UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2020~~2021

[ ] 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~~2116 South 17th Street, Mattoon, Illinois				~~61938-3987~~61938

	(Address of principal executive offices)				(Zip Code)

(217) 235-3311

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock - $0.01 par value	CNSL	The NASDAQ Global Select Market

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

Yes X No ____

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

Yes X No ____

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

Large accelerated filer Accelerated filer X

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 July ~~27, 2020,~~30, 2021, the registrant had ~~73,057,683~~98,754,185 shares of Common Stock outstanding.

Table of Contents

TABLE OF CONTENTS

		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2923

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4540

Item 4.	Controls and Procedures	4540

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	47

~~Item 1A.~~	~~Risk Factors~~	4742

Item 6.	Exhibits	4843

SIGNATURES		4945

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; Amounts in thousands except per share amounts)


	Quarter Ended				Six Months Ended				Quarter Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020
Net revenues	$	325,176	$	333,532	$	650,838	$	672,181	$	320,403	$	325,176	$	645,169	$	650,838

Operating expense:
Cost of services and products (exclusive of depreciation and amortization)		139,534		143,780		277,289		292,099		145,311		139,534		289,290		277,289
Selling, general and administrative expenses		64,796		78,148		132,613		152,515		68,998		64,796		135,848		132,613
Depreciation and amortization		81,066		97,304		163,804		196,547		76,079		81,066		151,690		163,804
Income from operations		39,780		14,300		77,132		31,020		30,015		39,780		68,341		77,132

Other income (expense):
Interest expense, net of interest income		(31,459)		(34,737)		(63,554)		(69,020)		(45,431)		(31,459)		(93,846)		(63,554)
Gain on extinguishment of debt		—		249		234		249
Gain (loss) on extinguishment of debt										(5,121)		—		(17,101)		234
Investment income		9,180		10,750		19,759		19,351		11,439		9,180		20,995		19,759
Change in fair value of contingent payment rights										(39,826)		—		(97,414)		—
Other, net		709		(1,652)		5,303		(3,021)		(752)		709		1,966		5,303
Income (loss) before income taxes		18,210		(11,090)		38,874		(21,421)		(49,676)		18,210		(117,059)		38,874

Income tax expense (benefit)		4,275		(3,778)		9,316		(6,923)
Income tax expense										5,413		4,275		113		9,316

Net income (loss)		13,935		(7,312)		29,558		(14,498)		(55,089)		13,935		(117,172)		29,558
Less: net income attributable to noncontrolling interest		95		75		171		154		267		95		283		171
Net income (loss) attributable to common shareholders	$	13,840	$	(7,387)	$	29,387	$	(14,652)	$	(55,356)	$	13,840	$	(117,455)	$	29,387

Net income (loss) per basic and diluted common shares attributable to common shareholders	$	0.19	$	(0.10)	$	0.40	$	(0.21)	$	(0.71)	$	0.19	$	(1.51)	$	0.40

Dividends declared per common share	$	—	$	—	$	—	$	0.39

See accompanying notes.

Table of Contents

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; Amounts in thousands)


	Quarter Ended				Six Months Ended				Quarter Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
	2020		2019		2020		2019		2021		2020		2021		2020

Net income (loss)	$	13,935	$	(7,312)	$	29,558	$	(14,498)	$	(55,089)	$	13,935	$	(117,172)	$	29,558
Pension and post-retirement obligations:					��
Amortization of actuarial losses and prior service cost to earnings, net of tax		335		1,026		671		2,052		162		335		324		671
Derivative instruments designated as cash flow hedges:
Change in fair value of derivatives, net of tax		(1,021)		(12,146)		(12,965)		(18,835)		(4)		(1,021)		309		(12,965)
Cumulative adjustment upon adoption of ASU 2017-12		—		—		—		(576)
Reclassification of realized loss (gain) to earnings, net of tax		3,135		(440)		4,743		(647)
Reclassification of realized loss to earnings, net of tax										3,426		3,135		6,862		4,743
Comprehensive income (loss)		16,384		(18,872)		22,007		(32,504)		(51,505)		16,384		(109,677)		22,007
Less: comprehensive income attributable to noncontrolling interest		95		75		171		154		267		95		283		171
Total comprehensive income (loss) attributable to common shareholders	$	16,289	$	(18,947)	$	21,836	$	(32,658)	$	(51,772)	$	16,289	$	(109,960)	$	21,836

See accompanying notes.

Table of Contents

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

June 30,

December 31,


2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$
45,876

$
12,395

Accounts receivable, net of allowance for credit losses

116,493

120,016

Income tax receivable

4,374

2,669

Prepaid expenses and other current assets

41,164

41,787

Total current assets

207,907

176,867

Property, plant and equipment, net

1,793,340

1,835,878

Investments

112,541

112,717

Goodwill

1,035,274

1,035,274

Customer relationships, net

138,744

164,069

Other intangible assets

10,557

10,557

Other assets

49,274

54,915

Total assets

$
3,347,637

$
3,390,277

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$
16,707

$
30,936

Advance billings and customer deposits

44,574

45,710

Accrued compensation

55,089

57,069

Accrued interest

7,793

7,874

Accrued expense

75,705

75,406

Current portion of long-term debt and finance lease obligations

24,889

27,301

Total current liabilities

224,757

244,296

Long-term debt and finance lease obligations

2,198,003

2,250,677

Deferred income taxes

179,573

173,027

Pension and other post-retirement obligations

285,253

302,296

Other long-term liabilities

87,843

72,730

Total liabilities

2,975,429

3,043,026

Commitments and contingencies (Note 12)

Shareholders’ equity:

Common stock, par value $0.01 per share; 100,000,000 shares authorized, 73,057,683 and 71,961,045 shares outstanding as of June 30, 2020 and December 31, 2019, respectively

731

720

Additional paid-in capital

495,459

492,246

Accumulated deficit

(42,104)

(71,217)

Accumulated other comprehensive loss, net

(88,419)

(80,868)

Noncontrolling interest

6,541

6,370

Total shareholders’ equity

372,208

347,251

Total liabilities and shareholders’ equity

$
3,347,637

$
3,390,277


	June 30,		December 31,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	199,314	$	155,561
Short-term investments		89,967		—
Accounts receivable, net of allowance for credit losses		128,601		137,646
Income tax receivable		1,441		1,072
Prepaid expenses and other current assets		51,427		46,382
Total current assets		470,750		340,661

Property, plant and equipment, net		1,831,150		1,760,152
Investments		109,542		111,665
Goodwill		1,035,274		1,035,274
Customer relationships, net		93,626		113,418
Other intangible assets		10,734		10,557
Other assets		135,724		135,573
Total assets	$	3,686,800	$	3,507,300

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	43,500	$	25,283
Advance billings and customer deposits		48,042		49,544
Accrued compensation		63,732		74,957
Accrued interest		26,894		21,194
Accrued expense		86,790		81,931
Current portion of long-term debt and finance lease obligations		6,474		17,561
Total current liabilities		275,432		270,470

Long-term debt and finance lease obligations		2,113,269		1,932,666
Deferred income taxes		173,691		171,021
Pension and other post-retirement obligations		281,597		300,373
Convertible security interest		259,409		238,701
Contingent payment rights		220,655		123,241
Other long-term liabilities		79,253		81,600
Total liabilities		3,403,306		3,118,072

Commitments and contingencies (Note 13)

Shareholders’ equity:
Common stock, par value $0.01 per share; 150,000,000 and 100,000,000 shares authorized as of June 30, 2021 and December 31, 2020, respectively, 80,887,879 and 79,227,607 shares outstanding as of June 30, 2021 and December 31, 2020, respectively		809		792
Additional paid-in capital		529,599		525,673
Accumulated deficit		(151,969)		(34,514)
Accumulated other comprehensive loss, net		(101,923)		(109,418)
Noncontrolling interest		6,978		6,695
Total shareholders’ equity		283,494		389,228
Total liabilities and shareholders’ equity	$	3,686,800	$	3,507,300

See accompanying notes.

Table of Contents

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited; Amounts in thousands)

Accumulated






Additional

Retained

Other

Non-


Common Stock

Paid-in

Earnings

Comprehensive

controlling

Shares

Amount

Capital

(Deficit)

Loss, net

Interest

Total

Balance at December 31, 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

Balance at December 31, 2019

71,961

$
720

$
492,246

$
(71,217)

$
(80,868)

$
6,370

$
347,251

Shares issued under employee plan, net of forfeitures

1,081

11

(11)

—

—

—

—

Non-cash, share-based compensation

—

—

890

—

—

—

890

Other comprehensive income (loss)

—

—

—

—

(10,000)

—

(10,000)

Cumulative adjustment: adoption of ASU 2016-13

—

—

—

(105)

—

—

(105)

Net income (loss)

—

—

—

15,547

—

76

15,623

Balance at March 31, 2020

73,042

$
731

$
493,125

$
(55,775)

$
(90,868)

$
6,446

$
353,659

Shares issued under employee plan, net of forfeitures

16

—

—

—

—

—

—

Non-cash, share-based compensation

—

—

2,334

—

—

—

2,334

Other comprehensive income (loss)

—

—

—

—

2,449

—

2,449

Cumulative adjustment: adoption of ASU 2016-13

—

—

—

(169)

—

—

(169)

Net income (loss)

—

—

—

13,840

—

95

13,935

Balance at June 30, 2020

73,058

$
731

$
495,459

$
(42,104)

$
(88,419)

$
6,541

$
372,208


								Accumulated
				Additional		Retained		Other		Non-
	Common Stock			Paid-in		Earnings		Comprehensive		controlling
	Shares	Amount		Capital		(Deficit)		Loss, net		Interest		Total

Balance at December 31, 2019	71,961	$	720	$	492,246	$	(71,217)	$	(80,868)	$	6,370	$	347,251
Shares issued under employee plan, net of forfeitures	1,081		11		(11)		—		—		—		—
Non-cash, share-based compensation	—		—		890		—		—		—		890
Other comprehensive income (loss)	—		—		—		—		(10,000)		—		(10,000)
Cumulative adjustment: adoption of ASU 2016-13	—		—		—		(105)		—		—		(105)
Net income (loss)	—		—		—		15,547		—		76		15,623
Balance at March 31, 2020	73,042	$	731	$	493,125	$	(55,775)	$	(90,868)	$	6,446	$	353,659
Shares issued under employee plan, net of forfeitures	16		—		—		—		—		—		—
Non-cash, share-based compensation	—		—		2,334		—		—		—		2,334
Other comprehensive income (loss)	—		—		—		—		2,449		—		2,449
Cumulative adjustment: adoption of ASU 2016-13	—		—		—		(169)		—		—		(169)
Net income (loss)	—		—		—		13,840		—		95		13,935
Balance at June 30, 2020	73,058	$	731	$	495,459	$	(42,104)	$	(88,419)	$	6,541	$	372,208

Balance at December 31, 2020	79,228	$	792	$	525,673	$	(34,514)	$	(109,418)	$	6,695	$	389,228
Shares issued under employee plan, net of forfeitures	755		8		(8)		—		—		—		—
Non-cash, share-based compensation	—		—		1,450		—		—		—		1,450
Other comprehensive income (loss)	—		—		—		—		3,911		—		3,911
Net income (loss)	—		—		—		(62,099)		—		16		(62,083)
Balance at March 31, 2021	79,983	$	800	$	527,115	$	(96,613)	$	(105,507)	$	6,711	$	332,506
Shares issued under employee plan, net of forfeitures	904		9		(9)		—		—		—		—
Non-cash, share-based compensation	—		—		2,493		—		—		—		2,493
Other comprehensive income (loss)	—		—		—		—		3,584		—		3,584
Net income (loss)	—		—		—		(55,356)		—		267		(55,089)
Balance at June 30, 2021	80,887	$	809	$	529,599	$	(151,969)	$	(101,923)	$	6,978	$	283,494

See accompanying notes.

Table of Contents

CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; Amounts in thousands)

Six Months Ended June 30,

2020

2019

Cash flows from operating activities:

Net income (loss)

$
29,558

$
(14,498)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

163,804

196,547

Cash distributions from wireless partnerships in excess of (less than) current earnings

144

(1,212)

Pension and post-retirement contributions in excess of expense

(15,985)

(12,612)

Stock-based compensation expense

3,224

3,312

Amortization of deferred financing costs

2,406

2,439

Gain on extinguishment of debt

(234)

(249)

Other, net

(4,230)

795

Changes in operating assets and liabilities:

Accounts receivable, net

3,379

(399)

Income tax receivable

9,093

(7,460)

Prepaid expenses and other assets

2,320

(967)

Accounts payable

(14,229)

12,244

Accrued expenses and other liabilities

2,471

(14,678)

Net cash provided by operating activities

181,721

163,262

Cash flows from investing activities:

Purchases of property, plant and equipment, net

(96,237)

(119,768)

Proceeds from sale of assets

6,073

14,203

Proceeds from sale of investments

426

329

Other

—

(450)

Net cash used in investing activities

(89,738)

(105,686)

Cash flows from financing activities:

Proceeds from issuance of long-term debt

40,000

107,000

Payment of finance lease obligations

(5,119)

(6,811)

Payment on long-term debt

(89,175)

(97,175)

Repurchase of senior notes

(4,208)

(4,294)

Dividends on common stock

—

(55,445)

Net cash used in financing activities

(58,502)

(56,725)

Change in cash and cash equivalents

33,481

851

Cash and cash equivalents at beginning of period

12,395

9,599

Cash and cash equivalents at end of period

$
45,876

$
10,450


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	(117,172)	$	29,558
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		151,690		163,804
Cash distributions from wireless partnerships in excess of (less than) current earnings		1,238		144
Pension and post-retirement contributions in excess of expense		(18,213)		(15,985)
Stock-based compensation expense		3,943		3,224
Amortization of deferred financing costs and discounts		8,649		2,406
Noncash interest expense on convertible security interest		16,104		—
Loss (gain) on extinguishment of debt		17,101		(234)
Loss on change in fair value of contingent payment rights		97,414		—
Other, net		3,731		(4,230)
Changes in operating assets and liabilities:
Accounts receivable, net		9,045		3,379
Income tax receivable		(343)		9,093
Prepaid expenses and other assets		(5,603)		2,320
Accounts payable		18,217		(14,229)
Accrued expenses and other liabilities		30		2,471
Net cash provided by operating activities		185,831		181,721

Cash flows from investing activities:
Purchases of property, plant and equipment, net		(195,196)		(96,237)
Purchase of investments		(89,967)		—
Proceeds from sale of assets		89		6,073
Proceeds from sale of investments		1,198		426
Net cash used in investing activities		(283,876)		(89,738)

Cash flows from financing activities:
Proceeds from bond offering		400,000		—
Proceeds from issuance of long-term debt		150,000		40,000
Payment of finance lease obligations		(2,936)		(5,119)
Payment on long-term debt		(397,000)		(89,175)
Retirement of senior notes		—		(4,208)
Payment of financing costs		(8,266)		—
Net cash provided by (used in) financing activities		141,798		(58,502)
Change in cash and cash equivalents		43,753		33,481
Cash and cash equivalents at beginning of period		155,561		12,395
Cash and cash equivalents at end of period	$	199,314	$	45,876

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

Leveraging our advanced fiber network spanning ~~more than 45,850~~approximately 50,000 fiber route miles, we offer residential high-speed Internet, video, phone and home security services as well as multi-service residential and small business bundles. Our business product suite ~~includes~~includes: data and Internet solutions, voice, data center services, security services, managed and IT services, and an expanded suite of cloud services. As of June 30, ~~2020,~~2021, we had approximately ~~809,000~~752,000 voice connections, ~~791,000~~797,000 data connections and ~~80,000~~71,000 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 ~~2019~~2020 Annual Report on Form 10-K filed with the SEC.

Recent Developments

Searchlight Investment

On September 13, 2020, we entered into an investment agreement (the “Investment Agreement”) with an affiliate of Searchlight Capital Partners, L.P. (“Searchlight”). In connection with the Investment Agreement, affiliates of Searchlight have committed to invest up to an aggregate of $425.0 million in the Company and, assuming satisfaction of certain conditions set forth in the Investment Agreement will hold a combination of perpetual Series A preferred stock and up to approximately 35% of the Company’s outstanding common stock. For a more complete discussion of the transaction, refer to Note 4.

COVID-19

We are closely monitoring the impact on our business of the current outbreak of a novel strain of coronavirus (“COVID-19”). and its variants. We are taking precautions to ensure the safety of our employees, customers and business partners, while assuring business continuity and reliable service and support to our customers. While we have not seen a significant adverse impact to our financial results from COVID-19 to date, if the pandemic ~~continues to cause~~worsens or new variants of the virus become more dominant and causes significant negative impacts to economic conditions, our results of operations, financial condition and liquidity could be materially and adversely impacted.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted by the U.S. government as an emergency economic stimulus package that includes spending and tax breaks to strengthen the US economy and fund a nationwide effort to curtail the economic effects of COVID-19. The CARES Act ~~includes,~~included, among other things, deferral of certain employer payroll tax payments, the delay in payment of minimum required pension contributions due in 2020 until January 1, 2021 and certain income tax law changes including modifications to the net interest deduction limitations. In April 2020, we began deferring the payment of the employer portion of Social Security taxes and estimate that approximately $12.0 million for employer payroll tax payments otherwise due in 2020 could be deferred with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022. The deferral of employer payroll tax payments for future quarters in 2020 will continued to be assessed based on the extent of the future impacts of COVID-19 on our business. At this time, we have elected not to delay the payment of our minimum required pension contributions due in 2020. The CARES Act is not expected to have a material impact on our consolidated financial statements.

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other things, the deferral of certain employer payroll tax payments and certain income tax law changes. In 2020, we deferred the payment of approximately $12.0 million for the employer portion of Social Security taxes otherwise due in 2020 with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022. On March 11, 2021, the American Rescue Plan Act of 2021 was enacted and provides further economic relief to address the continued economic impact of COVID-19. These Acts did not have a material impact on our consolidated financial statements and we will continue to monitor the impact of any effects from these Acts and other future legislation.

Accounts Receivable and Allowance for Credit Losses

~~Effective January 1, 2020, we adopted Accounting Standards Update (“ASU”) No. 2016-13 (“ASU 2016-13”),~~ ~~Measurement of Credit Losses on Financial Instruments,~~ using the modified retrospective method. The adoption of the new standard did not result in a material impact to the Company. As part of the adoption, we recorded a cumulative effect adjustment of $0.3 million, net of tax, which decreased retained earnings during the six months ended June 30, 2020. Of this amount, $0.2 million was related to the decrease in the value of our partnership interests as a result of the adoption of ASU 2016-13 by our equity method partnerships. The following disclosures have been made in accordance with ASU 2016-13.

Accounts receivable (“AR”) consists primarily of amounts due to the Company from normal business activities. We maintain an allowance for credit losses (“ACL”) based on our historical loss experience, current conditions and forecasted changes including but not limited to changes related to the economy, our industry and business. Uncollectible accounts are written-off (removed from AR and charged against the ACL) when internal collection efforts have been unsuccessful. Subsequently, if payment is received from the customer, the recovery is credited to the ACL.

