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þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Delaware | 02-0636095 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
Mattoon, Illinois 61938-3987
(Address of principal executive offices and zip code)
Large Accelerated Filero Accelerated Filerþ Non-accelerated Filero
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Condensed Consolidated Statements of Income
(Amounts in thousands, except per share amounts)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Revenues | $ | 80,944 | $ | 79,340 | $ | 163,924 | $ | 158,766 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of services and products (exclusive of depreciation and amortization shown separately below) | 25,788 | 23,951 | 51,417 | 48,624 | ||||||||||||
Selling, general and administrative expenses | 22,296 | 24,671 | 44,595 | 47,183 | ||||||||||||
Depreciation and amortization | 16,606 | 16,844 | 33,235 | 33,915 | ||||||||||||
Income from operations | 16,254 | 13,874 | 34,677 | 29,044 | ||||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 227 | 429 | 441 | 615 | ||||||||||||
Interest expense | (11,688 | ) | (10,553 | ) | (23,302 | ) | (20,781 | ) | ||||||||
Investment income | 1,611 | 1,398 | 3,054 | 2,983 | ||||||||||||
Minority interest | (118 | ) | (115 | ) | (290 | ) | (296 | ) | ||||||||
Other, net | 264 | 103 | 276 | 47 | ||||||||||||
Income before income taxes | 6,550 | 5,136 | 14,856 | 11,612 | ||||||||||||
Income tax (benefit) expense | 1,057 | (3,089 | ) | 4,744 | (161 | ) | ||||||||||
Net income | 5,493 | 8,225 | 10,112 | 11,773 | ||||||||||||
Net income per common share - Basic & Diluted | $ | 0.21 | $ | 0.28 | $ | 0.39 | $ | 0.40 | ||||||||
Cash dividends declared per common share | $ | 0.38 | $ | 0.38 | $ | 0.77 | $ | 0.77 | ||||||||
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Condensed Consolidated Balance Sheets
(Amounts in thousands, except share and per share amounts)
June 30, | ||||||||
2007 | 2006 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 16,082 | $ | 26,672 | ||||
Marketable securities | 10,625 | — | ||||||
Accounts receivable, net of allowance of $1,808 and $2,110, respectively | 34,276 | 34,396 | ||||||
Inventories | 4,014 | 4,170 | ||||||
Deferred income taxes | 2,081 | 2,081 | ||||||
Prepaid expenses and other current assets | 8,772 | 6,898 | ||||||
Total current assets | 75,850 | 74,217 | ||||||
Property, plant and equipment, net | 304,076 | 314,381 | ||||||
Intangibles and other assets: | ||||||||
Investments | 40,343 | 40,314 | ||||||
Goodwill | 316,034 | 316,034 | ||||||
Customer lists, net | 103,830 | 110,273 | ||||||
Tradenames | 14,291 | 14,291 | ||||||
Deferred financing costs and other assets | 22,277 | 20,069 | ||||||
Total assets | $ | 876,701 | $ | 889,579 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 10,210 | $ | 11,004 | ||||
Advance billings and customer deposits | 16,391 | 15,303 | ||||||
Dividends payable | 10,048 | 10,040 | ||||||
Accrued expenses | 21,328 | 29,399 | ||||||
Total current liabilities | 57,977 | 65,746 | ||||||
Long-term debt | 594,000 | 594,000 | ||||||
Deferred income taxes | 56,996 | 55,893 | ||||||
Pension and postretirement benefit obligations | 53,947 | 54,187 | ||||||
Other liabilities | 1,256 | 1,100 | ||||||
Total liabilities | 764,176 | 770,926 | ||||||
Minority interest | 3,985 | 3,695 | ||||||
Stockholders’ equity | ||||||||
Common stock, $0.01 par value, 100,000,000 shares, authorized, 26,130,618 and 26,001,872 issued and outstanding, respectively | 261 | 260 | ||||||
Additional paid in capital | 201,575 | 199,858 | ||||||
Accumulated deficit | (97,351 | ) | (87,362 | ) | ||||
Accumulated other comprehensive income | 4,055 | 2,202 | ||||||
Total stockholders’ equity | 108,540 | 114,958 | ||||||
Total liabilities and stockholders’ equity | $ | 876,701 | $ | 889,579 | ||||
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Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Six Months Ended June 30, | ||||||||
