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SECURITIES AND EXCHANGE COMMISSION
þ | ANNUAL 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)
(Title of each class) Common Stock, $0.01 par value per share | (Name of each exchange on which registered) NASDAQ Global Select Market |
Large Accelerated Filero | Accelerated Filerþ | Non-Accelerated Filero | Smaller reporting companyo | |||
(Do not check if a smaller reporting company) |
Part of Form 10-K | Document Incorporated by Reference | |
Part III, Items 10, 11, 12, 13, and 14 | Portion of the Registrant’s proxy statement to be filed in connection with the Annual Meeting of the Stockholders of the Registrant to be held on May 5, 2009. |
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Exhibit 23.1 | ||||||||
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Exhibit 31.1 | ||||||||
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Exhibit 32.1 |
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CLEC | Competitive local exchange carrier | |
DSL | Digital subscriber line | |
EBITDA | Earnings before interest, taxes, depreciation and amortization | |
ETFL | East Texas Fiber Line, Inc. | |
FASB | Financial Accounting Standards Board | |
FCC | Federal Communications Commission | |
GAAP | Generally accepted accounting principles | |
ICC | Illinois Commerce Commission | |
ICTC | Illinois Consolidated Telephone Company | |
ILEC | Incumbent local exchange carrier | |
IP | Internet protocol | |
IPO | Initial public offering | |
IPTV | Internet protocol digital television | |
ISP | Internet service provider | |
LIBOR | London interbank offer rate | |
NECA | National Exchange Carrier Association | |
NOL | Net operating loss | |
PAPUC | Pennsylvania Public Utility Commission | |
PAUSF | Pennsylvania Universal Service Fund | |
PUCT | Public Utility Commission of Texas | |
PURA | Texas Public Utilities Regulatory Act | |
SFAS | Statement of Financial Accounting Standards | |
TXUCV | TXU Communications Ventures Company | |
UNE | Unbundled network element | |
UNE-P | Unbundled network element platform | |
VOIP | Voice over Internet Protocol |
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• | providing superior quality services to rural customers in a regulated environment; | ||
• | implementing successful business integrations and acquisitions; and | ||
• | launching and growing new services, such as DSL and IPTV, along with managing CLEC businesses and complementary services, such as operator, telemarketing, and order fulfillment services and directory publishing. |
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• | the market is attractive; | ||
• | the network is of appropriate quality; | ||
• | we can integrate the acquired company efficiently; | ||
• | there are potential operating synergies; and | ||
• | the transaction is cash flow accretive from day one. |
2008 | 2007 | |||||||||||||||
% of Total | % of Total | |||||||||||||||
$ (millions) | Revenues | $ (millions) | Revenues | |||||||||||||
Revenues | ||||||||||||||||
Telephone Operations | ||||||||||||||||
Local calling services | $ | 104.6 | 25.0 | % | $ | 82.8 | 25.2 | % | ||||||||
Network access services | 94.6 | 22.6 | 70.2 | 21.3 | ||||||||||||
Subsidies | 55.2 | 13.2 | 46.0 | 14.0 | ||||||||||||
Long distance services | 24.0 | 5.7 | 14.0 | 4.2 | ||||||||||||
Data and Internet services | 62.7 | 15.0 | 38.0 | 11.5 | ||||||||||||
Other services | 36.9 | 8.8 | 35.8 | 10.9 | ||||||||||||
Total Telephone Operations | 378.0 | 90.3 | 286.8 | 87.1 | ||||||||||||
Other Operations | 40.4 | 9.7 | 42.4 | 12.9 | ||||||||||||
Total operating revenues | $ | 418.4 | 100 | % | $ | 329.2 | 100 | % | ||||||||
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• | 264,323 local access lines in service, of which approximately 61.3% served residential customers and 38.7% served business customers; | ||
• | 165,953 long distance lines, which represented 62.8% penetration of our local access lines; | ||
• | 91,817 DSL lines; and | ||
• | 16,666 IPTV subscribers. |
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• | Public Servicesprovides local and long distance service and automated calling service for correctional facilities. |
• | Business Systemssells and installs telecommunications equipment, such as key, private branch exchange (PBX), and IP-based telephone systems, to business customers in Texas and Illinois. |
• | Market Responseprovides telemarketing and order fulfillment services. |