The following table summarizes the activity in ACL for the six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


	Six Months Ended June 30,
(In thousands)	2020		2019		2021		2020
Balance at beginning of year	$	4,549	$	4,421	$	9,136	$	4,549
Cumulative adjustment upon adoption of ASU 2016-13		144		—		—		144
Provision charged to expense		4,565		4,879		4,282		4,565
Write-offs, less recoveries		(3,290)		(3,897)		(2,884)		(3,290)
Balance at end of year	$	5,968	$	5,403	$	10,534	$	5,968

Recent Accounting Pronouncements

Effective January 1, ~~2020,~~2021, we adopted ASU ~~2016-13,~~No. 2020-06 (“ASU 2020-06”), ~~Measurement of Credit Losses~~Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies guidance on ~~Financial Instruments~~,~~using the modified retrospective method. ASU 2016-13 establishes the new “current expected credit loss” model~~accounting for ~~measuring~~convertible instruments and ~~recognizing credit losses on financial assets based on relevant information about past events,~~contracts in an entity’s own equity including ~~historical experience, current conditions and reasonable and supportable forecasts. For additional information on the~~calculating diluted earnings per share. The adoption of ~~the new standard and the~~this guidance did not have an impact toon our condensed consolidated financial statements and related ~~disclosures, refer to the Accounts Receivable and Allowance for Credit Losses section above.~~disclosures.

Effective January 1, ~~2020,~~2021, we adopted ASU No. ~~2018-15~~2019-12 (“ASU ~~2018-15”~~2019-12”), ~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract~~Income Taxes. ASU ~~2018-15 provides guidance on~~2019-12 simplifies the accounting for ~~costs of implementation activities~~income taxes by eliminating certain exceptions and adding certain requirements to the general framework in ~~a cloud computing arrangement that is a service contract.~~ASC 740, Income Taxes. The new guidance will be applied prospectively. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related disclosures.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04 (“ASU 2020-04”), ~~Reference Rate Reform –~~ Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ~~The new guidance is~~In January 2021, the FASB issued ASU No. 2021-01 (“ASU 2021-01”), Reference Rate Reform (Topic 848): Scope. ASU 2021-01 clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2020-04 and ASU 2021-01 are both elective and are effective upon issuance through December 31, 2022. We are currently evaluating the impact ~~this update~~these updates will have on our condensed consolidated financial statements and related disclosures.

~~In November 2019, the FASB issued ASU No. 2019-12 (“ASU 2019-12”),~~ ~~Income Taxes~~~~. ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions and adding certain requirements to the general framework in ASC 740,~~ ~~Income Taxes.~~ The new guidance is effective for annual periods beginning after December 15, 2020 with early adoption permitted. We are currently evaluating the impact this update will have on our condensed consolidated financial statements and related disclosures.

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~~In 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.

2. REVENUE

Nature of Contracts with Customers

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

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

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

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

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Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the quarters and six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


	Quarter Ended				Six Months Ended				Quarter Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
(In thousands)	2020		2019		2020		2019		2021		2020		2021		2020
Operating Revenues
Commercial and carrier:
Data and transport services (includes VoIP)	$	89,572	$	88,538	$	179,144	$	176,664	$	90,813	$	89,572	$	181,161	$	179,144
Voice services		45,775		47,136		91,495		95,206		43,461		45,775		87,740		91,495
Other		10,406		13,390		22,118		28,566		9,486		10,406		19,205		22,118
		145,753		149,064		292,757		300,436		143,760		145,753		288,106		292,757
Consumer:
Broadband (VoIP and Data)		65,567		64,068		129,643		127,153		67,981		65,567		133,736		129,643
Video services		19,213		20,341		38,344		41,077		16,799		19,213		33,580		38,344
Voice services		43,121		45,235		86,297		91,114		40,173		43,121		80,593		86,297
		127,901		129,644		254,284		259,344		124,953		127,901		247,909		254,284
Subsidies		18,069		18,134		36,523		36,293		17,465		18,069		34,804		36,523
Network access		30,473		34,198		61,938		70,789		31,115		30,473		62,718		61,938
Other products and services		2,980		2,492		5,336		5,319		3,110		2,980		11,632		5,336
Total operating revenues	$	325,176	$	333,532	$	650,838	$	672,181	$	320,403	$	325,176	$	645,169	$	650,838

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Contract Assets and Liabilities

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

June 30,

(In thousands)

2020

2019

Accounts receivable, net

$
116,493

$
133,535

Contract assets

20,130

15,991

Contract liabilities

50,296

51,406


	June 30,
(In thousands)	2021		2020
Accounts receivable, net	$	128,601	$	116,493
Contract assets		21,874		20,130
Contract liabilities		55,023		50,296

Contract assets include costs that are incremental to the acquisition of a contract. Incremental costs are those that result directly from obtaining a contract or costs that would not have been incurred if the contract had not been obtained, which primarily relate to sales commissions. These costs are deferred and amortized over the expected customer life. We determined that the expected customer life is the expected period of benefit as the commission on the renewal contract is not commensurate with the commission on the initial contract. During the quarters ended June 30, ~~2020~~2021 and ~~2019,~~2020, the Company recognized expense of ~~$2.2~~$2.7 million and ~~$1.5~~$2.2 million, respectively, related to deferred contract acquisition costs. During the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, the Company recognized expense of ~~$4.3~~$5.3 million and ~~$2.7~~$4.3 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 are generally deferred and amortized over the expected customer life as the option to renew without paying an upfront fee provides the customer with a material right. During the quarters ended June 30, ~~2020~~2021 and ~~2019,~~2020, the Company recognized previously deferred revenues of ~~$109.9~~$113.4 million and ~~$92.7~~$109.9 million, respectively. For the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, the Company recognized previously deferred revenues of ~~$221.1~~$229.5 million and ~~$186.7~~$221.1 million, respectively.

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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

Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), requires that the Company disclose the aggregate amount of the transaction price that is allocated to remaining performance obligations that are unsatisfied as of June 30, ~~2020.~~2021. 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.

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

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3. EARNINGS (LOSS) PER SHARE

Basic and diluted earnings (loss) per common share (“EPS”) are computed using the two-class method, which is an earnings allocation method that determines EPS for each class of common stock and participating securities considering dividends declared and participation rights in undistributed earnings. ~~Certain~~Common stock related to certain of the Company’s restricted stock awards and the contingent payment right (“CPR”) issued to Searchlight on October 2, 2020, as described in Note 4, are considered participating securities because holders are entitled to receive non-forfeitable dividends, if declared, during the vesting term.

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

Diluted EPS includes securities that could potentially dilute basic EPS during a reporting period. Dilutive securities are not included in the computation of loss per share when a company reports a net loss from continuing operations as the impact would be anti-dilutive.

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


	Quarter Ended				Six Months Ended
	June 30,				June 30,
(In thousands, except per share amounts)	2021		2020		2021		2020
Net income (loss)	$	(55,089)	$	13,935	$	(117,172)	$	29,558
Less: net income attributable to noncontrolling interest		267		95		283		171
Income (loss) attributable to common shareholders before allocation of earnings to participating securities		(55,356)		13,840		(117,455)		29,387
Less: earnings allocated to participating securities		—		360		—		607
Net income (loss) attributable to common shareholders, after earnings allocated to participating securities	$	(55,356)	$	13,480	$	(117,455)	$	28,780

Weighted-average number of common shares outstanding		78,029		71,153		78,029		71,153

Net income (loss) per common share attributable to common shareholders - basic and diluted	$	(0.71)	$	0.19	$	(1.51)	$	0.40

Diluted EPS attributable to common shareholders for the quarter and six months ended June 30, 2021 excludes 20.4 million and 19.9 million potential common shares related to our share-based compensation plan and the CPR, respectively, because the inclusion of the potential common shares would have an antidilutive effect. Diluted EPS attributable to common shareholders for the quarter and six months ended June 30, 2020 excludes 1.9 million and 1.5 million potential common shares that could be issued under our share-based compensation plan, respectively.

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4. SEARCHLIGHT INVESTMENT

In connection with the Investment Agreement entered into on September 13, 2020, affiliates of Searchlight have committed to invest up to an aggregate of $425.0 million in the Company. The investment commitment is structured in 2 stages. In the first stage of the transaction, which was completed on October 2, 2020, Searchlight invested $350.0 million in the Company in exchange for 6,352,842 shares, or approximately 8%, of the Company’s common stock and the CPR that is convertible, upon the receipt of certain regulatory and shareholder approvals, into an additional 17,870,012 shares, or 16.9% of the Company’s common stock. In addition, Searchlight received the right to an unsecured subordinated note with an aggregate principal amount of approximately $395.5 million (the “Note”).

In the second stage of the transaction, Searchlight will invest an additional $75.0 million and will be issued the Note, which will be convertible into shares of a new series of perpetual preferred stock of the Company with an aggregate liquidation preference equal to the principal amount of the Note plus accrued interest as of the date of conversion. The Note may be issued to Searchlight prior to the closing of the second stage of the transaction upon the occurrence of certain events. In addition, the CPR will be convertible into an additional 15,115,899 shares, or an additional 10.1%, of the Company’s common stock. Upon completion of both stages, the common stock and CPR issued to Searchlight will represent approximately 35% of the Company’s common stock on an as-converted basis. The closing of the second stage of the transaction is subject to the receipt of Federal Communications Commission (“FCC”), certain state public utility commission regulatory and Hart Scott Rodino approvals and the satisfaction of certain other customary closing conditions.

We have received approval under the Hart-Scott-Rodino Act and on April 26, 2021, we received approval from the Company’s shareholders. On July 15, 2021, the Company received all required state public utility commission regulatory approvals necessary for the conversion of the CPR into 16.9% additional shares of the Company’s common stock. As a result, the CPR was converted into 17,870,012 shares of common stock, which were issued to Searchlight on July 16, 2021. These shares, together with the shares issued to Searchlight on October 2, 2020 in the first stage of the investment, constitute approximately 24.5% of the Company’s outstanding common stock as of such date. We expect the closing of the second stage to be completed later this year, subject to the receipt of FCC approval and the satisfaction of certain other customary closing conditions.

The ~~computation~~total expected proceeds from the Investment Agreement were allocated among each of ~~basic~~the individual components of the investment and ~~diluted EPS attributable~~recorded at their estimated fair values as of October 2, 2020. The proceeds were first allocated to the CPR at its full estimated fair value including a discount for lack of marketability and then allocated to the issuance of the common ~~shareholders computed using~~stock with the ~~two-class method is~~remaining proceeds allocated to the Note. The estimated fair value of the components of the Investment Agreement at October 2, 2020 were as follows:

Quarter Ended

Six Months Ended

June 30,

June 30,

(In thousands, except per share amounts)

2020

2019

2020

2019

Net income (loss)

$
13,935

$
(7,312)

$
29,558

$
(14,498)

Less: net income attributable to noncontrolling interest

95

75

171

154

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

13,840

(7,387)

29,387

(14,652)

Less: earnings allocated to participating securities

360

—

607

457

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

$
13,480

$
(7,387)

$
28,780

$
(15,109)

Weighted-average number of common shares outstanding

71,153

70,813

71,153

70,813

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

$
0.19

$
(0.10)

$
0.40

$
(0.21)


(In thousands)
Assets Received:
	Cash proceeds	$	350,000
	Receivable from Searchlight, net of discount of $612		74,388
	Less: Issuance costs		(14,474)
	Total consideration	$	409,914

Assets Exchanged:
	6,352,842 shares of common stock, par value $0.01 per share, net of issuance costs of $1,473	$	26,779
	CPR for 16.9% additional shares of common stock		79,469
	CPR for 10.1% additional shares of common stock		67,221
	Convertible security interest issued as unsecured subordinated note right, net of discount of $146,018 and issuance costs of $13,001		236,445
		$	409,914

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At June 30, 2021 and December 31, 2020, the net present value of the receivable for the additional investment of $75.0 million expected to be received from Searchlight upon the closing of the second stage of the transaction was $74.9 million and $74.7 million, respectively, and is included within other assets in the consolidated balance sheets.

~~Diluted EPS attributable to common shareholders for~~The CPR is reported at its estimated fair value within long-term liabilities in the ~~quarters ended~~consolidated balance sheets. Subsequent changes in fair value are reflected in earnings within other income and expense in the condensed consolidated statements of operations. As of June 30, 2021 and December 31, 2020, ~~and 2019 excludes 1.9~~the estimated fair value of the CPR was $220.7 million and ~~1.3~~$123.2 million, ~~potential common shares,~~ respectively, ~~that could be issued under our share-based compensation plan, because~~and during the ~~inclusion of the potential common shares would have an antidilutive effect. For the~~quarter and six months ended June 30, ~~2020 and 2019, diluted EPS attributable to common shareholders excludes 1.5~~2021, we recognized a loss of $39.8 million and ~~1.0~~$97.4 million, ~~potential common shares,~~respectively, on the increase in the fair value of the CPR.

The Note bears interest at 9.0% per annum from the date of the closing of the first stage of the transaction and is payable semi-annually in arrears on April 1 and October 1 of each year. Upon conversion of the Note, dividends on the preferred stock will accrue daily on the liquidation preference at a rate of 9.0% per annum, payable semi-annually in arrears. The Note and preferred stock include a paid-in-kind (“PIK”) option for a five-year period beginning as of October 2, 2020. The Company intends to exercise the PIK interest option on the Note through at least 2022. The term of the Note is 10 years and is due on October 1, 2029. At June 30, 2021, the net carrying value of the Note was $259.4 million, net of unamortized discount and issuance costs of $141.9 million and $9.9 million, respectively. During the quarter ended June 30, 2021, the Company elected the PIK option and accrued interest of $15.8 million was added to the principal balance of the Note on the payment date. At December 31, 2020, the net carrying value of the Note was $238.7 million, net of unamortized discount and issuance costs of $144.8 million and $12.0 million, respectively. The unamortized discount and issuance costs are being amortized over the contractual term of the Note using the effective interest method.

4. 5. INVESTMENTS

Our investments are as follows:


	June 30,		December 31,		June 30,		December 31,
(In thousands)	2020		2019		2021		2020
Short-term investments:
Held-to-maturity debt securities					$	89,967	$	—

Long-term investments:
Cash surrender value of life insurance policies	$	2,713	$	2,474	$	2,666	$	2,536
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		8,882		8,910		7,867		8,882
Other		273		298		273		273
Equity method investments:
GTE Mobilnet of Texas RSA #17 Limited Partnership (20.51% interest)		19,372		20,162		19,581		20,299
Pennsylvania RSA 6(I) Limited Partnership (16.67% interest)		7,687		7,658		7,312		7,482
Pennsylvania RSA 6(II) Limited Partnership (23.67% interest)		29,214		28,815		27,443		27,793
Totals	$	112,541	$	112,717	$	109,542	$	111,665

Held-to-Maturity Debt Securities

Investments in debt securities that we have the positive intent and ability to hold until maturity are classified as held-to-maturity. We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. Investments with original maturities of more than three months and less than one year are classified as short-term investments. Held-to maturity debt securities are recorded at amortized cost, which approximates fair value, and realized gains or losses are recognized in earnings. Our held-to-maturity debt securities consist of investments in commercial paper and certificate of deposits. At June 30, 2021, we had $75.0 million of investments in commercial paper included in cash

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and cash equivalents and $65.0 million of investments in commercial paper and $25.0 million of investments in certificate of deposits included in short-term investments. The investments have original maturities of less than one year. As of June 30, 2021, the amortized cost of the investments approximated their fair value and the gross unrecognized gains and losses were not material.

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. NoNaN indictors of impairment existed for any of the investments during the quarters and six months ended June 30, ~~2020~~2021 or ~~2019.~~2020. For these investments, we adjust the carrying value for any purchases or sales of our ownership interests, if any. We record distributions received from these investments as investment income in non-operating income (expense). For the quarters ended June 30, ~~2020~~2021 and ~~2019,~~2020, we received cash distributions from these partnerships totaling ~~$3.9~~$6.1 million and ~~$5.0~~$3.9 million, respectively. For the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, we received cash distributions from these partnerships totaling ~~$9.2~~$10.4 million and ~~$8.3~~$9.2 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 3 entities, we account for the investments using the equity method. In connection with adoption of ASU 2016-13 by our equity method partnerships, the value of our combined partnership interests decreased $0.2 million, which is reflected in the cumulative effect adjustment to retained earnings during the quarter and six months ended June 30, 2020. Income is recognized as investment income in non-operating income (expense) on our proportionate share of earnings and cash distributions are recorded as a reduction in our investment. For the quarters ended June 30, ~~2020~~2021 and ~~2019,~~2020, we received cash distributions from these partnerships totaling ~~$5.7~~$6.5 million and ~~$5.6~~$5.7 million, respectively. For the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, we received cash distributions from these partnerships totaling ~~$10.5~~$11.6 million and ~~$9.6~~$10.5 million, respectively.

5.6. 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 78 for further discussion regarding our interest rate swap agreements.

~~Our interest rate swap agreements measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 were as follows:~~

As of June 30, 2020




Quoted Prices

Significant


In Active

Other

Significant

Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

(In thousands)

Total

(Level 1)

(Level 2)

(Level 3)

Current interest rate swap liabilities

$
(780)

$
—

$
(780)

$
—

Long-term interest rate swap liabilities

(37,362)

—

(37,362)

—

Total

$
(38,142)

$
—

$
(38,142)

$
—

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As of December 31, 2019




Quoted Prices

Significant


In Active

Other

Significant

Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

(In thousands)

Total

(Level 1)

(Level 2)

(Level 3)

Current interest rate swap liabilities

$
(2,565)

$
—

$
(2,565)

$
—

Long-term interest rate swap liabilities

(24,960)

—

(24,960)

—

Total

$
(27,525)

$
—

$
(27,525)

$
—

Our interest rate swap agreements measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 were as follows:


			As of June 30, 2021
			Quoted Prices		Significant
			In Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
(In thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Current interest rate swap liabilities	$	(896)	$	—	$	(896)	$	—
Long-term interest rate swap liabilities		(18,089)		—		(18,089)		—
Total	$	(18,985)	$	—	$	(18,985)	$	—


			As of December 31, 2020
			Quoted Prices		Significant
			In Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
(In thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Current interest rate swap liabilities	$	(6,297)	$	—	$	(6,297)	$	—
Long-term interest rate swap liabilities		(22,958)		—		(22,958)		—
Total	$	(29,255)	$	—	$	(29,255)	$	—

Contingent Payment Obligation

Our contingent payment obligation represents the CPR issued to Searchlight in connection with the Investment Agreement. We are required to measure the CPR at its estimated fair value on a recurring basis based on a market approach utilizing observable market values and a marketability discount. As of June 30, 2021 and December 31, 2020, the estimated fair value of the CPR was $220.7 million and $123.2 million, respectively, and was classified as Level 2 within the fair value hierarchy.

We have not elected the fair value option for any of our other assets or liabilities. The carrying value of other financial instruments, including cash and cash equivalents, short-term investments, 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 June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.