2007 | 2006 | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $ | 10,112 | $ | 11,773 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation and amortization | 33,235 | 33,915 | ||||||
Provision for bad debt losses | 1,858 | 2,499 | ||||||
Deferred income tax | 1,103 | (1,687 | ) | |||||
Partnership income | (882 | ) | (2,828 | ) | ||||
Non-cash stock compensation | 1,706 | 1,250 | ||||||
Minority interest in net income of subsidiary | 290 | 296 | ||||||
Amortization of deferred financing costs | 1,668 | 1,619 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (1,738 | ) | (6 | ) | ||||
Inventories | 156 | (333 | ) | |||||
Other assets | (2,538 | ) | (2,987 | ) | ||||
Accounts payable | (794 | ) | (4,658 | ) | ||||
Accrued expenses and other liabilities | (7,067 | ) | (5,474 | ) | ||||
Net cash provided by operating activities | 37,109 | 33,379 | ||||||
INVESTING ACTIVITIES | ||||||||
Proceeds from sale of investments | — | 5,921 | ||||||
Securities purchased | (10,625 | ) | — | |||||
Capital expenditures | (16,673 | ) | (17,221 | ) | ||||
Net cash used in investing activities | (27,298 | ) | (11,300 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Proceeds from issuance of stock | 12 | — | ||||||
Payment of deferred financing costs | (320 | ) | — | |||||
Dividends on common stock | (20,093 | ) | (23,046 | ) | ||||
Net cash used in financing activities | (20,401 | ) | (23,046 | ) | ||||
Net decrease in cash and cash equivalents | (10,590 | ) | (967 | ) | ||||
Cash and cash equivalents at beginning of period | 26,672 | 31,409 | ||||||
Cash and cash equivalents at end of period | $ | 16,082 | $ | 30,442 | ||||
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Condensed Consolidated Statement of Changes in Stockholders’ Equity
Six Months Ended June 30, 2007
(Amounts in thousands, except share amounts)
(Unaudited)
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Common Stock | Additional | Accumulated | Comprehensive | |||||||||||||||||||||
Shares | Amount | Paid in Capital | Deficit | Income | Total | |||||||||||||||||||
Balance, January 1, 2007 | 26,001,872 | $ | 260 | $ | 199,858 | $ | (87,362 | ) | $ | 2,202 | $ | 114,958 | ||||||||||||
Net income | — | — | — | 10,112 | — | 10,112 | ||||||||||||||||||
Dividends on common stock | — | — | — | (20,101 | ) | — | (20,101 | ) | ||||||||||||||||
Issuance of common stock | 662 | 1 | 11 | — | — | 12 | ||||||||||||||||||
Shares issued under employee plan, net of forfeitures | 128,084 | — | — | — | — | — | ||||||||||||||||||
Non-cash stock compensation | — | — | 1,706 | — | — | 1,706 | ||||||||||||||||||
Change in fair value of cash flow hedges, net of $1,298 of tax | — | — | — | — | 1,853 | 1,853 | ||||||||||||||||||
Balance, June 30, 2007 | 26,130,618 | $ | 261 | $ | 201,575 | $ | (97,351 | ) | $ | 4,055 | $ | 108,540 | ||||||||||||
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three months ended June 30, 2007 and 2006
(Amounts in thousands, except share and per share amounts)
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June 30, | December 31, | |||||||
2007 | 2006 | |||||||
Telephone Operations | $ | 308,850 | $ | 308,850 | ||||
Other Operations | 7,184 | 7,184 | ||||||
$ | 316,034 | $ | 316,034 | |||||
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
Gross carrying amount | $ | 156,648 | $ | 156,648 | ||||
Less: accumulated amortization | (52,818 | ) | (46,375 | ) | ||||
Net carrying amount | $ | 103,830 | $ | 110,273 | ||||
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Pension Benefits | Other Benefits | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Three months ended June 30, | ||||||||||||||||
Service cost | $ | 345 | $ | 463 | $ | 219 | $ | 258 | ||||||||
Interest cost | 1,168 | 1,871 | 385 | 541 | ||||||||||||
Expected return on plan assets | (1,231 | ) | (2,182 | ) | — | 46 | ||||||||||
Other, net | 40 | 310 | (248 | ) | (469 | ) | ||||||||||
Net periodic benefit cost | $ | 322 | $ | 462 | $ | 356 | $ | 376 | ||||||||
Six months ended June 30, | ||||||||||||||||
