse impact on our business, results of operations, financial condition or cash flows. See Note 11 to theInline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated ~~Financial~~ Statements ~~included~~of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Changes in ~~this report in Part I - Item 1 “Financial Statements” for a discussion~~Shareholders’ Equity, (v) Condensed Consolidated Statements of ~~recent developments related to these legal proceedings.~~

~~Table of Contents~~

~~ITEM 6. EXHIBITS~~



~~31.1~~	~~Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~.

~~31.2~~	~~Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~32.1~~	~~Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~101~~	The following financial information from Consolidated Communications Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, and (v)Cash Flows, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.

104

Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.

(Registrant)

November 1, 2019

~~Table of Contents~~By:

/s/ C. Robert Udell Jr.

~~SIGNATURES~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.~~C. Robert Udell Jr.,

~~CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.~~

~~(Registrant)~~Chief Executive Officer


~~November 2, 2018~~	~~By:~~	~~/s/ C. Robert Udell Jr.~~
		~~C. Robert Udell Jr.,~~
		~~Chief Executive Officer~~
			(Principal Executive Officer)

November 1, 2019	By:	/s/ Steven L. Childers
		Steven L. Childers,
		Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)

~~November 2, 2018~~	~~By:~~	~~/s/ Steven L. Childers~~
		~~Steven L. Childers,~~
		~~Chief Financial Officer~~
		~~(Principal Financial Officer and Chief Accounting Officer)~~

		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3433

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5449

Item 4.	Controls and Procedures	5449

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	5651

Item 6.	Exhibits	5752

SIGNATURES		5853


	Nine Months Ended September 30,
	2018		2017

Net cash provided by operating activities	$	264,036	$	125,224

Cash flows from investing activities:
Business acquisition, net of cash acquired		—		(862,385)
Purchases of property, plant and equipment, net		(186,765)		(119,289)
Proceeds from sale of assets		1,640		296
Proceeds from business dispositions		20,999		—
Proceeds from sale of investments		233		—
Net cash used in investing activities		(163,893)		(981,378)

Cash flows from financing activities:
Proceeds from issuance of long-term debt		136,587		1,031,325
Payment of capital lease obligations		(9,590)		(5,363)
Payment on long-term debt		(156,350)		(89,750)
Payment of financing costs		—		(16,732)
Share repurchases for minimum tax withholding		—		(41)
Dividends on common stock		(82,621)		(66,698)
Other		—		(350)
Net cash used in financing activities		(111,974)		852,391
Change in cash and cash equivalents		(11,831)		(3,763)
Cash and cash equivalents at beginning of period		15,657		27,077
Cash and cash equivalents at end of period	$	3,826	$	23,314


(In thousands)
Cash and cash equivalents	$	56,980
Accounts receivable		72,206
Other current assets		22,012
Assets held for sale		20,843
Property, plant and equipment		1,047,000
Intangible assets		303,180
Other long-term assets		2,685
Total assets acquired		1,524,906

Current liabilities		123,109
Liabilities held for sale		443
Pension and other post-retirement obligations		219,298
Deferred income taxes		96,632
Other long-term liabilities		13,502
Total liabilities assumed		452,984
Net fair value of assets acquired		1,071,922
Goodwill		278,396
Total consideration transferred	$	1,350,318


(In thousands)
Current assets	$	219
Property, plant and equipment		4,749
Goodwill		16,098
Total assets	$	21,066

Current liabilities	$	209
Deferred taxes		148
Total liabilities	$	357


	Pension and
	Post-Retirement		Derivative
(In thousands)	Obligations		Instruments		Total
Balance at December 31, 2017	$	(48,464)	$	381	$	(48,083)
Other comprehensive income before reclassifications		8,173		13,596		21,769
Amounts reclassified from accumulated other comprehensive loss		2,972		2,186		5,158
Net current period other comprehensive income		11,145		15,782		26,927
Balance at September 30, 2018	$	(37,319)	$	16,163	$	(21,156)