	As of June 30, 2020				As of December 31, 2019				As of June 30, 2021				As of December 31, 2020
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, excluding finance leases	$	2,209,500	$	2,089,151	$	2,262,111	$	2,125,497	$	2,138,789	$	2,206,004	$	1,978,694	$	2,039,790

Cost & Equity Method Investments

Our investments as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 accounted for at cost and under the equity method consisted primarily of minority positions in various cellular telephone limited partnerships and our investment in CoBank. It is impracticable to determine the fair value of these investments.

Long-term Debt

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

~~6. LONG-TERM DEBT~~

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

June 30,

December 31,

(In thousands)

2020

2019

Senior secured credit facility:

Term loans, net of discounts of $4,893 and $5,604 at June 30, 2020 and December 31, 2019, respectively

$
1,770,644

$
1,779,109

Revolving loan

—

40,000

6.50% Senior notes due 2022, net of discount of $1,653 and $1,998 at June 30, 2020 and December 31, 2019, respectively

438,856

443,002

Finance leases

20,145

24,019

2,229,645

2,286,130

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

(24,889)

(27,301)

Less: deferred debt issuance costs

(6,753)

(8,152)

Total long-term debt

$
2,198,003

$
2,250,677

~~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

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~~“Incremental~~7. LONG-TERM DEBT

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


	June 30,		December 31,
(In thousands)	2021		2020
Senior secured credit facility:
Term loans, net of discounts of $11,086 and $18,181 at June 30, 2021 and December 31, 2020, respectively	$	988,789	$	1,228,694
6.50% Senior notes due 2028		750,000		750,000
5.00% Senior notes due 2028		400,000		—
Finance leases		21,456		17,467
		2,160,245		1,996,161
Less: current portion of long-term debt and finance leases		(6,474)		(17,561)
Less: deferred debt issuance costs		(40,502)		(45,934)
Total long-term debt	$	2,113,269	$	1,932,666

Credit Agreement

On October 2, 2020, the Company, through certain of its wholly-owned subsidiaries, entered into a Credit Agreement with various financial institutions (as amended, the “Credit Agreement”) to replace the Company’s previous credit agreement in its entirety. The Credit Agreement consisted of term loans in an original aggregate amount of $1,250.0 million (the “Initial Term ~~Loan”), collectively (the “Term~~ Loans”). and a revolving loan facility of $250.0 million. 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~~plus (b) an amount which would not cause its senior secured leverage ratio not to exceed ~~3.00:~~3.70:1.00 (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.~~subject to certain exceptions.

The Initial Term ~~Loan was~~Loans were issued in an original aggregate principal amount of ~~$900.0~~$1,250.0 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 contains2, 2027 and contained an original issuance discount of ~~0.25%~~1.5% or ~~$2.3~~$18.8 million, which is being amortized over the term of the loan. ~~The~~Prior to amendments to the Credit Agreement, as described below, the Initial Term ~~Loan requires~~Loans required quarterly principal payments of ~~$2.25~~$3.1 million, which commenced December 31, 2020, and ~~has an~~bore interest at a rate of ~~3.00%~~4.75% plus the London Interbank Offered Rate (“LIBOR”) subject to a 1.00% LIBOR floor.

~~The Incremental Term Loan was issued~~On January 15, 2021, the Company entered into Amendment No. 1 to the Credit Agreement in which we borrowed an ~~original~~additional $150.0 million aggregate principal amount of ~~$935.0 million and included an original issue discount of 0.50%, which is being amortized over the~~incremental term ~~of the loan.~~loans (the “Incremental Term Loans”). The Incremental Term ~~Loan has~~Loans have terms and conditions identical to the Initial Term Loans including the same maturity date and interest ~~rate as the~~rate. The Initial Term ~~Loan~~Loans and ~~requires~~Incremental Term Loans, collectively (the “Term Loans”) will comprise a single class of term loans under the Credit Agreement.

On March 18, 2021, the Company repaid $397.0 million of the outstanding Term Loans with the net proceeds received from the issuance of $400.0 million aggregate principal amount of 5.00% senior secured notes due 2028 (the “5.00% Senior Notes”), as described below. The repayment of the Term Loans was applied to the remaining principal payments in direct order of maturity, thereby eliminating the required quarterly principal payments through the remaining term of ~~$2.34 million.~~ the loan. In connection with the repayment of the Term Loans, we recognized a loss on extinguishment of debt of $12.0 million during the six months ended June 30, 2021.

~~Our~~On April 5, 2021, the Company, entered into a second amendment to the Credit Agreement (the “Second Amendment”) to refinance the outstanding Term Loans of $999.9 million. The terms and conditions of the Credit Agreement remain substantially similar and unchanged except with respect to the interest rate applicable to the Term Loans and certain other provisions. As a result of the Second Amendment, the interest rate of the Term Loans was reduced to 3.50% plus LIBOR subject to a 0.75% LIBOR floor. The maturity date of the Term Loans of October 2, 2027 remains unchanged. In connection with entering into the Second Amendment, we recognized a loss of $5.1 million on the extinguishment of debt during the quarter and six months ended June 30, 2021.

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The revolving credit facility has a maturity date of October ~~5, 2021~~2, 2025 and an applicable margin (at our election) of ~~between 2.50% and 3.25%~~4.00% for LIBOR-based borrowings or ~~between 1.50% and 2.25%~~3.00% for alternate base rate borrowings, with a 0.25% reduction in each case ~~depending on our total net leverage ratio. Based on our~~if the consolidated first lien leverage ratio, as ofdefined in the Credit Agreement, does not exceed 3.20 to 1.00. At June 30, 2020, the borrowing margin for the three month period ending September 30, 2020 will be at a weighted-average margin of 3.00% for a LIBOR-based loan or 2.00% for an alternate base rate loan. The applicable borrowing margin for the revolving credit facility is adjusted quarterly to reflect the leverage ratio from the prior quarter-end. As of June 30,2021 and December 31, 2020, there were 0 borrowings outstanding ~~borrowings~~ under the revolving credit facility. At December 31, 2019, borrowings of $40.0 million were outstanding under the revolving credit facility, which consisted of LIBOR-based borrowings of $30.0 million and alternate base rate borrowings of $10.0 million. Stand-by letters of credit of ~~$18.6~~$18.1 million were outstanding under our revolving credit facility as of June 30, ~~2020.~~2021. The stand-by letters of credit are renewable annually and reduce the borrowing availability under the revolving credit facility. As of June 30, ~~2020, $91.4~~2021, $231.9 million was available for borrowing under the revolving credit facility.

The weighted-average interest rate on outstanding borrowings under our credit facility was ~~4.00%~~4.25% and ~~4.80%~~5.75% as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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~~a maximum consolidated first lien leverage ~~ratios, all~~ratio, as defined in the Credit Agreement. Among other things, it will be an event of default, with respect to the revolving credit facility only, if our ~~total net~~consolidated first lien 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.~~5.85:1.00. As of June 30, ~~2020,~~2021, our ~~total net~~consolidated first lien leverage ratio under the Credit Agreement was ~~4.22:1.00 and our interest coverage ratio was 3.84:~~3.96:1.00. As of June 30, ~~2020,~~2021, we were in compliance with the Credit Agreement covenants.

Senior Notes

~~6.50% Senior Notes due 2022~~

~~In September 2014,~~On October 2, 2020, we completed an offering of ~~$200.0~~$750.0 million aggregate principal amount of 6.50% unsubordinated secured notes due 2028 (the “6.50% Senior Notes”). The 6.50% Senior Notes were priced at par and bear interest at a rate of 6.50%, payable semi-annually on April 1 and October 1 of each year, beginning on April 1, 2021. The 6.50% Senior Notes will mature on October 1, 2028. The net proceeds from the issuance of the 6.50% Senior Notes were used to redeem our then outstanding $440.5 million aggregate principal amount of 6.50% Senior Notes due in October 2022 at a price equal to 100% of the aggregate principal amount plus accrued and unpaid interest through the redemption date, to repay a portion of the outstanding borrowings under the previous credit agreement as part of the refinancing in October 2020 and to pay related fees and expenses.

On March 18, 2021, we issued $400.0 million aggregate principal amount 5.00% Senior Notes, together with the 6.50% Senior Notes (the ~~“Existing~~“Senior Notes”). The ~~Existing~~5.00% Senior Notes were priced at par ~~which resulted in total gross proceeds~~and bear interest at a rate of ~~$200.0 million. On June 8, 2015, we completed an additional offering~~5.00% per year, payable semi-annually on April 1 and October 1 of ~~$300.0 million in aggregate principal amount of 6.50%~~each year, beginning on October 1, 2021. The 5.00% Senior Notes ~~due 2022 (the “New Notes” and together~~will mature on October 1, 2028. Deferred debt issuance costs of $3.8 million incurred in connection with the ~~Existing~~issuance of the 5.00% Senior 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

~~Table of Contents~~

~~resulted in total gross proceeds of approximately $294.8 million, excluding accrued interest. The discount is~~are being amortized using the effective interest method over the term of the ~~notes.~~ Senior Notes. The net proceeds from the issuance of the 5.00% Senior Notes were used to repay $397.0 million of the Term Loans outstanding under the Credit Agreement.

The Senior Notes ~~mature~~are unsubordinated secured obligations of the Company, secured by a first priority lien 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~~collateral that secures the Company’s obligations under the Credit Agreement. The Senior Notes are fully and weunconditionally guaranteed on a first priority secured basis by the Company and the majority of our wholly-owned ~~subsidiaries have fully and unconditionally guaranteed the Senior Notes.~~subsidiaries. The ~~Senior Notes are senior unsecured obligations of the Company.~~

During the six months ended June 30, 2020 and 2019, we repurchased $4.5 million and $4.6 million, respectively, of the aggregate principal amount of the Senior Notes. In connection with the partial repurchaseofferings of the Senior Notes ~~we paid $4.2 million and $4.3 million and recognized a gain on extinguishment~~have not been registered under the Securities Act of ~~debt of $0.2 million and~~ ~~$0.3~~ ~~million, respectively, during the six months ended June 30, 2020 and 2019.~~1933, as amended or any state securities laws.

Senior Notes Covenant Compliance

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transactions with its affiliates; or enter into any sale and leaseback transactions. The ~~indenture~~indentures also ~~contains~~contain customary events of default. As of June 30, ~~2020,~~2021, the Company was in compliance with all terms, conditions and covenants under the ~~indenture~~indentures governing the Senior Notes.

Repurchase of Senior Notes due 2022

During the six months ended June 30, 2020, we repurchased $4.5 million of the aggregate principal amount of our then outstanding 6.50% Senior Notes due in October 2022 (the “2022 Notes”) for $4.2 million and recognized a gain on extinguishment of debt of $0.2 million.

7.8. DERIVATIVE FINANCIAL INSTRUMENTS

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

The following interest rate swaps were outstanding as of June 30, ~~2020:~~2021:


	Notional					Notional
(In thousands)	Amount		2020 Balance Sheet Location	Fair Value		Amount		2021 Balance Sheet Location	Fair Value
Cash Flow Hedges:
Fixed to 1-month floating LIBOR (with floor)	$	705,000	Accrued expense	$	(780)	$	705,000	Accrued expense	$	(896)
Fixed to 1-month floating LIBOR (with floor)	$	500,000	Other long-term liabilities		(26,574)	$	500,000	Other long-term liabilities		(18,089)
Forward starting fixed to 1-month floating LIBOR (with floor)	$	705,000	Other long-term liabilities		(10,788)
Total Fair Values				$	(38,142)				$	(18,985)

Our interest rate swap agreements mature on various dates between July ~~2020~~2021 and July 2023. ~~The forward-starting interest rate swap agreement has a term of one year and became effective in July 2020.~~

~~Table of Contents~~

The following interest rate swaps were outstanding as of December 31, ~~2019:~~2020:


	Notional					Notional
(In thousands)	Amount		2019 Balance Sheet Location	Fair Value		Amount		2020 Balance Sheet Location	Fair Value
Cash Flow Hedges:
Fixed to 1-month floating LIBOR (with floor)	$	705,000	Accrued expense	$	(2,565)	$	705,000	Accrued expense	$	(6,297)
Fixed to 1-month floating LIBOR (with floor)	$	500,000	Other long-term liabilities		(18,303)	$	500,000	Other long-term liabilities		(22,958)
Forward starting fixed to 1-month floating LIBOR (with floor)	$	705,000	Other long-term liabilities		(6,657)
Total Fair Values				$	(27,525)				$	(29,255)

The counterparties to our various swaps are highly rated financial institutions. 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.

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At least quarterly, the Company assesses whether the interest rate swaps are still expected to be highly effective over the remaining term of the hedging relationship. As a result of the refinancing of the Credit Agreement in April 2021, it was determined that certain critical terms of the interest rate swap agreements no longer match the terms of our variable rate debt due to the change in the LIBOR floor. The interest rate swap agreements were determined to still be highly effective as of June 30, 2021 based on retrospective and prospective assessments using regression analysis and the hypothetical derivative method.

As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the total pre-tax unrealized loss related to our interest rate swap agreements included in AOCI was ~~$(33.6)~~$(15.5) million and ~~$(22.5)~~$(25.2) million, respectively. From the balance in AOCI as of June 30, ~~2020,~~2021, we expect to recognize a loss of approximately ~~$19.2~~$8.2 million in earnings in the next twelve months.

Information regarding our cash flow hedge transactions is as follows:


	Quarter Ended				Six Months Ended				Quarter Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
(In thousands)	2020		2019		2020		2019		2021		2020		2021		2020
Unrealized loss recognized in AOCI, pretax	$	(1,381)	$	(16,440)	$	(17,533)	$	(25,493)
Deferred (loss) gain reclassified from AOCI to interest expense	$	(4,240)	$	596	$	(6,415)	$	876
Unrealized gain (loss) recognized in AOCI, pretax									$	(5)	$	(1,381)	$	418	$	(17,533)
Deferred loss reclassified from AOCI to interest expense									$	(4,634)	$	(4,240)	$	(9,282)	$	(6,415)

8.9. LEASES

Lessor

We have various arrangements for use of our network assets for which we are the lessor, including tower space, certain colocation, conduit and dark fiber arrangements. These leases meet the criteria for operating lease classification. Lease income associated with these types of leases is not material. Occasionally, we enter into arrangements where the term may be for a major part of the asset’s remaining economic life such as in indefeasible right of use (“IRU”) arrangements for dark fiber or conduit, which meet the criteria for sales-type lease classification. During the quarter and six months ended June 30, 2021, we entered into a dark fiber IRU arrangement. The arrangement did not have a material impact on our financial statements. During the quarter and six months ended June 30, 2020, we did not enter into any such arrangements. During the quarter and six months ended June 30, 2019, we recognized revenue of $0.6 million and a gain of $0.4 million related to a dark fiber IRU arrangement, which was classified as a sales-type lease.

9.10. EQUITY

~~Dividends~~

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.

~~Table of Contents~~

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. ~~Approximately 4,650,000~~On April 26, 2021, the shareholders approved an amendment to the Plan to increase by 5,400,000 shares the number of shares of our common stock authorized for issuance under the Plan. With the amendment, approximately 10,050,000 shares of our common stock are authorized for issuance 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 six-month periods ended June 30, 2020 and 2019:~~

��

Quarter Ended

Six Months Ended

June 30,

June 30,

(In thousands)

2020

2019

2020

2019

Restricted stock

$
1,282

$
1,057

$
2,130

$
1,983

Performance shares

1,052

757

1,094

1,329

Total

$
2,334

$
1,814

$
3,224

$
3,312

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

As of June 30, 2020, total unrecognized compensation cost related to non-vested Restricted Stock Awards (“RSAs”) and Performance Share Awards (“PSAs”) was $16.2 million and will be recognized over a weighted-average period of approximately 1.7 years.

~~The following table summarizes the RSA and PSA activity for the six-month period ended June 30, 2020:~~

RSAs

PSAs




Weighted


Weighted

Average Grant

Average Grant

Shares

Date Fair Value

Shares

Date Fair Value

Non-vested shares outstanding - December 31, 2019

532,445

$
11.58

275,995

$
13.29

Shares granted

863,710

$
6.30

240,669

$
9.86

Shares forfeited, cancelled or retired

(4,579)

$
11.29

(3,162)

$
12.62

Non-vested shares outstanding - June 30, 2020

1,391,576

$
8.13

513,502

$
11.40

~~Accumulated Other Comprehensive Loss~~

~~The following table summarizes the changes in accumulated other comprehensive loss, net of tax, by component for the six-month period ended June 30, 2020:~~

Pension and




Post-Retirement

Derivative

(In thousands)

Obligations

Instruments

Total

Balance at December 31, 2019

$
(64,316)

$
(16,552)

$
(80,868)

Other comprehensive loss before reclassifications

—

(12,965)

(12,965)

Amounts reclassified from accumulated other comprehensive loss

671

4,743

5,414

Net current period other comprehensive income (loss)

671

(8,222)

(7,551)

Balance at June 30, 2020

$
(63,645)

$
(24,774)

$
(88,419)

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The following table summarizes total compensation costs recognized for share-based payments during the quarters and six-month periods ended June 30, 2021 and 2020:


	Quarter Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Restricted stock	$	1,391	$	1,282	$	2,155	$	2,130
Performance shares		1,102		1,052		1,788		1,094
Total	$	2,493	$	2,334	$	3,943	$	3,224

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

As of June 30, 2021, total unrecognized compensation cost related to non-vested Restricted Stock Awards (“RSAs”) and Performance Share Awards (“PSAs”) was $21.6 million and will be recognized over a weighted-average period of approximately 1.7 years.

The following table summarizes the RSA and PSA activity for the six-month period ended June 30, 2021:


	RSAs			PSAs
		Weighted			Weighted
		Average Grant			Average Grant
	Shares	Date Fair Value		Shares	Date Fair Value
Non-vested shares outstanding - December 31, 2020	833,973	$	7.81	365,040	$	11.06
Shares granted	941,748	$	7.51	788,054	$	6.31
Shares forfeited, cancelled or retired	(32,670)	$	8.02	(36,860)	$	8.29
Non-vested shares outstanding - June 30, 2021	1,743,051	$	7.64	1,116,234	$	7.79

Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive loss, net of tax, by component for the six-month period ended June 30, 2021:


	Pension and
	Post-Retirement		Derivative
(In thousands)	Obligations		Instruments		Total
Balance at December 31, 2020	$	(90,887)	$	(18,531)	$	(109,418)
Other comprehensive loss before reclassifications		—		309		309
Amounts reclassified from accumulated other comprehensive loss		324		6,862		7,186
Net current period other comprehensive income		324		7,171		7,495
Balance at June 30, 2021	$	(90,563)	$	(11,360)	$	(101,923)

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The following table summarizes reclassifications from accumulated other comprehensive loss for the quarters and six-month periods ended June 30, ~~2020~~2021 and ~~2019:~~2020:



	Quarter Ended June 30,				Six Months Ended June 30,				Affected Line Item in the	Quarter Ended June 30,				Six Months Ended June 30,				Affected Line Item in the
(In thousands)	2020		2019		2020		2019		Statement of Income	2021		2020		2021		2020		Statement of Income
Amortization of pension and post-retirement items:
Prior service cost	$	(442)	$	(799)	$	(884)	$	(1,597)	(a)
Prior service credit (cost)										$	195	$	(442)	$	390	$	(884)	(a)
Actuarial loss		(12)		(596)		(24)		(1,191)	(a)		(415)		(12)		(830)		(24)	(a)
		(454)		(1,395)		(908)		(2,788)	Total before tax		(220)		(454)		(440)		(908)	Total before tax
		119		369		237		736	Tax benefit		58		119		116		237	Tax benefit
	$	(335)	$	(1,026)	$	(671)	$	(2,052)	Net of tax	$	(162)	$	(335)	$	(324)	$	(671)	Net of tax

Gain (Loss) on cash flow hedges:
Interest rate derivatives	$	(4,240)	$	596	$	(6,415)	$	876	Interest expense	$	(4,634)	$	(4,240)	$	(9,282)	$	(6,415)	Interest expense
		1,105		(156)		1,672		(229)	Tax benefit (expense)		1,208		1,105		2,420		1,672	Tax benefit
	$	(3,135)	$	440	$	(4,743)	$	647	Net of tax	$	(3,426)	$	(3,135)	$	(6,862)	$	(4,743)	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 1011 for further discussion regarding our pension and other post-retirement benefit plans.