Service cost | $ | 690 | $ | 1,020 | $ | 439 | $ | 374 | ||||||||
Interest cost | 2,340 | 3,367 | 770 | 773 | ||||||||||||
Expected return on plan assets | (2,467 | ) | (3,805 | ) | — | 10 | ||||||||||
Other, net | 81 | 319 | (495 | ) | (454 | ) | ||||||||||
Net periodic benefit cost | $ | 644 | $ | 901 | $ | 714 | $ | 703 | ||||||||
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
Senior Secured Credit Facility | ||||||||
Revolving loan | $ | — | $ | — | ||||
Term loan D | 464,000 | 464,000 | ||||||
Senior notes | 130,000 | 130,000 | ||||||
594,000 | 594,000 | |||||||
Less: current portion | — | — | ||||||
$ | 594,000 | $ | 594,000 | |||||
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Restricted shares outstanding, December 31, 2006 | 248,745 | |||
Shares granted | 135,584 | |||
Shares vested | (4,500 | ) | ||
Shares forfeited or retired | (7,500 | ) | ||
Restricted shares outstanding, June 30, 2007 | 372,329 | |||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Income before income taxes | $ | 6,550 | $ | 5,136 | $ | 14,856 | $ | 11,612 | ||||||||
Income tax (benefit) expense | $ | 1,057 | $ | (3,089 | ) | $ | 4,744 | $ | (161 | ) | ||||||
Effective tax rate | 16.1 | % | -60.1 | % | 31.9 | % | -1.4 | % |
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Basic: | ||||||||||||||||
Net income | $ | 5,493 | $ | 8,225 | $ | 10,112 | $ | 11,773 | ||||||||
Weighted average number of common shares outstanding | 25,758,289 | 29,353,106 | 25,757,471 | 29,353,106 | ||||||||||||
Net income per common share | $ | 0.21 | $ | 0.28 | $ | 0.39 | $ | 0.40 | ||||||||
Diluted: | ||||||||||||||||
Net income | $ | 5,493 | $ | 8,225 | $ | 10,112 | $ | 11,773 | ||||||||
Weighted average number of common shares outstanding | 26,130,618 | 29,788,851 | 26,080,203 | 29,788,685 | ||||||||||||
Net income per common share | $ | 0.21 | $ | 0.28 | $ | 0.39 | $ | 0.40 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Net income | $ | 5,493 | $ | 8,225 | $ | 10,112 | $ | 11,773 | ||||||||
Other comprehensive income: | ||||||||||||||||
Unrealized gain on marketable securities, net of tax | — | — | — | 49 | ||||||||||||
Change in fair value of cash flow hedges, net of tax | 3,335 | 1,690 | 1,853 | 4,124 | ||||||||||||
Total comprehensive income | $ | 8,828 | $ | 9,915 | $ | 11,965 | $ | 15,946 | ||||||||
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Telephone | Other | |||||||||||
Operations | Operations | Total | ||||||||||
Three months ended June 30, 2007: | ||||||||||||
Operating revenues | $ | 71,006 | $ | 9,938 | $ | 80,944 | ||||||
Cost of services and products | 19,157 | 6,631 | 25,788 | |||||||||
51,849 | 3,307 | 55,156 | ||||||||||
Operating expenses | 18,849 | 3,447 | 22,296 | |||||||||
Depreciation and amortization | 15,980 | 626 | 16,606 | |||||||||
Operating income (loss) | $ | 17,020 | $ | (766 | ) | $ | 16,254 | |||||
Three months ended June 30, 2006: | ||||||||||||
Operating revenues | $ | 69,672 | $ | 9,668 | $ | 79,340 | ||||||
Cost of services and products | 17,823 | 6,128 | 23,951 | |||||||||
51,849 | 3,540 | 55,389 | ||||||||||
Operating expenses | 20,921 | 3,750 | 24,671 | |||||||||
Depreciation and amortization | 15,506 | 1,338 | 16,844 | |||||||||
Operating income (loss) | $ | 15,422 | $ | (1,548 | ) | $ | 13,874 | |||||
Telephone | Other | |||||||||||
Operations | Operations | Total | ||||||||||
Six months ended June 30, 2007: | ||||||||||||
Operating revenues | $ | 143,518 | $ | 20,406 | $ | 163,924 | ||||||
Cost of services and products | 37,501 | 13,916 | 51,417 | |||||||||
106,017 | 6,490 | 112,507 | ||||||||||
Operating expenses | 37,787 | 6,808 | 44,595 | |||||||||
Depreciation and amortization | 31,992 | 1,243 | 33,235 | |||||||||
Operating income (loss) | $ | 36,238 | $ | (1,561 | ) | $ | 34,677 | |||||
Six months ended June 30, 2006: | ||||||||||||
Operating revenues | $ | 139,029 | $ | 19,737 | $ | 158,766 | ||||||
Cost of services and products | 35,985 | 12,639 | 48,624 | |||||||||
103,044 | 7,098 | 110,142 | ||||||||||