• | Operator Servicesoffers both live and automated local and long distance operator services and national directory assistance on a wholesale and retail basis. |
• | Mobile Servicesprovides one-way messaging service predominantly to our Illinois business customers. A portion of the 2008 revenues included our Illinois cellular agency and Texas Mobile Virtual Network Operator (“MVNO”) operations, which were discontinued in 2008. Beginning in 2009, the remaining product, paging services, will be classified as a product in our Telephone Operations segment rather than as a business within Other Operations. |
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• | positioning ourselves as a single point of contact for our customers’ communications needs; |
• | providing customers with a broad array of voice and data services, and bundling services where possible; |
• | providing excellent customer service, including 24-hour, 7-day a week centralized customer support to coordinate installation of new services, repair and maintenance functions; |
• | developing and delivering new services; and |
• | leveraging our history and involvement with local communities and expanding “Consolidated Communications” and “Consolidated” brand recognition. |
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• | allow other carriers to resell their services; | ||
• | provide number portability where feasible; | ||
• | ensure dialing parity, meaning that consumers can choose their default local or long distance telephone company without having to dial additional digits; | ||
• | ensure that competitors’ customers receive nondiscriminatory access to telephone numbers, operator service, directory assistance, and directory listing; | ||
• | afford competitors access to telephone poles, ducts, conduits, and rights-of-way; and | ||
• | establish reciprocal compensation arrangements with other carriers for the transport and termination of telecommunications traffic. |
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• | negotiate interconnection agreements with other carriers in good faith; |
• | interconnect their facilities and equipment with any requesting telecommunications carrier, at any technically feasible point, at nondiscriminatory rates and on nondiscriminatory terms and conditions; |
• | offer their retail services to other carriers for resale at discounted wholesale rates; |
• | provide reasonable notice of changes in the information necessary for transmission and routing of services over the incumbent telephone company’s facilities or in the information necessary for interoperability; and |
• | provide, at rates, terms, and conditions that are just, reasonable, and nondiscriminatory, for the physical collocation of other carriers’ equipment necessary for interconnection or access to UNEs at the premises of the incumbent telephone company. |
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• | demographic trends; |
• | in Illinois, the strength of the agricultural markets and the light manufacturing and services industries, continued demand from universities and hospitals, and the level of government spending; |
• | in Pennsylvania, the strength of small- to medium-sized businesses, health care, and education spending; and |
• | in Texas, the strength of the manufacturing, health care, waste management, and retail industries and continued demand from schools and hospitals. |
• | the state of our business, the environment in which we operate, and the various risks we face, including competition, technological change, changes in our industry, and regulatory and other risks summarized in this Annual Report on Form 10-K; |
• | changes in the factors, assumptions, and other considerations made by our board of directors in reviewing and adopting the dividend policy, as described under “Dividend Policy and Restrictions” in Item 5 of this Annual Report; |
• | our results of operations, financial condition, liquidity needs, and capital resources; |
• | our expected cash needs, including for interest and any future principal payments on indebtedness, capital expenditures, taxes, and pension and other postretirement contributions; and |
• | potential sources of liquidity, including borrowing under our revolving credit facility or possible asset sales. |
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• | reduce or eliminate dividends; |