~~10.~~11. PENSION PLAN AND OTHER POST-RETIREMENT BENEFITS

Defined Benefit Plans

We sponsor qualified defined benefit pension plans that are non-contributory covering substantially all of our hourly employees under collective bargaining agreements who fulfill minimum age and service requirements and certain salaried employees. The defined benefit pension plans are closed to all new entrants. In November 2018, a defined benefit pension plan was amended to freeze benefit accruals under the cash balance benefit plan for certain participants under collective bargaining agreements effective as of March 31, 2019. Consequently, as of April 1, 2019 allAll of our defined benefit pension plans are now frozen to all current employees, and 0 additional monthly pension benefits will accrue under those plans.

We also have non-qualified supplemental retirement plans (the “Supplemental Plans” and, together with the 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 0 person is eligible to become a new participant. These plans are unfunded and have 0 assets. The benefits paid under the Supplemental Plans are paid from the general operating funds of the Company.

The following table summarizes the components of net periodic pension cost for our Pension Plans for the quarters and six-month periods ended June 30, 2021 and 2020:


	Quarter Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2021		2020		2021		2020
Interest cost	$	5,680	$	6,519	$	11,361	$	13,039
Expected return on plan assets		(9,263)		(8,646)		(18,526)		(17,291)
Net amortization loss		557		311		1,114		622
Net prior service cost amortization		31		31		61		61
Net periodic pension benefit	$	(2,995)	$	(1,785)	$	(5,990)	$	(3,569)

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

1820

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~~The following table summarizes the components of net periodic pension cost for our Pension Plans for the quarters and six-month periods ended June 30, 2020 and 2019:~~

Quarter Ended

Six Months Ended

June 30,

June 30,

(In thousands)

2020

2019

2020

2019

Service cost

$
—

$
12

$
—

$
23

Interest cost

6,519

7,661

13,039

15,322

Expected return on plan assets

(8,646)

(8,672)

(17,291)

(17,343)

Net amortization loss

311

703

622

1,406

Net prior service cost amortization

31

31

61

61

Net periodic pension benefit

$
(1,785)

$
(265)

$
(3,569)

$
(531)

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

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 0 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 0 assets, and benefits are paid from the general operating funds of the Company. However, a certain healthcare plan is funded by assets that are separately designated within the Pension Plans for the sole purpose of providing payments of retiree medical benefits for this specific plan.

The following table summarizes the components of the net periodic cost for our Post-retirement Plans for the quarters and six-month periods ended June 30, ~~2020~~2021 and ~~2019:~~2020:


	Quarter Ended				Six Months Ended				Quarter Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
(In thousands)	2020		2019		2020		2019		2021		2020		2021		2020
Service cost	$	258	$	116	$	516	$	233	$	223	$	258	$	445	$	516
Interest cost		885		1,145		1,769		2,289		657		885		1,314		1,769
Expected return on plan assets		(46)		(44)		(92)		(87)		(50)		(46)		(100)		(92)
Net amortization gain		(299)		(107)		(598)		(215)		(142)		(299)		(284)		(598)
Net prior service cost amortization		411		768		823		1,536
Net periodic post-retirement benefit cost	$	1,209	$	1,878	$	2,418	$	3,756
Net prior service cost (credit) amortization										(226)		411		(451)		823
Net periodic post-retirement cost									$	462	$	1,209	$	924	$	2,418

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.

Contributions

We expect to contribute approximately ~~$24.0~~$20.7 million to our Pension Plans and ~~$8.9~~$8.8 million to our Post-retirement Plans in ~~2020.~~2021. As of June 30, ~~2020,~~2021, we have contributed ~~$10.2~~$8.9 million and ~~$4.6~~$4.3 million of the annual contribution to the Pension Plans and Post-retirement Plans, respectively. Under the CARES Act, the payment of minimum required pension contributions due in 2020 may be delayed until January 1, 2021. On July 15, 2020, we made our scheduled quarterly contribution of $4.2 million to the Pension Plan. We are continuing to monitor and assess whether to elect the deferral until January 1, 2021 of the remaining required pension contributions due in 2020 based on the future impacts of COVID-19 on our business.

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~~11.~~12. INCOME TAXES

Our unrecognized tax benefits as of June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were $4.9 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 June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. We do not expect any material change in our unrecognized tax benefits during the remainder of ~~2020.~~2021.

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 June 30, ~~2020,~~2021, 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 ~~2016~~2017 through ~~2018.~~2019. The periods subject to examination for our state returns are years ~~2015~~2016 through ~~2018.~~2019. In addition, prior tax years may be subject to examination by federal or state taxing authorities if the Company’s net operating loss carryovers from those prior years are utilized in the future. We are currently under examination 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.

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tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year to date period as if it was the annual period and determines the income tax expense or benefit on that basis. The Company believes that, at this time, the use of the discrete method is more appropriate than the annual effective tax rate method as (i) the estimated annual effective tax rate method is not reliable due to the high degree of uncertainty in estimating annual pretax earnings and (ii) small changes in the projected ordinary annual income would result in significant changes in the estimated annual effective rate. The uncertainty in the estimated pretax earnings is driven by uncertainty in the date of regulatory approval and second closing date in connection with the Searchlight transaction.

Our effective tax rate was ~~23.5%~~(10.9)% and ~~34.1%~~23.5% for the quarters ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively and ~~24.0%~~(0.1)% and ~~32.3%~~24.0% for the six-month periods ended June 30, 2021 and 2020, respectively. Exclusive of the discrete effective tax rate method and ~~2019, respectively. For~~the discrete permanent income tax impact related to the Searchlight transaction, our effective tax rate for the quarters ~~and six months~~ ended June 30, 2021 and 2020 would have been approximately 24.6% and ~~2019,~~23.5%, respectively and approximately 24.5% and 24.0% for the six-month periods ended June 30, 2021 and 2020, respectively. In addition, the investment made by Searchlight in 2020 is treated as a contribution of equity for federal tax purposes. Accordingly, the impact of the non-cash PIK interest expense, discount and issuance costs, and fair value adjustments on the CPR are not recognized for federal income tax purposes, resulting in permanent adjustments to our effective tax rate. The effective tax rate differed from the federal and state statutory rates primarily due to ~~various~~ permanent income tax differences related to the Searchlight transaction, recurring permanent tax differences, and differences in allocable income for the Company’s state tax filings.

As of June 30, ~~2020,~~2021, the ~~CARES~~American Rescue Plan Act did not have a material impact on the Company's income tax positions. We will continue to evaluate the impact of enacted and future legislation.

~~12.~~13. COMMITMENTS AND CONTINGENCIES

Litigation, Regulatory Proceedings and Other Contingencies

~~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 subsidiaries of the Company including FairPoint Communications, Inc. (“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 1 court. The Panel granted CenturyLink’s request and 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.

~~Table of Contents~~

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

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 Fifth Circuit on June 28 and June 29, 2018, respectively. On May 27, 2020, the Fifth Circuit issued an opinion affirming the U.S. District Court’s order in substantial part, including its decision to dismiss Verizon’s and Sprint’s claims for damages, but remanding the case to the U.S. District Court with respect to Verizon’s and Sprint’s claims for declaratory rulings regarding their prospective obligations. On June 18, 2020, the Fifth Circuit’s mandate was issued to the U.S. District Court. On July 9, 2020, the U.S. District Court held a status conference at which the parties agreed that amended judgments could be entered in the cases brought by Verizon and Sprint without further proceedings on the issue remanded by the Fifth Circuit. We expect that such amended judgments will be entered in the near future and that this will resolve the Verizon and Sprint litigation without any exposure to liability for any of our LECs, and will finalize the judgments in favor of our FairPoint LEC entities on their counterclaims against Verizon and Sprint.

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 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 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 Fifth Circuit on August 20, 2018. On September 21, 2018, all of our 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 to dismiss with prejudice the related 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 LECs with the Fifth Circuit. The Fifth Circuit granted this motion on October 25, 2018 by dismissing the Level 3 appeal.

Gross Receipts Tax

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 2008 through 2016. For our CCES and CCPA subsidiaries, the total additional tax liabilities calculated by the DOR auditors for the tax years 2008 through 2016, including interest, are approximately $6.1 million and $7.4 million, respectively.2018. 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.

In May 2017, we entered into an agreement to guarantee any potential liabilities to the DOR up to $5.0 million. We believe that certain of the DOR’s findings regarding CCPA’s and CCES’s additional tax liabilities for the tax years 2008 through ~~2016,~~2018, for which we have filed appeals, continue to lack merit. However, in ~~January 2018,~~2019, CCPA and CCES ~~and CCPA submitted initial~~finalized a settlement ~~offers to the Pennsylvania Office~~ of ~~Attorney General proposing to settle~~ the intrastate and interstate ~~cases at reduced~~ tax liabilities for the tax years 2008 through 2013. The settlement offers were subject to negotiation with the Commonwealth of 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

~~Table of Contents~~

review. The Commonwealth Court of Pennsylvania imposed a deadline in the fourth quarter of 2019 for the parties to finalize their agreement and file stipulations for judgment. Stipulations for judgment and directions to satisfy for the 2008 through 2013, ~~tax years,~~ except for the 2010 CCPA appeals, ~~were filed in the fourth quarter of 2019,~~ bringing the appeals to a conclusion. The additional tax liabilities calculated by the DOR for these tax years for CCPA and CCES were approximately $3.4 million and $4.0 million, respectively. The settlement resulted in a payment from us to the DOR of $2.1 million, which the Company previously reserved for.

The additional tax liabilities calculated by the DOR for CCPA and CCES for the remaining unsettled tax years 2010 (CCPA) and 2014 through 2018 (CCPA and CCES) are approximately $4.6 million and $2.6 million, respectively. 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 remaining unsettled tax years 2010 (CCPA) and 2014 through 2018 (CCPA and CCES), we have reserved $0.8 million and $1.6 million, including interest, for our CCPA and CCES subsidiaries, respectively. We expect the filings for the tax years 2014 through 2018 to be settled at a later date similar to the initial settlement. While we continue to believe a settlement of all remaining 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 2010 (CCPA) and 2014 through 2018 (CCPA and CCES), we have reserved $1.5 million and $0.7 million, including interest, for our CCES and CCPA subsidiaries, respectively. 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.

~~13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION~~

Consolidated Communications, Inc. is the primary obligor under the unsecured Senior Notes. We and substantially all of our 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 June 30, 2020 and December 31, 2019, condensed consolidating statements of operations for the quarters and six-month periods ended June 30, 2020 and 2019 and condensed consolidating statements of cash flows for the six-month periods ended June 30, 2020 and 2019 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)~~

June 30, 2020


Parent

Subsidiary Issuer

Guarantors

Non-Guarantors

Eliminations

Consolidated

ASSETS

Current assets:

Cash and cash equivalents

$
—

$
45,876

$
—

$
—

$
—

$
45,876

Accounts receivable, net

—

76

110,569

5,848

—

116,493

Income taxes receivable

13,686

7,856

—

—

(17,168)

4,374

Prepaid expenses and other current assets

126

—

40,869

295

(126)

41,164

Total current assets

13,812

53,808

151,438

6,143

(17,294)

207,907

Property, plant and equipment, net

—

—

1,728,249

65,091

—

1,793,340

Intangibles and other assets:

Investments

—

9,064

103,477

—

—

112,541

Investments in subsidiaries

3,571,803

3,577,749

17,632

—

(7,167,184)

—

Goodwill

—

—

969,093

66,181

—

1,035,274

Customer relationships, net

—

—

138,744

—

—

138,744

Other intangible assets

—

—

1,470

9,087

—

10,557

Advances due to/from affiliates, net

—

2,171,272

1,008,596

117,236

(3,297,104)

—

Deferred income taxes

77,156

8,557

—

—

(85,713)

—

Other assets

—

—

48,843

431

—

49,274

Total assets

$
3,662,771

$
5,820,450

$
4,167,542

$
264,169

$
(10,567,295)

$
3,347,637

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$
—

$
—

$
16,707

$
—

$
—

$
16,707

Advance billings and customer deposits

—

—

43,258

1,316

—

44,574

Accrued compensation

—

—

54,369

720

—

55,089

Accrued interest

—

7,358

435

—

—

7,793

Accrued expense

—

884

73,663

1,284

(126)

75,705

Income tax payable

—

—

15,485

1,683

(17,168)

—

Current portion of long term debt and finance lease obligations

—

18,350

6,398

141

—

24,889

Total current liabilities

—

26,592

210,315

5,144

(17,294)

224,757

Long-term debt and finance lease obligations

—

2,184,397

13,606

—

—

2,198,003

Advances due to/from affiliates, net

3,297,104

—

—

—

(3,297,104)

—

Deferred income taxes

—

—

241,128

24,158

(85,713)

179,573

Pension and postretirement benefit obligations

—

—

274,819

10,434

—

285,253

Other long-term liabilities

—

37,657

49,439

747

—

87,843

Total liabilities

3,297,104

2,248,646

789,307

40,483

(3,400,111)

2,975,429

Shareholders’ equity:

Common Stock

731

—

17,411

30,000

(47,411)

731

Other shareholders’ equity

364,936

3,571,804

3,354,283

193,686

(7,119,773)

364,936

Total Consolidated Communications Holdings, Inc. shareholders’ equity

365,667

3,571,804

3,371,694

223,686

(7,167,184)

365,667

Noncontrolling interest

—

—

6,541

—

—

6,541

Total shareholders’ equity

365,667

3,571,804

3,378,235

223,686

(7,167,184)

372,208

Total liabilities and shareholders’ equity

$
3,662,771

$
5,820,450

$
4,167,542

$
264,169

$
(10,567,295)

$
3,347,637

~~Table of Contents~~

~~Condensed Consolidating Balance Sheet~~

~~(In thousands)~~

December 31, 2019


Parent

Subsidiary Issuer

Guarantors

Non-Guarantors

Eliminations

Consolidated

ASSETS

Current assets:

Cash and cash equivalents

$
—

$
12,387

$
8

$
—

$
—

$
12,395

Accounts receivable, net

—

78

112,415

7,523

—

120,016

Income taxes receivable

1,812

—

791

66

—

2,669

Prepaid expenses and other current assets

—

—

41,431

356

—

41,787

Total current assets

1,812

12,465

154,645

7,945

—

176,867

Property, plant and equipment, net

—

—

1,770,187

65,691

—

1,835,878

Intangibles and other assets:

Investments

—

8,863

103,854

—

—

112,717

Investments in subsidiaries

3,547,466

3,520,346

17,165

—

(7,084,977)

—

Goodwill

—

—

969,093

66,181

—

1,035,274

Customer relationships, net

—

—

164,069

—

—

164,069

Other intangible assets

—

—

1,470

9,087

—

10,557

Advances due to/from affiliates, net

—

2,289,433

893,394

113,473

(3,296,300)

—

Deferred income taxes

86,447

5,661

—

—

(92,108)

—

Other assets

1,506

—

52,887

522

—

54,915

Total assets

$
3,637,231

$
5,836,768

$
4,126,764

$
262,899

$
(10,473,385)

$
3,390,277

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$
—

$
—

$
30,936

$
—

$
—

$
30,936

Advance billings and customer deposits

—

—

44,436

1,274

—

45,710

Accrued compensation

—

—

56,356

713

—

57,069

Accrued interest

—

7,523

351

—

—

7,874

Accrued expense

50

2,565

71,659

1,132

—

75,406

Current portion of long term debt and finance lease obligations

—

18,350

8,808

143

—

27,301

Total current liabilities

50

28,438

212,546

3,262

—

244,296

Long-term debt and finance lease obligations

—

2,235,609

15,001

67

—

2,250,677

Advances due to/from affiliates, net

3,296,300

—

—

—

(3,296,300)

—

Deferred income taxes

—

—

240,983

24,152

(92,108)

173,027

Pension and postretirement benefit obligations

—

—

285,832

16,464

—

302,296

Other long-term liabilities

—

25,255

46,656

819

—

72,730

Total liabilities

3,296,350

2,289,302

801,018

44,764

(3,388,408)

3,043,026

Shareholders’ equity:

Common Stock

720

—

17,411

30,000

(47,411)

720

Other shareholders’ equity

340,161

3,547,466

3,301,965

188,135

(7,037,566)

340,161

Total Consolidated Communications Holdings, Inc. shareholders’ equity

340,881

3,547,466

3,319,376

218,135

(7,084,977)

340,881

Noncontrolling interest

—

—

6,370

—

—

6,370

Total shareholders’ equity

340,881

3,547,466

3,325,746

218,135

(7,084,977)

347,251

Total liabilities and shareholders’ equity

$
3,637,231

$
5,836,768

$
4,126,764

$
262,899

$
(10,473,385)

$
3,390,277

~~Table of Contents~~

~~Condensed Consolidating Statements of Operations~~

~~(In thousands)~~

Quarter Ended June 30, 2020


Parent

Subsidiary Issuer

Guarantors

Non-Guarantors

Eliminations

Consolidated

Net revenues

$
—

$
—

$
316,557

$
11,710

$
(3,091)

$
325,176

Operating expenses:

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

—

—

138,779

3,737

(2,982)

139,534

Selling, general and administrative expenses

2,521

1

60,561

1,822

(109)

64,796

Depreciation and amortization

—

—

78,568

2,498

—

81,066

Operating income (loss)

(2,521)

(1)

38,649

3,653

—

39,780

Other income (expense):

Interest expense, net of interest income

(25)

(31,035)

(425)

26

—

(31,459)

Intercompany interest income (expense)

—

14,727

(14,711)

(16)

—

—

Investment income

—

—

9,180

—

—

9,180

Equity in earnings of subsidiaries, net

15,779

28,238

260

—

(44,277)

—

Other, net

—

—

653

56

—

709

Income (loss) before income taxes

13,233

11,929

33,606

3,719

(44,277)

18,210

Income tax expense (benefit)

(607)

(3,850)

7,854

878

—

4,275

Net income (loss)

13,840

15,779

25,752

2,841

(44,277)