Operating expenses | 39,903 | 7,280 | 47,183 | |||||||||
Depreciation and amortization | 31,203 | 2,712 | 33,915 | |||||||||
Operating income (loss) | $ | 31,938 | $ | (2,894 | ) | $ | 29,044 | |||||
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• | various risks to stockholders of not receiving dividends and risks to our ability to pursue growth opportunities if we continue to pay dividends according to our current dividend policy; |
• | various risks to the price and volatility of our common stock; |
• | our substantial amount of debt and our ability to incur additional debt in the future; |
• | our need for a significant amount of cash to service and repay our debt and to pay dividends on our common stock; |
• | restrictions contained in our debt agreements that limit the discretion of our management in operating our business; |
• | the ability to refinance our existing debt as necessary; |
• | rapid development and introduction of new technologies and intense competition in the telecommunications industry; |
• | risks associated with our possible pursuit of acquisitions; |
• | economic conditions in our service areas in Illinois and Texas; |
• | system failures; |
• | loss of large customers or government contracts; |
• | risks associated with the rights-of-way for our network; |
• | disruptions in our relationship with third party vendors; |
• | loss of key management personnel and the inability to attract and retain highly qualified management and personnel in the future; |
• | changes in the extensive governmental legislation and regulations governing telecommunications providers and the provision of telecommunications services and subsidies; |
• | telecommunications carriers disputing and/or avoiding their obligations to pay network access changes for use of our network; |
• | high costs of regulatory compliance; |
• | the competitive impact of legislation and regulatory changes in the telecommunications industry; |
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• | liability and compliance costs regarding environmental regulations; |
• | the integration of the Company and North Pittsburgh following the merger; | ||
• | the ability to obtain required approvals and satisfy closing conditions may delay or prevent completion of the merger; | ||
• | transaction, integration and restructuring costs in connection with the proposed merger, whether or not the merger is completed; | ||
• | disruptions in our business caused by the pendency of the merger transaction; and |
• | the additional risk factors outlined in Part II — Other Information — Item 1A — “Risk Factors” herein and Part I — Item 1A — “Risk Factors” incorporated by reference from our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, as well as the other documents that we file with the SEC from time to time that could cause our actual results to differ from our current expectations and from the forward-looking statements discussed in this Report. |
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• | reduction in our annual dividend obligation of $5.9 million; |
• | �� | an increase in our after tax net cash interest of $2.9 million due to the increased borrowings incurred, an increase in the interest rate on our credit facility of 25 basis points and a decrease of cash on hand. |
• | aggressively promoting DSL service with a variety of speeds and price points to meet customer demands; | ||
• | bundling our triple play offering of DSL, IPTV and voice services; |
• | maintaining excellent customer service standards while actively promoting new services to our customers; and | ||
• | keeping a strong local presence in the communities we serve. |
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• | hosted VoIP, which was launched in certain Texas markets in 2005 to meet the needs of small to medium sized business customers who want robust function without having to purchase a traditional key or PBX phone system; |