• | fund dividends by incurring additional debt (to the extent we are permitted to do so under the agreements governing our then-existing debt), which would increase our leverage, debt repayment obligations, and interest expense, decrease our interest coverage, and reduce our capacity to incur debt for other purposes, including to fund future dividend payments; |
• | amend the terms of our credit agreement, if our lenders agree, to permit us to pay dividends or make other payments the agreement would otherwise restrict; |
• | fund dividends by issuing equity securities, which could be dilutive to our stockholders and negatively affect the price of our common stock; |
• | fund dividends from other sources, such as by asset sales or working capital, which would leave us with less cash available for other purposes; and |
• | reduce other expected uses of cash, such as capital expenditures. |
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• | divide our board of directors into three classes, which results in roughly one-third of our directors being elected each year; |
• | require the affirmative vote of holders of 75% or more of the voting power of our outstanding common stock to approve any merger, consolidation, or sale of all or substantially all of our assets; |
• | provide that directors may only be removed for cause and then only upon the affirmative vote of holders of two-thirds or more of the voting power of our outstanding common stock; |
• | require the affirmative vote of holders of two-thirds or more of the voting power of our outstanding common stock to amend, alter, change, or repeal specified provisions of our amended and restated certificate of incorporation and bylaws; |
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• | require stockholders to provide us with advance notice if they wish to nominate any candidates for election to our board of directors or if they intend to propose any matters for consideration at an annual stockholders meeting; and |
• | authorize the issuance of so-called “blank check” preferred stock without stockholder approval upon such terms as the board of directors may determine. |
• | the election of directors; | ||
• | significant corporate transactions, such as a merger or other sale of our company or its assets; | ||
• | acquisitions that increase our indebtedness or sell revenue-generating assets; | ||
• | corporate and management policies; | ||
• | amendments to our organizational documents; and | ||
• | other matters submitted to our stockholders for approval. |
• | we may be required to use a substantial portion of our cash flow from operations to make interest payments on our debt, which will reduce funds available for operations, future business opportunities, and dividends; |
• | we may have limited flexibility to react to changes in our business and our industry; | ||
• | it may be more difficult for us to satisfy our other obligations; |
• | we may have a limited ability to borrow additional funds or to sell assets to raise funds if needed for working capital, capital expenditures, acquisitions, or other purposes; |
• | we may become more vulnerable to general adverse economic and industry conditions, including changes in interest rates; and |
• | we may be at a disadvantage compared to our competitors that have less debt. |
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• | incur additional debt and issue preferred stock; |
• | make restricted payments, including paying dividends on, redeeming, repurchasing, or retiring our capital stock; |
• | make investments and prepay or redeem debt; |
• | enter into agreements restricting our subsidiaries’ ability to pay dividends, make loans, or transfer assets to us; |
• | create liens; | ||
• | sell or otherwise dispose of assets, including capital stock of subsidiaries; | ||
• | engage in transactions with affiliates; | ||
• | engage in sale and leaseback transactions; | ||
• | make capital expenditures; | ||
• | engage in a business other than telecommunications; and | ||
• | consolidate or merge. |
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• | increased competition within established markets from providers that may offer competing or alternative services; |
• | the blurring of traditional dividing lines between, and the bundling of, different services, such as local dial tone, long distance, wireless, cable, and data and Internet services; and |
• | an increase in mergers and strategic alliances that allow one telecommunications provider to offer increased services or access to wider geographic markets. |