13,935

Less: net income attributable to noncontrolling interest

—

—

95

—

—

95

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

$
13,840

$
15,779

$
25,657

$
2,841

$
(44,277)

$
13,840

Total comprehensive income (loss) attributable to common shareholders

$
16,289

$
18,228

$
25,983

$
2,850

$
(47,061)

$
16,289

~~Table of Contents~~

Quarter Ended June 30, 2019


Parent

Subsidiary Issuer

Guarantors

Non-Guarantors

Eliminations

Consolidated

Net revenues

$
—

$
—

$
324,710

$
11,982

$
(3,160)

$
333,532

Operating expenses:

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

—

—

143,283

3,541

(3,044)

143,780

Selling, general and administrative expenses

2,012

—

73,707

2,545

(116)

78,148

Depreciation and amortization

—

—

94,811

2,493

—

97,304

Operating income (loss)

(2,012)

—

12,909

3,403

—

14,300

Other income (expense):

Interest expense, net of interest income

(27)

(34,628)

(90)

8

—

(34,737)

Intercompany interest income (expense)

—

14,727

(14,707)

(20)

—

—

Gain on extinguishment of debt

—

249

—

—

—

249

Investment income

—

—

10,750

—

—

10,750

Equity in earnings of subsidiaries, net

(6,015)

7,202

205

—

(1,392)

—

Other, net

4

(14)

(1,625)

(17)

—

(1,652)

Income (loss) before income taxes

(8,050)

(12,464)

7,442

3,374

(1,392)

(11,090)

Income tax expense (benefit)

(663)

(6,449)

2,215

1,119

—

(3,778)

Net income (loss)

(7,387)

(6,015)

5,227

2,255

(1,392)

(7,312)

Less: net income attributable to noncontrolling interest

—

—

75

—

—

75

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

$
(7,387)

$
(6,015)

$
5,152

$
2,255

$
(1,392)

$
(7,387)

Total comprehensive income (loss) attributable to common shareholders

$
(18,947)

$
(17,575)

$
6,110

$
2,323

$
9,142

$
(18,947)

~~Table of Contents~~

Six Months Ended June 30, 2020


Parent

Subsidiary Issuer

Guarantors

Non-Guarantors

Eliminations

Consolidated

Net revenues

$
—

$
—

$
633,611

$
23,372

$
(6,145)

$
650,838

Operating expenses:

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

—

—

275,813

7,406

(5,930)

277,289

Selling, general and administrative expenses

3,599

1

125,407

3,821

(215)

132,613

Depreciation and amortization

—

—

158,826

4,978

—

163,804

Operating income (loss)

(3,599)

(1)

73,565

7,167

—

77,132

Other income (expense):

Interest expense, net of interest income

(50)

(62,589)

(951)

36

—

(63,554)

Intercompany interest income (expense)

—

29,454

(29,422)

(32)

—

—

Gain on extinguishment of debt

—

234

—

—

—

234

Investment income

—

202

19,557

—

—

19,759

Equity in earnings of subsidiaries, net

32,162

57,007

467

—

(89,636)

—

Other, net

—

—

5,191

112

—

5,303

Income (loss) before income taxes

28,513

24,307

68,407

7,283

(89,636)

38,874

Income tax expense (benefit)

(874)

(7,855)

16,296

1,749

—

9,316

Net income (loss)

29,387

32,162

52,111

5,534

(89,636)

29,558

Less: net income attributable to noncontrolling interest

—

—

171

—

—

171

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

$
29,387

$
32,162

$
51,940

$
5,534

$
(89,636)

$
29,387

Total comprehensive income (loss) attributable to common shareholders

$
21,836

$
24,611

$
52,593

$
5,552

$
(82,756)

$
21,836

Six Months Ended June 30, 2019


Parent

Subsidiary Issuer

Guarantors

Non-Guarantors

Eliminations

Consolidated

Net revenues

$
—

$
—

$
653,988

$
24,451

$
(6,258)

$
672,181

Operating expenses:

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

—

—

291,084

7,047

(6,032)

292,099

Selling, general and administrative expenses

3,667

(193)

144,307

4,960

(226)

152,515

Depreciation and amortization

—

—

191,592

4,955

—

196,547

Operating income (loss)

(3,667)

193

27,005

7,489

—

31,020

Other income (expense):

Interest expense, net of interest income

(55)

(68,716)

(257)

8

—

(69,020)

Intercompany interest income (expense)

—

29,454

(29,415)

(39)

—

—

Gain on extinguishment of debt

—

249

—

—

—

249

Investment income

—

190

19,161

—

—

19,351

Equity in earnings of subsidiaries, net

(12,091)

14,444

418

—

(2,771)

—

Other, net

1

42

(3,033)

(31)

—

(3,021)

Income (loss) before income taxes

(15,812)

(24,144)

13,879

7,427

(2,771)

(21,421)

Income tax expense (benefit)

(1,160)

(12,053)

3,971

2,319

—

(6,923)

Net income (loss)

(14,652)

(12,091)

9,908

5,108

(2,771)

(14,498)

Less: net income attributable to noncontrolling interest

—

—

154

—

—

154

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

$
(14,652)

$
(12,091)

$
9,754

$
5,108

$
(2,771)

$
(14,652)

Total comprehensive income (loss) attributable to common shareholders

$
(32,658)

$
(30,097)

$
11,670

$
5,244

$
13,183

$
(32,658)

~~Table of Contents~~

~~Condensed Consolidating Statements of Cash Flows~~

~~(In thousands)~~

Six Months Ended June 30, 2020


Parent

Subsidiary Issuer

Guarantors

Non-Guarantors

Consolidated

Net cash (used in) provided by operating activities

$
(804)

$
(31,290)

$
205,942

$
7,873

$
181,721

Cash flows from investing activities:

Purchases of property, plant and equipment

—

—

(92,194)

(4,043)

(96,237)

Proceeds from sale of assets

—

—

6,070

3

6,073

Proceeds from sale of investments

—

—

426

—

426

Net cash used in investing activities

—

—

(85,698)

(4,040)

(89,738)

Cash flows from financing activities:

Proceeds from issuance of long-term debt

—

40,000

—

—

40,000

Payment of finance lease obligation

—

—

(5,051)

(68)

(5,119)

Payment on long-term debt

—

(89,175)

—

—

(89,175)

Repurchase of senior notes

—

(4,208)

—

—

(4,208)

Transactions with affiliates, net

804

118,162

(115,201)

(3,765)

—

Net cash provided by (used in) financing activities

804

64,779

(120,252)

(3,833)

(58,502)

Increase (decrease) in cash and cash equivalents

—

33,489

(8)

—

33,481

Cash and cash equivalents at beginning of period

—

12,387

8

—

12,395

Cash and cash equivalents at end of period

$
—

$
45,876

$
—

$
—

$
45,876

Six Months Ended June 30, 2019


Parent

Subsidiary Issuer

Guarantors

Non-Guarantors

Consolidated

Net cash (used in) provided by operating activities

$
(607)

$
(35,907)

$
192,092

$
7,684

$
163,262

Cash flows from investing activities:

Purchases of property, plant and equipment

—

—

(115,063)

(4,705)

(119,768)

Proceeds from sale of assets

—

—

14,201

2

14,203

Proceeds from sale of investments

—

—

329

—

329

Other

—

—

(450)

—

(450)

Net cash used in investing activities

—

—

(100,983)

(4,703)

(105,686)

Cash flows from financing activities:

Proceeds from issuance of long-term debt

—

107,000

—

—

107,000

Payment of finance lease obligation

—

—

(6,739)

(72)

(6,811)

Payment on long-term debt

—

(97,175)

—

—

(97,175)

Repurchase of senior notes

—

(4,294)

—

—

(4,294)

Dividends on common stock

(55,445)

—

—

—

(55,445)

Transactions with affiliates, net

56,052

29,849

(82,992)

(2,909)

—

Net cash provided by (used in) financing activities

607

35,380

(89,731)

(2,981)

(56,725)

Increase (decrease) in cash and cash equivalents

—

(527)

1,378

—

851

Cash and cash equivalents at beginning of period

—

9,616

(18)

1

9,599

Cash and cash equivalents at end of period

$
—

$
9,089

$
1,360

$
1

$
10,450

~~Table of Contents~~

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 including the impact of the ongoing novel coronavirus (“COVID-19”) pandemic and our response to it. 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,” “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,” the “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 ~~2019~~2020 Annual Report on Form 10-K filed with the SEC and in Item 1A – “Risk Factors” of this report. 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 six months ended June 30, ~~2020~~2021 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 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. We operate an advanced fiber network spanning ~~over 45,850~~approximately 50,000 fiber route 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.

We generate the majority of our consolidated operating revenues primarily from monthly subscriptions to our broadband, data and transport services (collectively “broadband services”) marketed to business and residential customers. Commercial and carrier services represent the largest source of our operating revenues and are expected to be key growth areas in the future. We are focused on expanding our broadband and commercial product suite and are continually enhancing our commercial product offerings to meet the needs of our business customers. We leverage our advanced fiber network and tailor our services for business customers by developing solutions to fit their specific ~~needs and leveraging a value-~~

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~~based sales approach. We continue to enhance~~needs. Additionally, we are continuously enhancing our suite of managed and cloud services, which increases efficiency and enables greater scalability and reliability for our business customers. In April 2020, we launched ProConnect Unified Communications to businesses in our northern New England markets. This cloud-based collaboration solution enables users to easily make and receive calls, host video conferences and share files, message and manage features from anywhere and any device.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 a competitive broadband ~~or bundled services, which includes high-speed Internet, video and phone services.~~service. As consumer demands for bandwidth continue to increase, our focus is on significantly enhancing our broadband services and ~~progressively increasing broadband~~upgrading data 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. As of June 30, ~~2020,~~2021, approximately ~~58%~~60% of the homes we serve on our legacy Consolidated network had availability to broadband speeds of up to 100 Mbps or greater. The majority of the homes in our northern New England service areas have availability to broadband speeds of 20 Mbps or less. ~~Over the last two years,~~As we ~~upgraded~~continue to increase broadband speeds, we are also able to simultaneously expand the array of services and content offerings that the network provides.

Our investment in more ~~than 750,000~~competitive broadband speeds is critical to our long-term success. The strategic investment with Searchlight Capital Partners L.P. (“Searchlight”) combined with the refinancing of our capital structure, as described below, provides us additional capital to accelerate our fiber expansion plans and provide significant benefits to our consumer, commercial and carrier customers. With the strategic investment, we intend to enhance our fiber infrastructure and accelerate our investments in high-growth and competitive areas. By leveraging our existing dense core fiber network and an accelerated build plan, we will be able to significantly increase data speeds, expand our multi-Gig coverage and strategically extend our network across our strong existing commercial and carrier footprint to attract more on-net and near-net opportunities. As part of our fiber expansion plan, we plan to upgrade approximately 1.6 million passings over the next five years across select service areas to enable multi-Gig capable services to these homes and small businesses ~~primarily across~~including more than 1 million passings within our northern New England service areas. ~~The upgrades enable customers to receive broadband speeds up to three times faster than what was previously available. We continue to focus on bringing higher broadband speeds~~Our fiber build plan includes the upgrade of approximately 300,000 homes and ~~improving customer experience by expanding~~small businesses in 2021. During the ~~availability of 1 Gbps broadband services. This provides our residential customers with a wider selection of services~~quarter and programming, as well as provides the speeds they need to enjoy the latest in streaming video applications. Businesses also get a boost by being able to take full advantage of cloud-based applications.six months ended June 30, 2021, we upgraded approximately 76,300 and 122,100 passings, respectively.

Our competitive broadband speeds enable us ~~to continue~~ to meet the need for higher bandwidth from the growing consumer demand for streaming live programming or in-demand content on any device. The consumers demand for streaming services, either to augment their current video subscription plan or to entirely replace their video subscription may impact our future video subscriber base and, accordingly, reduce our video revenue as well as our video programing costs. Total video connections decreased ~~11%~~12% as of June 30, ~~2020~~2021 compared to ~~the same period in 2019.~~June 30, 2020. 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 speeds to facilitate streaming content. In 2019, we launched in our northern New England 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. ~~In June 2020, we~~We expanded CCiTV to customers in our Texas ~~markets. We continue to work on the expansion of CCiTV to~~markets in June 2020 and in our ~~other service areas.~~California and Illinois markets in October 2020.

Operating revenues also continue to be impacted by the ~~anticipated~~ industry-wide trend of 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 June 30, ~~2020~~2021 compared to ~~the same period in 2019.~~2020. 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 (“ICC”) 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.

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Recent Developments

Searchlight Investment

On September 13, 2020, we entered into an investment agreement (the “Investment Agreement”) with Searchlight. In connection with the Investment Agreement, affiliates of Searchlight have committed to invest up to an aggregate of $425.0 million in the Company. The investment commitment is structured in two stages. In the first stage of the transaction, which was completed on October 2, 2020, Searchlight invested $350.0 million in the Company in exchange for 6,352,842 shares, or approximately 8%, of the Company’s common stock and a contingent payment right (“CPR”) that is convertible, upon the receipt of certain regulatory and shareholder approvals, into an additional 17,870,012 shares, or 16.9% of the Company’s common stock. In addition, Searchlight will receive the right to an unsecured subordinated note with an aggregate principal amount of approximately $395.5 million (the “Note”).

In the second stage of the transaction, Searchlight will invest an additional $75.0 million and will be issued the Note, which will be convertible into shares of a new series of perpetual preferred stock of the Company with an aggregate liquidation preference equal to the principal amount of the Note plus accrued interest as of the date of conversion. The Note may be issued to Searchlight prior to the closing of the second stage of the transaction upon the occurrence of certain events. The Note bears interest at 9.0% per annum from the date of the closing of the first stage of the transaction and is payable semi-annually in arrears. Upon conversion of the Note, dividends on the preferred stock will accrue daily on the liquidation preference at a rate of 9.0% per annum, payable semi-annually in arrears. In addition, following shareholder approval and the receipt of applicable regulatory approvals, the CPR will be convertible into an additional 15,115,899 shares, or an additional 10.1%, of the Company’s common stock. Upon completion of both stages, the common stock and CPR issued to Searchlight will represent approximately 35% of the Company’s common stock on an as-converted basis. The closing of the second stage of the transaction is subject to the receipt of FCC, certain state public utility commission regulatory and Hart Scott Rodino approvals and the satisfaction of certain other customary closing conditions.

We have received approval under the Hart-Scott-Rodino Act and on April 26, 2021, we received approval from the Company’s shareholders. On July 15, 2021, the Company received all required state public utility commission regulatory approvals necessary for the conversion of the CPR into 16.9% additional shares of the Company’s common stock. As a result, the CPR was converted into 17,870,012 shares of common stock as of such date, which were issued to Searchlight on July 16, 2021. These shares, together with the shares issued to Searchlight on October 2, 2020 in the first stage of the investment, constitute approximately 24.5% of the Company’s outstanding common stock. We expect the closing of the second stage to be completed later this year, subject to the receipt of FCC approval and the satisfaction of certain other customary closing conditions. The strategic investment with Searchlight provides us a valued partner with significant experience deploying broadband infrastructure as we continue to execute our fiber-focused strategy and grow broadband services.

Refinancing of Long-term Debt

On October 2, 2020, the Company and certain of its wholly-owned subsidiaries completed a refinancing of our long-term debt through the issuance of $2,250.0 million in new secured debt and retired all of our existing then outstanding debt obligations. As described in the “Liquidity and Capital Resources” section, we entered into a new credit agreement and issued $750.0 million aggregate principal amount of 6.50% senior secured notes due 2028. On January 15, 2021, the Company issued an additional $150.0 million aggregate principal amount of incremental term loans under the credit agreement. On March 18, 2021, we issued $400.0 million aggregate principal amount 5.00% Senior Notes and used the net proceeds from the issuance of notes to repay $397.0 million of the Term Loans outstanding under the credit agreement. On April 5, 2021, we entered into an amendment to the credit agreement to refinance the outstanding Term Loans, which reduced the interest rate to 3.50% plus LIBOR subject to a 0.75% LIBOR floor. The refinancings extended the maturities of our debt obligations and improved our liquidity, which, combined with the strategic investment with Searchlight, provides us the immediate flexibility to support our planned expansion of our fiber network and revenue growth plan.

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COVID-19 Pandemic

We are closely monitoring the impact on our business of the ~~current~~ outbreak of the COVID-19 pandemic. We are taking precautions to ensure the safety of our employees, customers and business partners, while assuring business continuity and reliable service and support to our customers. Health and safety measures implemented include transitioning to remote work-from-home policies, providing our field technicians with personal protective equipment and additional safety training, practicing social distancing and adding call aheads for work that must be performed inside customer premises. We are proactively monitoring and augmenting our network capacity, to meet the higher demands for data usage during the pandemic as a result of increased usage from work from home and remote learning applications. As a result of the pandemic, the demand for bandwidth upgrades has increased for our consumer, commercial and carrier customers. Our existing network enables us to efficiently respond and adapt to the increase in internet traffic during this time.

While we have not seen a significant adverse impact to our financial results from COVID-19 to date, the extent of the future impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict. Capital markets and the US economy have also been significantly impacted by the pandemic and an economic recession. Adverse economic and market conditions as a result of COVID-19 could also adversely affect the demand for our products and services and may also impact the ability of our customers to satisfy their obligations to us. If the pandemic ~~continues to cause~~worsens or new variants of the virus become more dominant and causes significant negative impacts to economic conditions, our results of operations, financial condition and liquidity could be materially and adversely impacted. ~~See Part II, Item 1A – “Risk Factors”.~~

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted by the U.S. government as an emergency economic stimulus package that includes spending and tax breaks to strengthen the US economy and fund a nationwide effort to curtail the economic effects of COVID-19. The CARES Act ~~includes,~~included, among other things, the deferral of certain employer payroll tax payments ~~the delay in payment of minimum required pension contributions due in 2020 until January 1, 2021~~ and certain income tax law ~~changes including modifications to the net interest deduction limitations.~~changes. In ~~April~~ 2020, we ~~began deferring~~deferred the payment of approximately $12.0 million for the employer portion of Social Security taxes ~~and estimate that approximately $12.0 million for employer payroll tax payments~~ otherwise due in 2020 ~~could be deferred~~ with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022. ~~The deferral~~On March 11, 2021, the American Rescue Plan Act of ~~employer payroll tax payments for future quarters in 2020 will~~2021 was enacted and provides further economic relief to address the continued ~~to be assessed based on the extent~~economic impact of ~~the future impacts of COVID-19 on our business and cash flows. At this time, we have elected~~COVID-19. These Acts did not ~~to delay the payment of our minimum required pension contributions due in 2020. The CARES Act is not expected to~~ have a material impact on our consolidated financial ~~statements.~~statements and we will continue to monitor the impact of any effects from these Acts and other future legislation.

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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 six months ended June 30, ~~2020~~2021 and ~~2019.~~2020.