• | DSL service which has been made available to users who to not have our access line. This expands our customer base and creates additional revenue generating opportunities; |
• | a DSL tier with speeds up to 10 Mbps is now being offered for those customers desiring greater Internet speed; and |
• | Hi Definition video service, which was introduced in Texas in May and will be launched in Illinois in the third quarter of 2007. |
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June 30, | December 31, | June 30, | ||||||||||
2007 | 2006 | 2006 | ||||||||||
Local access lines in service: | ||||||||||||
Residential | 151,645 | 155,354 | 159,295 | |||||||||
Business | 77,362 | 78,335 | 79,609 | |||||||||
Total local access lines | 229,007 | 233,689 | 238,904 | |||||||||
IPTV subscribers | 9,577 | 6,954 | 4,516 | |||||||||
DSL subscribers | 58,225 | 52,732 | 45,948 | |||||||||
Total connections | 296,809 | 293,375 | 289,368 | |||||||||
Long distance lines (1) | 150,863 | 149,358 | 146,953 | |||||||||
Dial-up subscribers | 10,223 | 11,942 | 13,731 | |||||||||
Service bundles | 45,209 | 43,175 | 40,901 |
(1) | Reflects the inclusion of long distance services provided as part of the VOIP offering. |
• | operating expenses relating to plant costs, including those related to the network and general support costs, central office switching and transmission costs, and cable and wire facilities; |
• | general plant costs, such as testing, provisioning, network, administration, power and engineering; and |
• | the cost of transport and termination of long distance and private lines outside our rural telephone companies’ service area. |
• | selling and marketing expenses; | ||
• | expenses associated with customer care; | ||
• | billing and other operating support systems; and | ||
• | corporate expenses, including professional service fees and non-cash stock compensation. |
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Years | ||||
Buildings | 15-35 | |||
Network and outside plant facilities | 5-30 | |||
Furniture, fixtures and equipment | 3-17 |
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Three Months Ended June 30, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
% of Total | % of Total | |||||||||||||||
$ (millions) | Revenues | $ (millions) | Revenues | |||||||||||||
Revenues | ||||||||||||||||
Telephone Operations | ||||||||||||||||
Local calling services | $ | 21.0 | 26.0 | % | $ | 21.5 | 27.1 | % | ||||||||
Network access services | 17.5 | 21.6 | 17.0 | 21.4 | ||||||||||||
Subsidies | 11.1 | 13.7 | 11.8 | 14.9 | ||||||||||||
Long distance services | 3.6 | 4.4 | 3.8 | 4.8 | ||||||||||||
Data and internet services | 9.1 | 11.2 | 7.4 | 9.3 | ||||||||||||
Other services | 8.7 | 10.8 | 8.2 | 10.3 | ||||||||||||
Total Telephone Operations | 71.0 | 87.8 | 69.7 | 87.9 | ||||||||||||
Other Operations | 9.9 | 12.2 | 9.6 | 12.1 | ||||||||||||
Total operating revenues | 80.9 | 100.0 | 79.3 | 100.0 | ||||||||||||
Expenses | ||||||||||||||||
Operating expenses | ||||||||||||||||
Telephone Operations | 37.9 | 46.8 | 38.8 | 48.9 | ||||||||||||
Other Operations | 10.1 | 12.5 | 9.9 | 12.5 | ||||||||||||
Depreciation and amortization | 16.6 | 20.5 | 16.8 | 21.2 | ||||||||||||
Total operating expenses | 64.6 | 79.9 | 65.5 | 82.6 | ||||||||||||
Income from operations | 16.3 | 20.1 | 13.8 | 17.4 | ||||||||||||
Interest expense, net | (11.5 | ) | (14.2 | ) | (10.2 | ) | (12.9 | ) | ||||||||
Other income, net | 1.7 | 2.1 | 1.5 | 1.9 | ||||||||||||
Income tax benefit (expense) | (1.0 | ) | (1.2 | ) | 3.1 | 3.9 | ||||||||||
Net income | $ | 5.5 | 6.8 | % | $ | 8.2 | 10.3 | % | ||||||||
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Six Months Ended June 30, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
% of Total | % of Total | |||||||||||||||
$ (millions) | Revenues | $ (millions) | Revenues | |||||||||||||
Revenues | ||||||||||||||||
Telephone Operations | ||||||||||||||||
Local calling services | $ | 42.3 | 25.8 | % | $ | 42.9 | 27.0 | % | ||||||||
Network access services | 35.8 | 21.8 | 34.0 | 21.4 | ||||||||||||