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• | permits the applicable state agency to terminate the contract without cause and without penalty under some circumstances; |
• | has renewal provisions that require decisions of state agencies that are subject to political influence; |
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• | gives the State of Illinois the right to renew the contract at its option but does not give us the same right; and |
• | could be cancelled if state funding becomes unavailable. |
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• | Hazardous materials may have been released at properties we currently own or formerly owned (perhaps through our predecessors). Under certain environmental laws, we could be held liable, without regard to fault, for the costs of investigating and remediating any actual or threatened contamination at these properties, and for contamination associated with disposal by us or our predecessors of hazardous materials at third-party disposal sites. |
• | We could incur substantial costs in the future if we acquire businesses or properties subject to environmental requirements or affected by environmental contamination. In particular, environmental laws regulating wetlands, endangered species, and other land use and natural resource issues may increase costs associated with future business or expansion opportunities or delay, alter, or interfere with such plans. |
• | The presence of contamination can adversely affect the value of our properties and make it difficult to sell any affected property or to use it as collateral. |
• | We could be held responsible for third-party property damage claims, personal injury claims, or natural resource damage claims relating to contamination found at any of our current or past properties. |
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Approximate | ||||||||||
Location | Primary Use | Owned/Leased | Operating Segment | Square Feet | ||||||
Gibsonia, PA | Office and Switching | Owned | Telephone & Other | 111,931 | ||||||
Conroe, TX | Regional Office | Owned | Telephone & Other | 51,900 | ||||||
Mattoon, IL | Order Fullfillment | Leased | Other Operations | 50,000 | ||||||
Mattoon, IL | Corporate Headquarters | Leased | Telephone & Other | 49,100 | ||||||
Mattoon, IL | Operator Services and Operations | Owned | Telephone & Other | 36,300 | ||||||
Charleston, IL | Communications Center and Office | Leased | Telephone & Other | 34,000 | ||||||
Mattoon, IL | Operations and Distribution Center | Leased | Telephone & Other | 30,900 | ||||||
Mattoon, IL | Sales and Administration Office | Leased | Telephone & Other | 30,700 | ||||||
Lufkin, TX | Office and Switching | Owned | Telephone & Other | 28,707 | ||||||
Conroe, TX | Warehouse and Plant | Owned | Telephone & Other | 28,500 | ||||||
Terre Haute, IN | Communications Center and Office | Leased | Telephone & Other | 25,450 | ||||||
Lufkin, TX | Communications Center and Office | Owned | Telephone & Other | 23,190 | ||||||
Katy, TX | Warehouse and Office | Owned | Telephone & Other | 19,716 | ||||||
Butler, PA | Office and Switching | Owned | Telephone & Other | 18,564 | ||||||
Taylorville, IL | Office and Communications Center | Owned | Telephone & Other | 15,900 | ||||||
Taylorville, IL | Operations and Distribution Center | Leased | Telephone & Other | 14,700 | ||||||
Lufkin, TX | Warehouse | Owned | Telephone & Other | 14,200 | ||||||
Cranberry Twp, PA | Office and Switching | Owned | Telephone & Other | 13,110 | ||||||
Charleston, IL | Office and Communications Center | Owned | Telephone & Other | 12,661 | ||||||
Litchfield, IL | Office and Switching | Owned | Telephone & Other | 12,190 | ||||||
Lufkin, TX | Office and Data Center | Owned | Telephone & Other | 11,900 | ||||||
Conroe, TX | Office | Owned | Telephone & Other | 10,650 | ||||||
Mattoon, IL | Office | Owned | Telephone & Other | 10,100 |
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |
Dividends | ||||||||||||
Quarter Ended | Low | High | Declared | |||||||||
March 31, 2007 | $ | 18.71 | $ | 23.00 | $ | 0.39 | ||||||
June 30, 2007 | $ | 19.30 | $ | 23.71 | $ | 0.39 | ||||||
September 30, 2007 | $ | 15.72 | $ | 23.11 | $ | 0.39 | ||||||
December 31, 2007 | $ | 15.50 | $ | 21.45 | $ | 0.39 | ||||||
March 31, 2008 | $ | 14.00 | $ | 19.19 | $ | 0.39 | ||||||
June 30, 2008 | $ | 13.70 | $ | 15.71 | $ | 0.39 | ||||||