Financial Data


	Quarter Ended June 30,								Six Months Ended June 30,								Quarter Ended June 30,								Six Months Ended June 30,
(In millions, except for percentages)	2020		2019		$ Change		% Change		2020		2019		$ Change		% Change		2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Operating Revenues
Commercial and carrier:
Data and transport services (includes VoIP)	$	89.5	$	88.6	$	0.9	1	%	$	179.1	$	176.7	$	2.4	1	%	$	90.8	$	89.5	$	1.3	1	%	$	181.1	$	179.1	$	2.0	1	%
Voice services		45.8		47.1		(1.3)	(3)			91.5		95.2		(3.7)	(4)			43.5		45.8		(2.3)	(5)			87.8		91.5		(3.7)	(4)
Other		10.4		13.4		(3.0)	(22)			22.1		28.6		(6.5)	(23)			9.5		10.4		(0.9)	(9)			19.2		22.1		(2.9)	(13)
		145.7		149.1		(3.4)	(2)			292.7		300.5		(7.8)	(3)			143.8		145.7		(1.9)	(1)			288.1		292.7		(4.6)	(2)
Consumer:
Broadband (Data and VoIP)		65.6		64.1		1.5	2			129.7		127.2		2.5	2			68.0		65.6		2.4	4			133.8		129.7		4.1	3
Video services		19.2		20.3		(1.1)	(5)			38.3		41.0		(2.7)	(7)			16.8		19.2		(2.4)	(13)			33.6		38.3		(4.7)	(12)
Voice services		43.1		45.2		(2.1)	(5)			86.3		91.1		(4.8)	(5)			40.2		43.1		(2.9)	(7)			80.6		86.3		(5.7)	(7)
		127.9		129.6		(1.7)	(1)			254.3		259.3		(5.0)	(2)			125.0		127.9		(2.9)	(2)			248.0		254.3		(6.3)	(2)
Subsidies		18.1		18.1		—	—			36.5		36.2		0.3	1			17.4		18.1		(0.7)	(4)			34.8		36.5		(1.7)	(5)
Network access		30.5		34.2		(3.7)	(11)			62.0		70.8		(8.8)	(12)			31.1		30.5		0.6	2			62.7		62.0		0.7	1
Other products and services		2.9		2.5		0.4	16			5.3		5.3		—	—			3.1		2.9		0.2	7			11.6		5.3		6.3	119
Total operating revenues		325.1		333.5		(8.4)	(3)			650.8		672.1		(21.3)	(3)			320.4		325.1		(4.7)	(1)			645.2		650.8		(5.6)	(1)

Operating Expenses
Cost of services and products (exclusive of depreciation and amortization)		139.5		143.8		(4.3)	(3)			277.3		292.1		(14.8)	(5)			145.3		139.5		5.8	4			289.3		277.3		12.0	4
Selling, general and administrative costs		64.8		78.1		(13.3)	(17)			132.6		152.5		(19.9)	(13)			69.0		64.8		4.2	6			135.9		132.6		3.3	2
Depreciation and amortization		81.1		97.3		(16.2)	(17)			163.8		196.5		(32.7)	(17)			76.1		81.1		(5.0)	(6)			151.7		163.8		(12.1)	(7)
Total operating expenses		285.4		319.2		(33.8)	(11)			573.7		641.1		(67.4)	(11)			290.4		285.4		5.0	2			576.9		573.7		3.2	1
Income from operations		39.7		14.3		25.4	178			77.1		31.0		46.1	149			30.0		39.7		(9.7)	(24)			68.3		77.1		(8.8)	(11)
Interest expense, net		(31.4)		(34.8)		(3.4)	(10)			(63.5)		(69.0)		(5.5)	(8)			(45.4)		(31.4)		14.0	45			(93.8)		(63.5)		30.3	48
Gain on extinguishment of debt		—		0.3		(0.3)	(100)			0.2		0.3		(0.1)	(33)
Gain (loss) on extinguishment of debt																		(5.1)		—		(5.1)	100			(17.1)		0.2		(17.3)	(8,650)
Change in fair value of contingent payment rights																		(39.8)		—		(39.8)	100			(97.4)		—		(97.4)	100
Other income, net		9.9		9.1		0.8	9			25.1		16.3		8.8	54			10.6		9.9		0.7	7			22.9		25.1		(2.2)	(9)
Income tax expense (benefit)		4.2		(3.8)		8.0	211			9.3		(6.9)		16.2	235
Income tax expense																		5.4		4.2		1.2	29			0.1		9.3		(9.2)	(99)
Net income (loss)		14.0		(7.3)		21.3	292			29.6		(14.5)		44.1	304			(55.1)		14.0		(69.1)	(494)			(117.2)		29.6		(146.8)	(496)
Net income attributable to noncontrolling interest		0.1		0.1		—	—			0.2		0.2		—	—			0.3		0.1		0.2	200			0.3		0.2		0.1	50
Net income (loss) attributable to common shareholders	$	13.9	$	(7.4)	$	21.3	288		$	29.4	$	(14.7)	$	44.1	300		$	(55.4)	$	13.9	$	(69.3)	(499)		$	(117.5)	$	29.4	$	(146.9)	(500)
																			��
Adjusted EBITDA ⁽¹⁾	$	133.1	$	131.4	$	1.7	1	%	$	264.7	$	261.7	$	3.0	1	%	$	126.7	$	133.1	$	(6.4)	(5)	%	$	253.3	$	264.7	$	(11.4)	(4)	%

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

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Key Operating Statistics


	As of June 30,					As of June 30,
	2020	2019	Change	% Change		2021	2020	Change	% Change
Consumer customers	569,148	609,876	(40,728)	(7)	%	535,070	569,148	(34,078)	(6)	%

Voice connections	809,457	873,269	(63,812)	(7)		752,240	809,457	(57,217)	(7)
Data connections	791,203	783,008	8,195	1		796,669	791,203	5,466	1
Video connections	80,053	89,531	(9,478)	(11)		70,795	80,053	(9,258)	(12)
Total connections	1,680,713	1,745,808	(65,095)	(4)	%	1,619,704	1,680,713	(61,009)	(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~~software defined wide area network (“SD-WAN”) and ~~MPLS.~~multi-protocol label switching. 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 ~~$0.9~~$1.3 million and ~~$2.4~~$2.0 million during the quarter and six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019~~2020 primarily due to continued growth in Metro Ethernet, VoIP and ~~VoIP~~SD-WAN 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 four 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 ~~$1.3~~$2.3 million and $3.7 million during the quarter and six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019~~2020 primarily due to ~~an 8%~~a 7% 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, including 9-1-1 service revenues. We are a full service 9-1-1 provider and have installed and maintained two turn-key, state of the art statewide next-generation emergency 9-1-1 systems. These systems, located in Maine and Vermont, have processed several million calls relying on the caller's location information for routing. As of October 29, 2020, we were no longer the 9-1-1 service provider in Vermont. 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.

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Other services revenues decreased ~~$3.0~~$0.9 million and ~~$6.5~~$2.9 million during the quarter and six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019~~2020 primarily due ~~to a decline~~the expiration of our 9-1-1 service contract in ~~business system sales.~~Vermont as well as declines in custom construction projects and pole attachment revenue.

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. CCiTV, which is a customizable, cloud-enabled video service, supports a wide variety of viewing habits and provides an app-based approach to video services. Content can be delivered in high-definition quality to a big-screen TV, as well as to tablets and mobile devices.

Broadband services revenues increased ~~$1.5~~$2.4 million and ~~$2.5~~$4.1 million during the quarter and six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019~~2020 despite a decrease in data and VoIP connections of 4%5% and ~~15%~~17%, respectively, primarily as a result of price increases implemented during 2021 as well as growth in revenue for CCiTV, which was launched in additional markets during 2020.

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 tocan also watch their favorite shows, movies and livestreams on any device. In addition, we offer other in-demand streaming content including: ~~DIRECTV®, DIRECTV NOW~~^SM,ATT TV, fuboTV, Philo and HBO NOW®~~, FlixFling and VEMOX.~~.

Video services revenues decreased ~~$1.1~~$2.4 million and ~~$2.7~~$4.7 million during the quarter and six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019~~2020 primarily due to ~~an 11%~~a 13% 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 ~~$2.1~~$2.9 million and ~~$4.8~~$5.7 million during the quarter and six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019~~2020 primarily due to ~~an 8%~~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

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 ~~increased $0.3~~decreased $0.7 million and $1.7 million during the quarter and six months ended June 30, ~~2020~~2021, respectively, compared to the same ~~period~~periods in ~~2019~~ 2020 primarily due to a ~~one-time adjustment~~reduction in ~~2020 related to National Exchange Carrier Association (“NECA”) subsidies.~~state subsidies support.

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Network Access Services

Network access services include interstate and intrastate switched access, network special access and end user access. Switched access revenues include access services to other communications carriers to terminate or originate ~~long-distance~~long-

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distance calls on our network. Special access circuits provide dedicated lines and trunks to business customers and interexchange carriers. Network access services revenues ~~decreased $3.7~~increased $0.6 million and ~~$8.8~~$0.7 million during the quarter and six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019~~2020 primarily ~~as a result of~~due to increases in the Federal Universal Service Fund Contribution Factor during 2021, offset by the continuing decline in interstate rates, 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.~~circuits.

Other Products and Services

Other products and services include revenues from telephone directory publishing, video advertising, billing and support services and other miscellaneous revenues. We have entered into multiple Public Private Partnership agreements with several towns in New Hampshire to build new FTTP Internet networks. When complete, the new town networks will provide broadband speeds of up to 1 Gbps to a number of homes and businesses. Public Private Partnerships are a key component of Consolidated’s commitment to expand rural broadband access.

Other products and services revenues increased ~~$0.4~~$0.2 million and $6.3 million during the quarter and six months ended June 30, ~~2020~~2021, respectively, compared to the same ~~period~~periods in ~~2019~~2020 primarily due to ~~the settlement~~revenue recognition of ~~a business interruption insurance claim related to Hurricane Michael.~~Public Private Partnership construction projects during 2021.

Operating Expenses

Cost of Services and Products

Cost of services and products ~~decreased $4.3~~increased $5.8 million and ~~$14.8~~$12.0 million during the quarter and six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019~~2020 primarily due to ~~a decline~~an increase in ~~employee salaries and benefits in 2020~~access expense related to fiber costs for the Public Private Partnership agreements, as ~~a result~~described above. In addition, during the quarter ended June 30, 2021, we incurred access charges of $3.4 million related to the early termination of a ~~reduction~~contract obligation for fixed wireless services. Required contributions to the Federal Universal Service Fund (“USF”) also increased in headcount through cost savings initiatives. Cost of goods sold related to equipment sales decreased from a decline in business system sales in the current year. Video programming costs also decreased2021 as a result of an ~~11%~~increase in the annual funding rate. These increases in cost of services and products were reduced in part by a decline in ~~video connections. In addition, contract~~employee labor costs ~~and repair and maintenance expense decreased as a result of operating efficiency improvements.~~due to an increase in capitalized costs for the fiber network expansion in 2021.

Selling, General and Administrative Costs

Selling, general and administrative costs ~~decreased $13.3~~increased $4.2 million and ~~$19.9~~$3.3 million during the quarter and six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019~~2020 primarily due to ~~a decline~~an increase in ~~integration~~advertising expense for additional radio and ~~severance costs incurred~~television advertising in ~~2019 in connection with cost savings initiatives. Employee~~the current year to promote our new fiber broadband speeds. However, employee salaries and benefits ~~also~~ declined ~~in 2020~~ as a result of a reduction in ~~headcount. Advertising expense decreased from a decline in branding costs and radio and television advertising~~headcount in the current year. ~~However, customer acquisition costs increased related~~Property and real estate taxes also decreased primarily due to ~~the amortization of sales commissions following the adoption of ASC 606.~~property tax refunds and settlements received in 2021.

Depreciation and Amortization

Depreciation and amortization expense decreased ~~$16.2~~$5.0 million and ~~$32.7~~$12.1 million during the quarter and six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019~~2020 primarily due to certain acquired assets becoming fully depreciated or amortized. Amortization expense declined for customer relationships, which are amortized under the accelerated method. Depreciation expense also declined due to the sale of utility poles located in the state of ~~Vermont~~New Hampshire in ~~June 2019.~~2020. These declines in depreciation and amortization expense were offset in part by ongoing capital expenditures related to success-based capital projects for consumer and commercial services as well as the fiber network ~~enhancements~~expansion and customer service improvements.

Regulatory Matters

Our revenues are subject to broad federal and/or state ~~regulation,~~regulations, 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”);~~

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	●		~~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.~~

service. The telecommunications industry is subject to extensive federal, state and local regulation. Under the Telecommunications Act of 1996, federal and state regulators share responsibility

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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.

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~~rural telephone 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~~costlier 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”)~~USF subsidies promote widely available, quality telephone service at affordable prices in rural areas.

Our current annual support through the FCC’s Connect America Fund (“CAF”) Phase II funding is $48.1 million through ~~2020.~~2021, as described below. The specific obligations associated with CAF Phase II funding ~~include~~included 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 through ~~2019 and currently is on target to achieve the~~ 2020 ~~milestone~~ for all states where it operates.

We accepted CAF Phase II support in all of our operating states except Colorado and Kansas where we declined the offered CAF Phase II ~~support was declined.~~support. We continued to receive annual frozen CAF Phase I support of $1.0 million in Colorado and Kansas until April 2019, when the FCC CAF Phase II auction assigned support to another provider.

The annual FCC price cap filing was made on June ~~17, 2019~~16, 2021 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.~~2021. The net impact is a decrease of ~~$0.5~~approximately $3.3 million in network access and CAF ICC support funding for the July ~~2019~~2021 through June ~~2020~~2022 tariff period.

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

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~~In January 2020, the FCC approved a report and order on the RDOF addressing the CAF Phase II transition, letter of credit and auction process.~~ The order prioritizes terrestrial broadband as a bridge to rural 5G networks by providing a significant weight advantage to traditional broadband providers. Funding will occur in two phases with the first phase auctioning $16.0 billion and the second phase auctioning $4.4 billion, each to be distributed over 10 years. The minimum speed required to receive funding is 25 Mbps downstream and 3 Mbps upstream. There are three additional tiers ranging from 50 Mbps downstream/5 Mbps upstream to 1 Gbps downstream/500 Mbps upstream. The auction is a reverse auction process with higher weighting for those that choose a higher speed buildout requirement. The auction process is currently scheduled to occur on October 22, 2020. CAF Phase II funding has been extended through December 31, 2021 for price cap holding companies. The FCC ~~has~~ issued the final census block groups with locations and reserve price. ~~The~~We filed the RDOF short form application ~~which the Company completed, was due by~~on July ~~15, 2020. The transition in funding from CAF Phase II to the RDOF could result in~~14, 2020 and were listed as a ~~material change in the level of funding we receive from the FCC as of 2022.~~

~~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 deemedqualified bidder by the FCC on October 13, 2020 and participated in the auction. The auction began on October 29, 2020 and ended on November 24, 2020. Consolidated won 246 census block groups serving in seven states. The bids we won are at the 1 Gbps downstream and 500 Mbps upstream speed tier to ~~be non-competitive, but are eligible for Phase I price flexibility. The FCC published~~approximately 27,000 locations at a ~~list~~funding level of ~~counties deemed competitive~~$5.9 million annually over 10 years. Consolidated filed its long form application with supporting documents on January 29, 2021 and ~~non-competitive. Geographic areas previously under Phase II price flexibility will not be rate regulated for any BDS services.~~ we expect to receive approval during the third or fourth quarter of 2021.

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.

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~~FairPoint Merger Requirements~~State Matters

~~As part~~Texas

The Texas Universal Service Fund (“TUSF”) is administered by the National Exchange Carrier Association (“NECA”). The Texas Public Utilities Regulatory Act directs the Public Utilities Commission of ~~our acquisition of FairPoint Communications,~~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 TUSF is also used to reimburse telecommunications providers for revenues lost by providing lifeline service. Our Texas rural telephone companies receive disbursements from this fund.

Our Texas Incumbent Local Exchange Carriers (“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”). In December 2020, the PUCT announced a TUSF funding shortfall and would be reducing all funded carriers support by 64% beginning January 15, 2021. The Texas Telephone Association (“TTA”), which Consolidated is a member, and the Texas Statewide Telephone Cooperative, Inc. (“~~FairPoint”~~TSTCI”), filed a lawsuit seeking to overturn the PUCT decision as well as a temporary injunction on the funding reduction. On June 7, 2021, the court ruled in ~~2017,~~favor of the PUCT. The TTA and TSTCI filed a notice to appeal on July 2, 2021. The briefing schedule is expected to begin in late August 2021 and we ~~have regulatory commitments that vary by state, some~~expect the appeal process to take nine months. The potential impact is a reduction in support 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 investapproximately $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 through 2019, and we currently expect to achieve all of the regulatory commitments for 2020 for Maine, New Hampshire and Vermont. We completed merger requirements for Illinois in December 2018 and New York in June 2020, both within the required time commitment. Completion of the remainder of our merger commitments could change should the impact of COVID-19 cause us to change our capital expenditure deployment for the remainder of 2020.annually.

CARES Act Funding

States are reviewing opportunities to use federal CARES Act funding to assist in the deployment of broadband to unserved and underserved areas within their respective states. ~~All broadband build outs must be completed by year end to receive funding.~~In 2020, New Hampshire ~~has reserved approximately $30.0~~allocated $50.0 million of CARES Act funding to fund broadband expansion to unserved and underserved locations throughout the state. Consolidated was granted up to $3.5 million to ~~fund these efforts~~build high-speed Internet networks for homes and ~~has issued a request~~businesses in New Hampshire for ~~proposals (“RFP”). Partial funding will be provided~~the towns of Danbury, Springfield and Mason. The state funded 10% upfront with the remainder received upon ~~completion. Vermont has identified 69,000 locations that are unserved or underserved~~completion of projects in the state and is issuing approximately $14.0 million in funding. They are expected to issue their RFP requirements in the near future. Consolidated expects to participate in the RFP process for both New Hampshire and Vermont. We will review and address other states as more information becomes available.December 2020.

COVID-19

On March 13, 2020, ~~Chairman Pai of~~ the FCC issued a pledge to ~~keep~~Keep America ~~connected~~Connected through May 13, 2020, which was later extended to June 30, 2020. The pledge asked all communications providers to not terminate service to any residential or small business customers because of their inability to pay their bills due to the disruptions caused by the coronavirus pandemic; to waive any late fees that any residential or small business customers incur because of their economic circumstances related to the coronavirus pandemic; and to open their Wi-Fi hotspots to any American who needs them.

Consolidated signed on to ~~the pledge, as well as the Chairman’s extension of~~ the pledge through June 30, 2020. Several states took the FCC pledge a step further by not allowing any carrier to disconnect service within their state during the Governors’ declared state of ~~emergency.~~ emergency, which Consolidated also supported. Most state moratoriums on disconnections have expired; however, certain states such as Washington and New York were extended to July 31, 2021 and December 31, 2021, respectively.

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, ICC, 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.