Subsidies | 22.7 | 13.8 | 24.0 | 15.1 | ||||||||||||
Long distance services | 7.2 | 4.4 | 7.5 | 4.7 | ||||||||||||
Data and internet services | 17.7 | 10.8 | 14.6 | 9.2 | ||||||||||||
Other services | 17.8 | 10.9 | 16.1 | 10.1 | ||||||||||||
Total Telephone Operations | 143.5 | 87.6 | 139.1 | 87.6 | ||||||||||||
Other Operations | 20.4 | 12.4 | 19.7 | 12.4 | ||||||||||||
Total operating revenues | 163.9 | 100.0 | 158.8 | 100.0 | ||||||||||||
Expenses | ||||||||||||||||
Operating expenses | ||||||||||||||||
Telephone Operations | 75.3 | 45.9 | 75.9 | 47.8 | ||||||||||||
Other Operations | 20.7 | 12.6 | 19.9 | 12.5 | ||||||||||||
Depreciation and amortization | 33.2 | 20.3 | 33.9 | 21.3 | ||||||||||||
Total operating expenses | 129.2 | 78.8 | 129.7 | 81.7 | ||||||||||||
Income from operations | 34.7 | 21.2 | 29.1 | 18.3 | ||||||||||||
Interest expense, net | (22.9 | ) | (14.0 | ) | (20.2 | ) | (12.7 | ) | ||||||||
Other income, net | 3.0 | 1.8 | 2.7 | 1.7 | ||||||||||||
Income tax benefit (expense) | (4.7 | ) | (2.9 | ) | 0.2 | 0.1 | ||||||||||
Net income | $ | 10.1 | 6.2 | % | $ | 11.8 | 7.4 | % | ||||||||
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Six Months Ended | ||||||||
June 30, | ||||||||
2007 | 2006 | |||||||
(In millions) | ||||||||
Net Cash Provided by (Used for): | ||||||||
Operating activities | $ | 37.1 | $ | 33.4 | ||||
Investing activities | (27.3 | ) | (11.3 | ) | ||||
Financing activities | (20.4 | ) | (23.0 | ) |
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Balance | Maturity Date | Rate (1) | ||||||
(in millions) | ||||||||
Revolving credit facility | $ | — | April 14 ,2010 | LIBOR + 2.25% | ||||
Term loan D | 464.0 | October 14, 2011 | LIBOR + 1.75% | |||||
Senior notes | 130.0 | April 1, 2012 | 9.75% |
(1) | As of June 30, 2007, the 90-day LIBOR rate was 5.36%. |
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• | our senior secured leverage ratio, as of the end of any fiscal quarter is greater than 4.00 to 1.00; or | ||
• | our fixed charge coverage ratio as of the end of any fiscal quarter is not at least 1.75 to 1.00. |
Total net leverage ratio | 4.03:1.00 | |||
Senior secured leverage ratio | 3.23:1.00 | |||
Fixed charge coverage ratio | 2.63:1.00 |
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Payments Due by Period | ||||||||||||||||||||||||||||
Total | 2007 | 2008 | 2009 | 2010 | 2011 | Thereafter | ||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Long-term debt (a) | $ | 594.0 | $ | — | $ | — | $ | — | $ | — | $ | 464.0 | $ | 130.0 | ||||||||||||||
Operating leases | 9.6 | 1.6 | 2.3 | 1.9 | 1.7 | 1.1 | 1.0 | |||||||||||||||||||||
Pension and other post retirement obligations (b) | 48.1 | 1.6 | 5.2 | 5.4 | 5.7 | 6.0 | 24.2 | |||||||||||||||||||||
$ | 651.7 | $ | 3.2 | $ | 7.5 | $ | 7.3 | $ | 7.4 | $ | 471.1 | $ | 155.2 | |||||||||||||||
(a) | This item consists of loans outstanding under our credit facilities totaling $464.0 million and our senior notes totaling $130.0 million. The credit facilities consist of a $464.0 million term loan D facility maturing on October 14, 2011 and a $30.0 million revolving credit facility, which was fully available but undrawn as June 30, 2007. | |
(b) | Pension funding is an estimate of our minimum funding requirements to provide pension benefits for employees based on service through June 30, 2007. Obligations relating to other post retirement benefits are based on estimated future benefit payments. Our estimates are based on forecasts of future benefit payments which may change over time due to a number of factors, including life expectancy, medical costs and trends and on the actual rate of return on the plan assets, discount rates, discretionary pension contributions and regulatory rules. |
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The Company believes that the following additional Risk Factors have become relevant as a result of the Company’s agreement to acquire North Pittsburgh Systems, Inc., announced July 2, 2007.