	Quarter Ended September 30,				Nine Months Ended September 30,				Affected Line Item in the
(In thousands)	2018		2017		2018		2017		Statement of Income
Amortization of pension and post-retirement items:
Prior service credit	$	132	$	192	$	530	$	645	(a)
Actuarial loss		(1,623)		(1,325)		(4,526)		(4,625)	(a)
Settlement loss		—		—		(46)		—	(a)
		(1,491)		(1,133)		(4,042)		(3,980)	Total before tax
		395		466		1,070		1,580	Tax benefit
	$	(1,096)	$	(667)	$	(2,972)	$	(2,400)	Net of tax

Loss on cash flow hedges:
Interest rate derivatives	$	(1,159)	$	(369)	$	(2,961)	$	(1,098)	Interest expense
		304		151		775		431	Tax benefit
	$	(855)	$	(218)	$	(2,186)	$	(667)	Net of tax


	December 31, 2017
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	8,919	$	6,738	$	—	$	—	$	15,657
Accounts receivable, net		—		—		114,303		7,701		(476)		121,528
Income taxes receivable		20,275		—		1,571		—		—		21,846
Prepaid expenses and other current assets		—		—		33,188		130		—		33,318
Assets held for sale		—		—		—		21,310		—		21,310
Total current assets		20,275		8,919		155,800		29,141		(476)		213,659

Property, plant and equipment, net		—		—		1,972,190		65,416		—		2,037,606

Intangibles and other assets:
Investments		—		8,495		100,363		—		—		108,858
Investments in subsidiaries		3,643,930		2,133,049		35,374		—		(5,812,353)		—
Goodwill		—		—		971,851		66,181		—		1,038,032
Customer relationships, net		—		—		293,300		—		—		293,300
Other intangible assets		—		—		4,396		9,087		—		13,483
Advances due to/from affiliates, net		—		2,441,690		555,332		92,615		(3,089,637)		—
Deferred income taxes		21,244		—		—		—		(21,244)		—
Other assets		—		1,307		12,844		37		—		14,188
Total assets	$	3,685,449	$	4,593,460	$	4,101,450	$	262,477	$	(8,923,710)	$	3,719,126

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	—	$	24,143	$	—	$	—	$	24,143
Advance billings and customer deposits		—		—		41,026		1,500		—		42,526
Dividends payable		27,418		—		—		—		—		27,418
Accrued compensation		—		—		48,795		975		—		49,770
Accrued interest		—		8,824		519		—		—		9,343
Accrued expense		107		504		70,976		930		(476)		72,041
Current portion of long term debt and capital lease obligations		—		18,350		11,150		196		—		29,696
Liabilities held for sale		—		—		—		1,003		—		1,003
Total current liabilities		27,525		27,678		196,609		4,604		(476)		255,940

Long-term debt and capital lease obligations		—		2,298,970		12,139		405		—		2,311,514
Advances due to/from affiliates, net		3,089,637		—		—		—		(3,089,637)		—
Deferred income taxes		—		750		209,116		21,098		(21,244)		209,720
Pension and postretirement benefit obligations		—		—		315,129		19,064		—		334,193
Other long-term liabilities		—		1,761		31,030		1,026		—		33,817
Total liabilities		3,117,162		2,329,159		764,023		46,197		(3,111,357)		3,145,184
Shareholders’ equity:
Common Stock		708		—		17,411		30,000		(47,411)		708
Other shareholders’ equity		567,579		2,264,301		3,314,361		186,280		(5,764,942)		567,579
Total Consolidated Communications Holdings, Inc. shareholders’ equity		568,287		2,264,301		3,331,772		216,280		(5,812,353)		568,287
Noncontrolling interest		—		—		5,655		—		—		5,655
Total shareholders’ equity		568,287		2,264,301		3,337,427		216,280		(5,812,353)		573,942
Total liabilities and shareholders’ equity	$	3,685,449	$	4,593,460	$	4,101,450	$	262,477	$	(8,923,710)	$	3,719,126


	As of September 30,
	2018	2017	Change	% Change
Consumer customers	641,845	683,519	(41,674)	(6)	%

Voice connections	921,896	990,162	(68,266)	(7)
Data connections	781,912	783,945	(2,033)	(0)
Video connections	95,889	105,480	(9,591)	(9)
Total connections	1,799,697	1,879,587	(79,890)	(4)	%


	●
			~~Business and residential subscribers of basic exchange services;~~