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Non-Operating Items

~~Other Income and~~Interest Expense, Net

Interest expense, net of interest income, ~~decreased $3.4~~increased $14.0 million and ~~$5.5~~$30.3 million during the quarter and six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019 primarily due to a decline in variable interest rates on borrowings under our credit facilities. The decrease in~~2020. During the quarter and six months ended June 30, 2021, we recognized interest expense, ~~was also due~~including amortized costs, of $10.9 million and $21.1 million, respectively, on the Note issued to ~~a reduction~~Searchlight as part of the investment agreement entered into in ~~interest~~October 2020. Interest expense on our ~~6.50% Senior Notes due 2022 (“Senior Notes”),~~outstanding senior notes also increased during the quarter and six months ended June 30, 2021 as part of the refinancing of our long-term debt as described in the “Liquidity and Capital Resources” section below.

Gain on Extinguishment of Debt

As described in the “Liquidity and Capital Resources” section below, aswe incurred a ~~result~~loss on the extinguishment of debt of $12.0 million in connection with the ~~repurchase~~repayment of ~~$59.5~~$397.0 million of outstanding term loans under our credit agreement during the ~~aggregate principal amount~~six months ended June 30, 2021. In addition, we recognized a loss of $5.1 million on the ~~Senior Notes from~~extinguishment of debt during the quarter and six-month period ended June ~~2019 through June 2020.~~30, 2021 related to the refinancing of our credit agreement in April 2021.

During the six months ended June 30, 2020, we repurchased $4.5 million of the aggregate principal amount of our 6.50% Senior Notes due 2022 and recognized a gain on extinguishment of debt of $0.2 million in connection with the partial repurchase of the ~~Senior Notes.~~notes.

Change in Fair Value of Contingent Payment Rights

We are required to measure our contingent payment rights at fair value until they are converted into shares of the Company’s common stock. During the quarter and six months ended June 30, ~~2019,~~2021, we ~~repurchased $4.6~~recognized a loss of $39.8 million and $97.4 million, respectively, on the increase in the fair value of the ~~aggregate principal amount of our Senior Notes and recognized a gain on extinguishment of debt of $0.3 million in connection with the partial repurchase of the Senior Notes.~~contingent payment right issued to Searchlight.

Other Income

Other income increased ~~$0.8~~$0.7 million and ~~$8.8~~decreased $2.2 million during the quarter and six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019 primarily due to a decrease in pension~~2020. Investment income increased $2.3 million and $1.2 million during the quarter and six months ended June 30, 2021, respectively, from our wireless partnership interests. Pension and post-retirement expense ~~of $2.3~~decreased $1.9 million and ~~$4.6~~$3.8 million, respectively. See Note 1011 to the condensed consolidated financial statements for a more detailed discussion regarding our pension and post-retirement plans. ~~Investment income decreased $1.6 million and increased $0.4 million~~However, during the quarter and six months ended June 30, ~~2020, respectively, from our~~2021, we recognized a loss of $3.6 million on the disposition of wireless ~~partnership interests. In addition, during~~spectrum licenses. During the six months ended June 30, 2020, we recognized a gain of $3.7 million on the sale of our 39 GHz wireless spectrum ~~licenses.~~ licenses as part of the FCC’s efforts to reclaim broadcast TV spectrum for wireless use.

Income Taxes

For the quarter and six months ended June 30, 2021, the Company has utilized the discrete effective tax rate method, as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18, “Income Taxes – Interim Reporting,” to calculate its interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year to date period as if it was the annual period and determines the income tax expense or benefit on that basis. The Company believes that, at this time, the use of the discrete method is more appropriate than the annual effective tax rate method as (i) the estimated annual effective tax rate method is not reliable due to the high degree of uncertainty in estimating annual pretax earnings and (ii) small changes in the projected ordinary annual income would result in significant changes in the estimated annual effective rate. The uncertainty in the estimated pretax earnings is driven by uncertainty in the date of regulatory approval and second closing date in connection with the Searchlight transaction.

Income taxes increased ~~$8.0~~$1.2 million and ~~$16.2~~decreased $9.2 million during the quarter and six months ended June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019.~~2020. Our effective tax rate was (10.9)% and 23.5% for the quarters ended

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June 30, 2021 and ~~34.1%~~2020, respectively and (0.1)% and 24.0% for the six-month periods ended June 30, 2021 and 2020, respectively. Exclusive of the discrete effective tax rate method and the discrete permanent income tax impact related to the Searchlight transaction, our effective tax rate for the quarters ended June 30, 2021 and 2020 would have been approximately 24.6% and ~~2019,~~23.5%, respectively and ~~24.0%~~approximately 24.5% and ~~32.3%~~24.0% for the ~~six months~~six-month periods ended June 30, 2021 and 2020, respectively. In addition, the investment made by Searchlight in 2020 is treated as a contribution of equity for federal tax purposes. Accordingly, the impact of the non-cash PIK interest expense, discount and ~~2019, respectively. For~~issuance costs, and fair value adjustments on the ~~quarters and six months ended June 30, 2020 and 2019, the~~CPR are not recognized for federal income tax purposes, resulting in permanent adjustments to our effective tax rate. The effective tax rate differed from the federal and state statutory rates primarily due to various permanent income tax differences related to the Searchlight transaction, recurring permanent tax differences, and differences in allocable income for the Company’s state tax filings.

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.

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The following table is a reconciliation of net income (loss) to adjusted EBITDA for the quarters and six months ended June 30, ~~2020~~2021 and ~~2019:~~2020:


	Quarter Ended				Six Months Ended				Quarter Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
(In thousands, unaudited)	2020		2019		2020		2019		2021		2020		2021		2020
Net income (loss)	$	13,935	$	(7,312)	$	29,558	$	(14,498)	$	(55,089)	$	13,935	$	(117,172)	$	29,558
Add (subtract):
Interest expense, net of interest income		31,459		34,737		63,554		69,020		45,431		31,459		93,846		63,554
Income tax expense (benefit)		4,275		(3,778)		9,316		(6,923)
Income tax expense										5,413		4,275		113		9,316
Depreciation and amortization		81,066		97,304		163,804		196,547		76,079		81,066		151,690		163,804
EBITDA		130,735		120,951		266,232		244,146		71,834		130,735		128,477		266,232

Adjustments to EBITDA:
Other, net ⁽¹⁾		(9,605)		(1,773)		(24,244)		(3,445)		(5,233)		(9,605)		(15,642)		(24,244)
Investment distributions ⁽²⁾		9,632		10,628		19,696		17,918		12,656		9,632		22,033		19,696
Gain on extinguishment of debt		—		(249)		(234)		(249)
(Gain) loss on extinguishment of debt										5,121		—		17,101		(234)
Change in fair value of contingent payment rights										39,826		—		97,414		—
Non-cash, stock-based compensation		2,334		1,814		3,224		3,312		2,493		2,334		3,943		3,224
Adjusted EBITDA	$	133,096	$	131,371	$	264,674	$	261,682	$	126,697	$	133,096	$	253,326	$	264,674

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

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

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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 on long-term debt~~for our accelerated fiber network expansion and growth plan and invest in future business opportunities.

The following table summarizes our cash flows:


	Six Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2020		2019		2021		2020
Cash flows provided by (used in):
Operating activities	$	181,721	$	163,262	$	185,831	$	181,721
Investing activities		(89,738)		(105,686)		(283,876)		(89,738)
Financing activities		(58,502)		(56,725)		141,798		(58,502)
Change in cash and cash equivalents	$	33,481	$	851	$	43,753	$	33,481

Cash Flows Provided by Operating Activities

Net cash provided by operating activities was ~~$181.7~~$185.8 million during the six-month period ended June 30, ~~2020,~~2021, an increase of ~~$18.5~~$4.1 million compared to the same period in ~~2019. Cash flows provided by operating activities increased~~2020. The increase is primarily as a result of ~~an increase~~changes in ~~earnings primarily from a reduction in operating expenses through cost management initiatives~~working capital and ~~improved operating efficiencies. In addition, interest payments decreased approximately $4.6 million from prior~~

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~~year due a decrease in variable interest rates in 2020.~~expenditures and cash receipts. Cash distributions received from our wireless partnerships also increased ~~$1.8~~$2.3 million during the six-month period ended June 30, ~~2020~~2021 compared to the same period in ~~2019.~~ 2020. In addition, cash contributions to our defined benefit pension plan decreased $1.7 million during the six-month period ended June 30, 2021 compared to the same period in 2020.

Cash Flows Used In Investing Activities

Net cash used in investing activities was ~~$89.7~~$283.9 million during the six-month period ended June 30, ~~2020~~2021 and consisted primarily of cash used for capital expenditures and ~~cash received from~~ the ~~sale~~purchase of ~~assets.~~short-term investments. Capital expenditures continue to be our primary recurring investing activity and were ~~$96.2~~$195.2 million and ~~$119.8~~$96.2 million during the six-month periods ended June 30, 2021 and 2020, respectively. Capital expenditures for 2021 are expected to be $400.0 million to $420.0 million, which will be used to support success-based capital projects for commercial, carrier and ~~2019, respectively.~~ consumer initiatives and for our planned fiber projects and broadband network expansion, which will include the upgrade in 2021 of more than 300,000 passings with multi-Gig data speeds. We expect to continue to invest in the enhancement and expansion of our fiber network in order to retain and acquire more customers through a broader set of products and an expanded network footprint.

During the six months ended June 30, 2021, we purchased $90.0 million in short-term investments consisting primarily of held-to-maturity debt securities with original maturities of three to twelve months.

Cash proceeds from the sale of assets decreased ~~$8.1~~$6.0 million during the six-month period ended June 30, ~~2020.~~2021. During the ~~quarter and~~ six months ended June 30, 2020, we received cash proceeds of $3.7 million on the sale of our 39 GHz wireless spectrum licenses. ~~During the quarter and six months ended June 30, 2019, we received cash proceeds of approximately $12.4 million for the sale of utility poles located in the state of Vermont.~~

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 repurchases of debt.

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Long-term Debt

Credit Agreement

InOn October ~~2016,~~2, 2020, the Company, through certain of its ~~wholly owned~~wholly-owned subsidiaries, entered into a ~~Third Amended and Restated~~ Credit Agreement with various financial institutions (as amended, the “Credit Agreement”). to replace the Company’s previous credit agreement in its entirety. The Credit Agreement ~~consists~~consisted of ~~a $110.0 million revolving credit facility,~~term loans in an ~~initial term loan in the~~original aggregate amount of ~~$900.0~~$1,250.0 million (the “Initial Term ~~Loan”~~Loans”) and ~~an incremental term~~a revolving loan ~~in the aggregate amount~~facility of ~~$935.0 million (the “Incremental Term Loan”), collectively (the “Term Loans”).~~$250.0 million. 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~~plus (b) an amount which would not cause its senior secured leverage ratio not to exceed ~~3.00:~~3.70:1.00 (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.~~subject to certain exceptions.

The revolving credit facility has a maturity date of October ~~5, 2021~~2, 2025 and an applicable margin (at our election) of ~~between 2.50% and 3.25%~~4.00% for LIBOR-based borrowings or ~~between 1.50% and 2.25%~~3.00% for alternate base rate borrowings, with a 0.25% reduction in each case ~~depending on our total net leverage ratio. Based on our~~if the consolidated first lien leverage ratio, as ofdefined in the Credit Agreement, does not exceed 3.20 to 1.00. At June 30, 2020, the borrowing margin for the three month period ending September 30, 2020 will be at a weighted-average margin of 3.00% for a LIBOR-based loan or 2.00% for an alternate base rate loan. The applicable borrowing margin for the revolving credit facility is adjusted quarterly to reflect the leverage ratio from the prior quarter-end. As of June 30,2021 and December 31, 2020, there were no borrowings outstanding ~~borrowings~~ under the revolving credit facility. ~~At December 31, 2019, borrowings of $40.0 million were outstanding under the revolving credit facility, which consisted of LIBOR-based borrowings of $30.0 million and alternate base rate~~

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~~borrowings of $10.0 million.~~ Stand-by letters of credit of ~~$18.6~~$18.1 million were outstanding under our revolving credit facility as of June 30, ~~2020.~~2021. The stand-by letters of credit are renewable annually and reduce the borrowing availability under the revolving credit facility. As of June 30, ~~2020, $91.4~~2021, $231.9 million was available for borrowing under the revolving credit facility.

The weighted-average interest rate on outstanding borrowings under our credit facility was ~~4.00%~~4.25% and ~~4.80% at~~5.75% as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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~~a maximum consolidated first lien leverage ~~ratios, all~~ratio, as defined in the Credit Agreement. Among other things, it will be an event of default, with respect to the revolving credit facility only, if our ~~total net~~consolidated first lien 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.~~5.85:1.00. As of June 30, ~~2020,~~2021, our ~~total net~~consolidated first lien leverage ratio under the Credit Agreement was ~~4.22:1.00, and our interest coverage ratio was 3.84:~~3.96:1.00. As of June 30, ~~2020,~~2021, we were in compliance with the Credit Agreement covenants.

~~6.50%~~ Senior Notes ~~due 2022~~

The Senior Notes ~~mature~~are unsubordinated secured obligations of the Company, secured by a first priority lien 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~~collateral that secures the Company’s obligations under the Credit Agreement. The Senior Notes are fully and weunconditionally guaranteed on a first priority secured basis by the Company and athe majority of our wholly-owned ~~subsidiaries have fully and unconditionally guaranteed the Senior Notes.~~subsidiaries. The ~~Senior Notes are senior unsecured obligations of the Company.~~

During the six months ended June 30, 2020 and 2019, we repurchased $4.5 million and $4.6 million, respectively, of the aggregate principal amount of the Senior Notes. In connection with the partial repurchaseofferings of the Senior Notes ~~we paid $4.2 million and $4.3 million and recognized a gain on extinguishment~~have not been registered under the Securities Act of ~~debt of $0.2 million and $0.3 million, respectively, during the six months ended June 30, 2020 and 2019.~~1933, as amended or any state securities laws.

Senior Notes Covenant Compliance

Subject to certain exceptions and qualifications, the ~~indenture~~indentures governing the Senior Notes contains customary covenants that, among other things, limits ~~CCI’s~~the Company 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~~indentures also ~~contains~~contain customary events of default. As of June 30, ~~2020,~~2021, the Company was in compliance with all terms, conditions and covenants under the ~~indenture~~indentures governing the Senior Notes.

Repurchase of Senior Notes due 2022

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Finance Leases

We lease certain facilities and equipment under various finance leases which expire between ~~2020~~2021 and 2040. As of June 30, ~~2020,~~2021, the present value of the minimum remaining lease commitments was approximately ~~$20.1~~$21.5 million, of which

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~~$6.5~~ $6.5 million was due and payable within the next twelve months. The leases require total remaining rental payments of ~~$23.8~~$24.5 million as of June 30, ~~2020.~~2021.

~~Dividends~~Searchlight Investment

~~We paid $55.4~~On October 2, 2020, we closed on the first stage of the strategic investment of $350.0 million with Searchlight. Searchlight will invest up to a total of $425.0 million in ~~dividend payments~~Consolidated and, assuming satisfaction of certain conditions set forth in the Investment Agreement will hold a combination of perpetual Series A preferred stock and up to ~~stockholders during the six-month period ended June 30, 2019. On April 25, 2019, we announced the elimination~~35% of the ~~payment of quarterly dividends on~~Company’s outstanding common stock. The Searchlight investment will enable us to accelerate investment in our ~~stock beginning~~network over a multi-year period. The Investment is structured to maximize the proceeds to the Company in the second quarter of 2019 in order to focus on reducing debt and the de-leveraging of our balance sheet in order to create long-term value for our stockholders. Future dividend payments, if any, are at the discretion of our Board of Directors. Changesnear term so that we can invest in our ~~dividend program~~network immediately, and then the Investment converts into an equity-like structure upon receipt of certain required regulatory approvals. We expect the closing of the second stage of the investment to be completed later this year at which time, we will ~~depend on our earnings, capital requirements, financial condition, debt covenant compliance, expected cash needs and other factors considered relevant by our Board~~receive the additional investment of ~~Directors.~~ $75.0 million from Searchlight.

Sufficiency of Cash Resources

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


	June 30,		December 31,		June 30,		December 31,
(In thousands, except for ratio)	2020		2019		2021		2020
Cash and cash equivalents	$	45,876	$	12,395
Working capital (deficit)		(16,850)		(67,429)
Cash, cash equivalents and short-term investments					$	289,281	$	155,561
Working capital						195,318		70,191
Current ratio		0.93		0.72		1.71		1.26

Our net working capital ~~deficit~~ improved ~~$50.6~~$125.1 million as of June 30, ~~2020~~2021 compared to December 31, ~~2019~~2020 primarily as a result of an increase in cash, ~~and~~ cash equivalents and short-term investments of ~~$33.5~~$133.7 million. As described above, on January 15, 2021, we borrowed an additional $150.0 million ~~driven by cost savings initiatives~~aggregate principal amount of incremental term loans under our Credit Agreement. Working capital also improved from a decline in the current portion of long-term debt and ~~our capital allocation plan implemented in 2019, which prioritizes improving our leverage ratio and maximizing our cash and liquidity position. In addition, in response to the potential impacts~~finance lease obligations of $11.1 million as a result of the ~~COVID-19 pandemic, we have elected~~prepayment in March 2021 of $397.0 million of the ~~deferral~~outstanding Term Loans, which eliminated the required quarterly principal payments through the remaining term of ~~certain employer payroll tax payments under~~ the ~~CARES Act~~loan. However, working capital was reduced by an increase in accounts payable of ~~approximately $3.9 million during the quarter ended June 30, 2020. Accounts payable also decreased $14.2~~$18.2 million at June 30, ~~2020~~2021 related to the timing of expenditures.

Our most significant use of funds for the remainder of 2021 is expected to be for: (i) interest payments on our indebtedness of between $60.0 million and $65.0 million; and (ii) capital expenditures of between $205.0 million and $225.0 million. The recent refinancing of our capital structure combined with the Searchlight investment provides us the capital and financial flexibility to fund our accelerated fiber network expansion and growth plans. 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. Due to the uncertainty and unpredictability related to the potential impacts of the COVID-19 pandemic on our business, we will continue to closely manage our cash and monitor liquidity.

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

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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. In addition, the COVID-19 pandemic has caused a disruption in the capital markets, which could make obtaining additional financing more difficult and we may not be able to obtain financing on favorable terms or at all.

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

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into governing the terms of indebtedness may restrict our subsidiaries’ ability to pay dividends or advance cash in any other manner to us.

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 June 30, ~~2020,~~2021, we had approximately ~~$5.9~~$6.3 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 1011 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 ~~6.25%~~6.00%. The Pension Plans invest in marketable equity securities which are exposed to changes in the financial markets. COVID-19 has also negatively impacted the financial markets, which could significantly impact the returns on our plan assets. If the financial markets experience a sustained downturn and returns fall below our estimate, we could be required to make material contributions to the Pension Plans, which could adversely affect our cash flows from operations.

In ~~2020,~~2021, we expect to make contributions totaling approximately ~~$24.0~~$20.7 million to our Pension Plans and ~~$8.9~~$8.8 million to our other post-retirement benefit plans. As of June 30, ~~2020,~~2021, we have contributed ~~$10.2~~$8.9 million and ~~$4.6~~$4.3 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. Under the CARES Act, the payment of minimum required pension contributions due in 2020 may be delayed until January 1, 2021. On July 15, 2020, we made our scheduled quarterly contribution of $4.2 million to the Pension Plan. We are continuing to monitor and assess whether to elect the deferral until January 1, 2021 of our remaining required pension contributions due in 2020 based on the future impacts of COVID-19 on our business.