The integration of the Company and North Pittsburgh following the merger may present significant challenges.The Company may face significant challenges in combining North Pittsburgh’s operations into the Company’s operations in a timely and efficient manner and in retaining key North Pittsburgh personnel. The failure to integrate successfully the Company and North Pittsburgh and to manage successfully the challenges presented by the integration process may result in the Company not achieving the anticipated benefits of the merger, including operational and financial synergies.
The Company will have a substantial additional amount of debt outstanding after giving effect to the merger, and may incur additional indebtedness in the future, which could restrict the Company’s ability to pay dividends and have other consequences.The Company has a significant amount of debt outstanding, and after consummation of the merger will have even greater leverage. The degree to which the Company is leveraged could have important consequences, including those identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.
Obtaining required approvals and satisfying closing conditions may delay or prevent completion of the merger. Completion of the merger is conditioned upon the receipt of certain governmental consents and approvals, including approval by the Federal Communications Commission and the Pennsylvania Public Utility Commission. These consents and approvals may impose conditions on the Company or North Pittsburgh. Such conditions may jeopardize or delay completion of the merger or may reduce the anticipated benefits of the merger. Further, no assurance can be given that the required consents and approvals will be obtained or that the required conditions to closing will be satisfied. Even if all such consents and approvals are obtained, no assurance can be given as to the terms, conditions and timing of the consents and approvals or that they will satisfy the terms of the Agreement and Plan of Merger.
Whether or not the merger is completed, the Company will incur transaction, integration and restructuring costs in connection with the proposed merger.The Company has incurred and will continue to incur significant costs in connection with the proposed merger, including fees of the Company’s attorneys, accountants and financial advisor. If the emerge is not completed, these will need to be recognized as expenses rather than being recorded as a component of the purchase price. If the merger is consummated, the Company and North Pittsburgh expect to incur additional costs associated with transaction fees and other costs related to the merger. The Company will incur integration and restructuring costs following the completion of the merger as it integrates the businesses of North Pittsburgh with those of the Company. Although the Company expects that the realization of efficiencies related to the integration of the businesses will offset incremental transaction, integration and restructuring costs over time, the Company cannot give any assurance that this net benefit will be achieved in the near term.
Whether or not the merger is completed, the pendency of the transaction could cause disruptions in the business of the Company, which could have an adverse effect on the Company’s business and financial results.These disruptions could include the following:
• | current and prospective employees may experience uncertainty about their future roles with the combined company, which might adversely affect North Pittsburgh’s and the Company’s ability to retain or attract key managers and other employees; |
• | current and prospective customers of North Pittsburgh or the Company may experience variations in levels of services as the companies prepare for integration and may, as a result, choose to discontinue their service with either company or choose another provider; and |
• | the attention of management of each of North Pittsburgh and the Company may be diverted from the operation of the businesses toward the completion of the merger. |
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Consolidated Communications Holdings, Inc. (Registrant) | ||||
Date: August 9, 2007 | By: | /s/ Robert J. Currey | ||
Robert J. Currey | ||||
President and Chief Executive Officer (Principal Executive Officer) | ||||
Date: August 9, 2007 | By: | /s/ Steven L. Childers | ||
Steven L. Childers | ||||
Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer) | ||||
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Exhibit | ||
Number | Description | |
10.1 | Commitment Letter, dated June 30, 2007, from Wachovia Bank, National Association and Wachovia Capital Markets, LLC, and agreed and accepted by Consolidated Communications Holdings, Inc., Consolidated Communications, Inc. and Consolidated Communications Acquisition Texas, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated June 30, 2007). | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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