September 30, 2008 | $ | 13.48 | $ | 15.74 | $ | 0.39 | ||||||
December 31, 2008 | $ | 7.82 | $ | 14.65 | $ | 0.39 |
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Total number of | Maximum number | |||||||||||||||
shares purchased | of shares that may | |||||||||||||||
Total number of | Average price paid | as part of publically | yet be purchased | |||||||||||||
Purchase period | shares purchased | per share | announced plans | under the plans | ||||||||||||
February 20, 2008 | 535 | $ | 14.46 | Not applicable | Not applicable | |||||||||||
October 13, 2008 | 2,646 | $ | 11.55 | Not applicable | Not applicable | |||||||||||
November 10, 2008 | 1,622 | $ | 11.05 | Not applicable | Not applicable | |||||||||||
December 5, 2008 | 18,843 | $ | 10.61 | Not applicable | Not applicable |
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Consolidated Communications Holdings, Inc. | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(dollars in millions except per share amounts) | ||||||||||||||||||||
Consolidated Statement of Operations Data: | ||||||||||||||||||||
Telephone operations revenues | $ | 378.0 | $ | 286.8 | $ | 280.4 | $ | 282.3 | $ | 230.4 | ||||||||||
Other operations revenues | 40.4 | 42.4 | 40.4 | 39.1 | 39.2 | |||||||||||||||
Total operating revenues | 418.4 | 329.2 | 320.8 | 321.4 | 269.6 | |||||||||||||||
Cost of services and products (exclusive of depreciation and amortization shown separately below) | 143.5 | 107.3 | 98.1 | 101.1 | 80.6 | |||||||||||||||
Selling, general and administrative | 108.8 | 89.6 | 94.7 | 98.8 | 87.9 | |||||||||||||||
Intangible assets impairment | 6.1 | — | 11.3 | — | 11.6 | |||||||||||||||
Depreciation and amortization | 91.7 | 65.7 | 67.4 | 67.4 | 54.5 | |||||||||||||||
Income from operations | 68.3 | 66.6 | 49.3 | 54.1 | 35.0 | |||||||||||||||
Interest expense, net (1) | (66.3 | ) | (46.5 | ) | (42.9 | ) | (53.4 | ) | (39.6 | ) | ||||||||||
Other, net (2) | 9.9 | (4.0 | ) | 7.3 | 5.7 | 3.7 | ||||||||||||||
Income (loss) before income taxes and extraordinary item | 11.9 | 16.1 | 13.7 | 6.4 | (0.9 | ) | ||||||||||||||
Income tax expense | (6.6 | ) | (4.7 | ) | (0.4 | ) | (10.9 | ) | (0.2 | ) | ||||||||||
Income before extraordinary item | 5.3 | 11.4 | 13.3 | (4.5 | ) | (1.1 | ) | |||||||||||||
Extraordinary item, net of tax | 7.2 | — | — | — | — | |||||||||||||||
Net income (loss) | 12.5 | 11.4 | 13.3 | (4.5 | ) | (1.1 | ) | |||||||||||||
Dividends on redeemable preferred shares | — | — | — | (10.2 | ) | (15.0 | ) | |||||||||||||
Net income (loss) applicable to common shares | $ | 12.5 | $ | 11.4 | $ | 13.3 | $ | (14.7 | ) | $ | (16.1 | ) | ||||||||
Net income (loss) per common share: | ||||||||||||||||||||
Basic: | ||||||||||||||||||||
Income (loss) before extraordinary item | $ | 0.18 | $ | 0.44 | $ | 0.48 | $ | (0.83 | ) | $ | (1.79 | ) | ||||||||
Extraordinary item | 0.25 | — | — | — | — | |||||||||||||||
Net income (loss) | $ | 0.43 | $ | 0.44 | $ | 0.48 | $ | (0.83 | ) | $ | (1.79 | ) | ||||||||
Diluted: | ||||||||||||||||||||
Income (loss) before extraordinary item | $ | 0.18 | $ | 0.44 | $ | 0.48 | $ | (0.83 | ) | $ | (1.79 | ) | ||||||||
Extraordinary item | 0.24 | — | — | — | — | |||||||||||||||
Net income (loss) | $ | 0.42 | $ | 0.44 | $ | 0.48 | $ | (0.83 | ) | $ | (1.79 | ) | ||||||||
Consolidated Cash Flow Data: | ||||||||||||||||||||
Cash flows from operating activities | $ | 92.4 | $ | 82.1 | $ | 84.6 | $ | 79.3 | $ | 79.8 | ||||||||||
Cash flows used in investing activities | (48.0 | ) | (305.3 | ) | (26.7 | ) | (31.1 | ) | (554.1 | ) | ||||||||||
Cash flows from (used in) financing activities | (63.3 | ) | 230.9 | (62.7 | ) | (68.9 | ) | 516.3 | ||||||||||||
Capital expenditures | 48.0 | 33.5 | 33.4 | 31.1 | 30.0 | |||||||||||||||
Dividends declared per common share | $ | 1.55 | $ | 1.55 | $ | 1.55 | $ | 0.80 | $ | — | ||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 15.5 | $ | 34.3 | $ | 26.7 | $ | 31.4 | $ | 52.1 | ||||||||||
Total current assets | 78.6 | 99.6 | 74.2 | 79.0 | 98.9 | |||||||||||||||
Net plant, property and equipment (3) | 400.3 | 411.6 | 314.4 | 335.1 | 360.8 | |||||||||||||||
Total assets | 1,241.6 | 1,304.6 | 889.6 | 946.0 | 1,006.1 | |||||||||||||||
Total long-term debt (including current portion) (4) (5) | 881.3 | 892.6 | 594.0 | 555.0 | 629.4 | |||||||||||||||
Redeemable preferred shares | — | — | — | — | 205.5 | |||||||||||||||
Stockholders’ equity/members’ deficit/parent company investment | 70.1 | 155.4 | 115.0 | 199.2 | (18.8 | ) | ||||||||||||||