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~~

We receive ongoing ICC Eligible Recovery support for our rate of return ILECs that participate in the NECA pooling process. The support for 2020 is approximately $3.2 million and is expected to decline by 5% per year through 2021. During the quarter and six months ended June 30, 2020, we recognized subsidies revenue of $0.8 million and $1.6 million, respectively, related to our ongoing ICC Eligible Recovery support.

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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 ~~2019~~2020 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 June 30, ~~2020,~~2021, the majority of our variable rate debt was subject to a ~~1.00%~~0.75% London Interbank Offered Rate (“LIBOR”) floor. Based on our variable rate debt outstanding as of June 30, ~~2020,~~2021, a 1.00% increase in market interest rates would increase annual interest expense by approximately ~~$1.0~~$1.6 million. A 1.00% decrease in current interest rates would not impact annual interest expense on our variable rate debt due to the ~~1.00%~~0.75% LIBOR floor.

As of June 30, ~~2020,~~2021, the fair value of our interest rate swap agreements amounted to a net liability of ~~$38.1~~$19.0 million. Total pre-tax deferred losses related to our interest rate swap agreements included in accumulated other comprehensive loss was ~~$33.6~~$15.5 million as of June 30, ~~2020.~~2021.

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 provide reasonable assurance of achieving their objectives and operation of our disclosure controls and procedures as of June 30, ~~2020.~~2021. 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 June 30, ~~2020.~~2021.

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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 June 30, ~~2020~~2021 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

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 1213 to the Condensed Consolidated Financial Statements, included in this report in Part I - Item 1 “Financial Statements” for a discussion of recent developments related to these legal proceedings.

~~ITEM 1A. RISK FACTORS~~

We included in our Annual Report on Form 10-K for the year ended December 31, 2019 a description of certain risks and uncertainties that could affect our business, financial condition, results of operations, cash flows and the trading price of our common stock (“Risk Factors”). The following risk factor was identified in addition to those risk factors presented in Form 10-K as of December 31, 2019.

~~Public health threats, such as the recent outbreak of COVID-19, could have a material adverse effect on our business, results of operations, cash flows and stock price~~. We may face risks associated with public health threats or outbreaks of epidemic, pandemic or communicable diseases, such as the current outbreak of a novel strain of coronavirus (“COVID-19”). The COVID-19 pandemic has negatively impacted the global economy, financial markets and supply chains and has resulted in increased unemployment levels. The outbreak has resulted in Federal, state and local governments implementing mitigation measures, including shelter-in-place orders, travel restrictions, limitations on business, school closures and other measures. Governments have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.

As a critical infrastructure provider, we have continued to operate our business and provide services to our customers. Although we are considered an essential business, the outbreak of COVID-19 and any preventive or protective actions implemented by governmental authorities may have a material adverse effect on our operations, customers and suppliers and could do so for an indefinite period of time. Adverse economic and market conditions as a result of COVID-19 could also adversely affect the demand for our products and services and may also impact the ability of our customers to satisfy their obligations to us. In addition, concerns regarding the economic impact of COVID-19 have caused volatility in financial and other capital markets which has and may continue to adversely affect the market price of our common stock and our ability to access capital markets. In response to the COVID-19 pandemic, we have transitioned a substantial number of our employees to telecommuting and remote work arrangements, which may increase the risk of a security breach or cybersecurity attack on our information technology systems that could impact our business.

We cannot reasonably estimate at this time the resulting future financial impact of COVID-19 on our business, but it could have a material adverse effect to our results of operations, financial condition and liquidity. The extent to which the COVID-19 pandemic may adversely impact our business, results of operations, financial condition and liquidity will depend on future developments, which are highly uncertain and unpredictable, including the severity and duration of the outbreak, the effectiveness of actions taken to contain or mitigate its effects and any resulting economic downturn, recession or depression in the markets we serve.

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ITEM 6. EXHIBITS


3.1	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Consolidated Communications Holdings, Inc., as amended as of April 26, 2021 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated April 26, 2021).

3.2	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Consolidated Communications Holdings, Inc., as amended as of April 26, 2021 (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K dated April 26, 2021).

3.3	Amended and Restated Bylaws of Consolidated Communications Holdings, Inc., as amended as of April 26, 2021 (incorporated by reference to Exhibit 3.3 to our Current Report on Form 8-K dated April 26, 2021).

4.1	Joinder Agreement to Guaranty Agreement, dated as of April 12, 2021, by and among Consolidated Communications, Inc., Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated April 12, 2021).

4.2	Supplement No. 2 to Security Agreement, dated as of April 12, 2021, between Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo Bank, National Association, as Collateral (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K dated April 12, 2021).

4.3	Supplement No. 2 to Pledge Agreement, dated as of April 12, 2021, between Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo Bank, National Association, as Collateral Agent (incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K dated April 12, 2021).

4.4	Second Supplement to 2020 Indenture, dated as of April 12, 2021, among Consolidated Communications, Inc., Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo Bank, National Association, as Trustee and Notes Collateral Agent (incorporated by reference to Exhibit 4.4 to our Current Report on Form 8-K dated April 12, 2021).

4.5	Supplement No. 2 to Security Agreement, dated as of April 12, 2021, among the Consolidated Communications, Inc., Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo Bank, National Association, as Notes Collateral Agent (incorporated by reference to Exhibit 4.5 to our Current Report on Form 8-K dated April 12, 2021).

4.6	Supplement No. 2 to Pledge Agreement, dated as of April 12, 2021, between Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo Bank, National Association, as Notes Collateral Agent (incorporated by reference to Exhibit 4.6 to our Current Report on Form 8-K dated April 12, 2021).

4.7	First Supplement to 2021 Indenture, dated as of April 12, 2021, among Consolidated Communications, Inc., Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo Bank, National Association, as Trustee and Notes Collateral Agent (incorporated by reference to Exhibit 4.7 to our Current Report on Form 8-K dated April 12, 2021).

4.8	Supplement No. 2 to Security Agreement, dated as of April 12, 2021, among Consolidated Communications, Inc., Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo Bank, National Association, as Notes Collateral Agent (incorporated by reference to Exhibit 4.8 to our Current Report on Form 8-K dated April 12, 2021).

4.9	Supplement No. 2 to Pledge Agreement, dated as of April 12, 2021, between Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo Bank, National Association, as Notes Collateral Agent (incorporated by reference to Exhibit 4.9 to our Current Report on Form 8-K dated April 12, 2021).

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10.1	Amendment No. 2, dated as of April 5, 2021, to the Credit Agreement, dated as of October 2, 2020, among Consolidated Communications Holdings, Inc., Consolidated Communications, Inc., each lender from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and the other parties thereto (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated April 5, 2021).

10.2	Consolidated Communications Holdings, Inc. Long-Term Incentive Plan (as amended and restated effective February 21, 2021) (incorporated by reference to Exhibit C to the Company’s definitive proxy statement on Schedule 14A filed with the SEC on March 17, 2021 and the Company’s additional definitive proxy soliciting materials on Schedule 14A dated March 25, 2021).

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 June 30, ~~2020,~~2021, formatted in Inline 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 Changes in Shareholders’ Equity, (v) Condensed Consolidated Statements of 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).

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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)


~~July 31, 2020~~August 4, 2021	By:	/s/ C. Robert Udell Jr.
		C. Robert Udell Jr.,
		Chief Executive Officer
		(Principal Executive Officer)

~~July 31, 2020~~August 4, 2021	By:	/s/ Steven L. Childers
		Steven L. Childers,
		Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)

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	June 30, 2020
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	45,876	$	—	$	—	$	—	$	45,876
Accounts receivable, net		—		76		110,569		5,848		—		116,493
Income taxes receivable		13,686		7,856		—		—		(17,168)		4,374
Prepaid expenses and other current assets		126		—		40,869		295		(126)		41,164
Total current assets		13,812		53,808		151,438		6,143		(17,294)		207,907

Property, plant and equipment, net		—		—		1,728,249		65,091		—		1,793,340

Intangibles and other assets:
Investments		—		9,064		103,477		—		—		112,541
Investments in subsidiaries		3,571,803		3,577,749		17,632		—		(7,167,184)		—
Goodwill		—		—		969,093		66,181		—		1,035,274
Customer relationships, net		—		—		138,744		—		—		138,744
Other intangible assets		—		—		1,470		9,087		—		10,557
Advances due to/from affiliates, net		—		2,171,272		1,008,596		117,236		(3,297,104)		—
Deferred income taxes		77,156		8,557		—		—		(85,713)		—
Other assets		—		—		48,843		431		—		49,274
Total assets	$	3,662,771	$	5,820,450	$	4,167,542	$	264,169	$	(10,567,295)	$	3,347,637

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	—	$	16,707	$	—	$	—	$	16,707
Advance billings and customer deposits		—		—		43,258		1,316		—		44,574
Accrued compensation		—		—		54,369		720		—		55,089
Accrued interest		—		7,358		435		—		—		7,793
Accrued expense		—		884		73,663		1,284		(126)		75,705
Income tax payable		—		—		15,485		1,683		(17,168)		—
Current portion of long term debt and finance lease obligations		—		18,350		6,398		141		—		24,889
Total current liabilities		—		26,592		210,315		5,144		(17,294)		224,757

Long-term debt and finance lease obligations		—		2,184,397		13,606		—		—		2,198,003
Advances due to/from affiliates, net		3,297,104		—		—		—		(3,297,104)		—
Deferred income taxes		—		—		241,128		24,158		(85,713)		179,573
Pension and postretirement benefit obligations		—		—		274,819		10,434		—		285,253
Other long-term liabilities		—		37,657		49,439		747		—		87,843
Total liabilities		3,297,104		2,248,646		789,307		40,483		(3,400,111)		2,975,429
Shareholders’ equity:
Common Stock		731		—		17,411		30,000		(47,411)		731
Other shareholders’ equity		364,936		3,571,804		3,354,283		193,686		(7,119,773)		364,936
Total Consolidated Communications Holdings, Inc. shareholders’ equity		365,667		3,571,804		3,371,694		223,686		(7,167,184)		365,667
Noncontrolling interest		—		—		6,541		—		—		6,541
Total shareholders’ equity		365,667		3,571,804		3,378,235		223,686		(7,167,184)		372,208
Total liabilities and shareholders’ equity	$	3,662,771	$	5,820,450	$	4,167,542	$	264,169	$	(10,567,295)	$	3,347,637


	December 31, 2019
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	12,387	$	8	$	—	$	—	$	12,395
Accounts receivable, net		—		78		112,415		7,523		—		120,016
Income taxes receivable		1,812		—		791		66		—		2,669
Prepaid expenses and other current assets		—		—		41,431		356		—		41,787
Total current assets		1,812		12,465		154,645		7,945		—		176,867

Property, plant and equipment, net		—		—		1,770,187		65,691		—		1,835,878

Intangibles and other assets:
Investments		—		8,863		103,854		—		—		112,717
Investments in subsidiaries		3,547,466		3,520,346		17,165		—		(7,084,977)		—
Goodwill		—		—		969,093		66,181		—		1,035,274
Customer relationships, net		—		—		164,069		—		—		164,069
Other intangible assets		—		—		1,470		9,087		—		10,557
Advances due to/from affiliates, net		—		2,289,433		893,394		113,473		(3,296,300)		—
Deferred income taxes		86,447		5,661		—		—		(92,108)		—
Other assets		1,506		—		52,887		522		—		54,915
Total assets	$	3,637,231	$	5,836,768	$	4,126,764	$	262,899	$	(10,473,385)	$	3,390,277

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	—	$	30,936	$	—	$	—	$	30,936
Advance billings and customer deposits		—		—		44,436		1,274		—		45,710
Accrued compensation		—		—		56,356		713		—		57,069
Accrued interest		—		7,523		351		—		—		7,874
Accrued expense		50		2,565		71,659		1,132		—		75,406
Current portion of long term debt and finance lease obligations		—		18,350		8,808		143		—		27,301
Total current liabilities		50		28,438		212,546		3,262		—		244,296

Long-term debt and finance lease obligations		—		2,235,609		15,001		67		—		2,250,677
Advances due to/from affiliates, net		3,296,300		—		—		—		(3,296,300)		—
Deferred income taxes		—		—		240,983		24,152		(92,108)		173,027
Pension and postretirement benefit obligations		—		—		285,832		16,464		—		302,296
Other long-term liabilities		—		25,255		46,656		819		—		72,730
Total liabilities		3,296,350		2,289,302		801,018		44,764		(3,388,408)		3,043,026
Shareholders’ equity:
Common Stock		720		—		17,411		30,000		(47,411)		720
Other shareholders’ equity		340,161		3,547,466		3,301,965		188,135		(7,037,566)		340,161
Total Consolidated Communications Holdings, Inc. shareholders’ equity		340,881		3,547,466		3,319,376		218,135		(7,084,977)		340,881
Noncontrolling interest		—		—		6,370		—		—		6,370
Total shareholders’ equity		340,881		3,547,466		3,325,746		218,135		(7,084,977)		347,251
Total liabilities and shareholders’ equity	$	3,637,231	$	5,836,768	$	4,126,764	$	262,899	$	(10,473,385)	$	3,390,277


	Quarter Ended June 30, 2020
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	—	$	—	$	316,557	$	11,710	$	(3,091)	$	325,176
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)		—		—		138,779		3,737		(2,982)		139,534
Selling, general and administrative expenses		2,521		1		60,561		1,822		(109)		64,796
Depreciation and amortization		—		—		78,568		2,498		—		81,066
Operating income (loss)		(2,521)		(1)		38,649		3,653		—		39,780
Other income (expense):
Interest expense, net of interest income		(25)		(31,035)		(425)		26		—		(31,459)
Intercompany interest income (expense)		—		14,727		(14,711)		(16)		—		—
Investment income		—		—		9,180		—		—		9,180
Equity in earnings of subsidiaries, net		15,779		28,238		260		—		(44,277)		—
Other, net		—		—		653		56		—		709
Income (loss) before income taxes		13,233		11,929		33,606		3,719		(44,277)		18,210
Income tax expense (benefit)		(607)		(3,850)		7,854		878		—		4,275
Net income (loss)		13,840		15,779		25,752		2,841		(44,277)		13,935
Less: net income attributable to noncontrolling interest		—		—		95		—		—		95
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	13,840	$	15,779	$	25,657	$	2,841	$	(44,277)	$	13,840

Total comprehensive income (loss) attributable to common shareholders	$	16,289	$	18,228	$	25,983	$	2,850	$	(47,061)	$	16,289


	Quarter Ended June 30, 2019
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	—	$	—	$	324,710	$	11,982	$	(3,160)	$	333,532
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)		—		—		143,283		3,541		(3,044)		143,780
Selling, general and administrative expenses		2,012		—		73,707		2,545		(116)		78,148
Depreciation and amortization		—		—		94,811		2,493		—		97,304
Operating income (loss)		(2,012)		—		12,909		3,403		—		14,300
Other income (expense):
Interest expense, net of interest income		(27)		(34,628)		(90)		8		—		(34,737)
Intercompany interest income (expense)		—		14,727		(14,707)		(20)		—		—
Gain on extinguishment of debt		—		249		—		—		—		249
Investment income		—		—		10,750		—		—		10,750
Equity in earnings of subsidiaries, net		(6,015)		7,202		205		—		(1,392)		—
Other, net		4		(14)		(1,625)		(17)		—		(1,652)
Income (loss) before income taxes		(8,050)		(12,464)		7,442		3,374		(1,392)		(11,090)
Income tax expense (benefit)		(663)		(6,449)		2,215		1,119		—		(3,778)
Net income (loss)		(7,387)		(6,015)		5,227		2,255		(1,392)		(7,312)
Less: net income attributable to noncontrolling interest		—		—		75		—		—		75
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	(7,387)	$	(6,015)	$	5,152	$	2,255	$	(1,392)	$	(7,387)

Total comprehensive income (loss) attributable to common shareholders	$	(18,947)	$	(17,575)	$	6,110	$	2,323	$	9,142	$	(18,947)


	Six Months Ended June 30, 2020
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	—	$	—	$	633,611	$	23,372	$	(6,145)	$	650,838
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)		—		—		275,813		7,406		(5,930)		277,289
Selling, general and administrative expenses		3,599		1		125,407		3,821		(215)		132,613
Depreciation and amortization		—		—		158,826		4,978		—		163,804
Operating income (loss)		(3,599)		(1)		73,565		7,167		—		77,132
Other income (expense):
Interest expense, net of interest income		(50)		(62,589)		(951)		36		—		(63,554)
Intercompany interest income (expense)		—		29,454		(29,422)		(32)		—		—
Gain on extinguishment of debt		—		234		—		—		—		234
Investment income		—		202		19,557		—		—		19,759
Equity in earnings of subsidiaries, net		32,162		57,007		467		—		(89,636)		—
Other, net		—		—		5,191		112		—		5,303
Income (loss) before income taxes		28,513		24,307		68,407		7,283		(89,636)		38,874
Income tax expense (benefit)		(874)		(7,855)		16,296		1,749		—		9,316
Net income (loss)		29,387		32,162		52,111		5,534		(89,636)		29,558
Less: net income attributable to noncontrolling interest		—		—		171		—		—		171
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	29,387	$	32,162	$	51,940	$	5,534	$	(89,636)	$	29,387

Total comprehensive income (loss) attributable to common shareholders	$	21,836	$	24,611	$	52,593	$	5,552	$	(82,756)	$	21,836


	Six Months Ended June 30, 2019
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	—	$	—	$	653,988	$	24,451	$	(6,258)	$	672,181
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)		—		—		291,084		7,047		(6,032)		292,099
Selling, general and administrative expenses		3,667		(193)		144,307		4,960		(226)		152,515
Depreciation and amortization		—		—		191,592		4,955		—		196,547
Operating income (loss)		(3,667)		193		27,005		7,489		—		31,020
Other income (expense):
Interest expense, net of interest income		(55)		(68,716)		(257)		8		—		(69,020)
Intercompany interest income (expense)		—		29,454		(29,415)		(39)		—		—
Gain on extinguishment of debt		—		249		—		—		—		249
Investment income		—		190		19,161		—		—		19,351
Equity in earnings of subsidiaries, net		(12,091)		14,444		418		—		(2,771)		—
Other, net		1		42		(3,033)		(31)		—		(3,021)
Income (loss) before income taxes		(15,812)		(24,144)		13,879		7,427		(2,771)		(21,421)
Income tax expense (benefit)		(1,160)		(12,053)		3,971		2,319		—		(6,923)
Net income (loss)		(14,652)		(12,091)		9,908		5,108		(2,771)		(14,498)
Less: net income attributable to noncontrolling interest		—		—		154		—		—		154
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	(14,652)	$	(12,091)	$	9,754	$	5,108	$	(2,771)	$	(14,652)

Total comprehensive income (loss) attributable to common shareholders	$	(32,658)	$	(30,097)	$	11,670	$	5,244	$	13,183	$	(32,658)