Other Financial Data (unaudited): | ||||||||||||||||||||
Consolidated EBITDA (6) | $ | 189.8 | $ | 143.8 | $ | 139.8 | $ | 136.8 | $ | 115.8 |
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Consolidated Communications Holdings, Inc. | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
Other Data (as of end of period) (7): | ||||||||||||||||||||
Local access lines in service: | ||||||||||||||||||||
Residential | 162,067 | 183,070 | 155,354 | 162,231 | 168,778 | |||||||||||||||
Business | 102,256 | 103,116 | 78,335 | 79,793 | 86,430 | |||||||||||||||
Total local access lines | 264,323 | 286,186 | 233,689 | 242,024 | 255,208 | |||||||||||||||
CLEC access line equivalents | 74,687 | 70,063 | — | — | — | |||||||||||||||
Digital telephone subscribers | 6,510 | 2,494 | — | — | — | |||||||||||||||
IPTV subscribers | 16,666 | 12,241 | 6,954 | 2,146 | 101 | |||||||||||||||
ILEC DSL subscribers | 91,817 | 81,337 | 52,732 | 39,192 | 27,445 | |||||||||||||||
Total connections | 454,003 | 452,321 | 293,375 | 283,362 | 282,754 | |||||||||||||||
(1) | Interest expense includes amortization of deferred financing costs totaling $1.4 million for the year ended December 31, 2008, $3.2 million for 2007, $3.3 million for 2006, $5.5 million for 2005, and $6.4 million for 2004. | |
(2) | We recognized $0.3 million and $2.8 million of net proceeds in other income in 2007 and 2005, respectively, because we received key-man life insurance proceeds relating to the passing of former TXUCV employees. | |
(3) | Property, plant and equipment are recorded at cost. The cost of additions, replacements, and major improvements is capitalized, while repairs and maintenance are charged to expenses. When property, plant and equipment are retired from our regulated subsidiaries, the original cost, net of salvage, is charged against accumulated depreciation, with no gain or loss recognized in accordance with composite group life remaining methodology used for regulated telephone plant assets. | |
(4) | In connection with the TXUCV acquisition on April 14, 2004, we issued $200.0 million in aggregate principal amount of senior notes and entered into credit facilities. In connection with the IPO and related transactions, we retired $70.0 million of senior notes and amended and restated our credit facilities. In connection with the acquisition of North Pittsburgh on December 31, 2007, we incurred $296.0 million new term debt, net of payoffs of existing debt. All remaining senior notes were retired on April 1, 2008. | |
(5) | In July 2006, we repurchased and retired approximately 3.8 million shares of our common stock for approximately $56.7 million, or $15.00 per share. We financed this transaction using approximately $17.7 million of cash on hand and $39.0 million of additional term-loan borrowings. | |
(6) | We present Consolidated EBITDA for three reasons: we believe it is a useful indicator of our historical debt capacity and our ability to service debt and pay dividends; it provides a measure of consistency in our financial reporting; and covenants in our credit facilities contain ratios based on Consolidated EBITDA. |
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(7) | Beginning with 2007, Other data includes access lines, CLEC access line equivalents, and DSL subscribers for our North Pittsburgh operations, which were acquired on December 31, 2007. |
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CCI Holdings | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(dollars in millions) | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||
EBITDA: | ||||||||||||||||||||
Net cash provided by operating activities | $ | 92.4 | $ | 82.1 | $ | 84.6 | $ | 79.3 | $ | 79.8 | ||||||||||
Adjustments: | ||||||||||||||||||||
Compensation from restricted share plan | (1.9 | ) | (4.0 | ) | (2.5 | ) | (8.6 | ) | — | |||||||||||
Other adjustments, net (a) | 3.8 | (9.5 | ) | (2.0 | ) | (18.0 | ) | (22.0 | ) | |||||||||||
Changes in operating assets and liabilities | 9.9 | 8.5 | 0.6 | 10.2 | (4.4 | ) | ||||||||||||||
Interest expense, net | 66.3 | 46.5 | 42.9 | 53.4 | 39.6 | |||||||||||||||
Income taxes | 6.6 | 4.7 | 0.4 | 10.9 | 0.2 | |||||||||||||||
EBITDA (b) | 177.1 | 128.3 | 124.0 | 127.2 | 93.2 | |||||||||||||||
Adjustments to EBITDA (c): | ||||||||||||||||||||
Intergration, restructuring and Sarbanes-Oxley (d) | 4.8 | 1.2 | 3.7 | 7.4 | 7.0 | |||||||||||||||
Professional service fees (e) | — | — | — | 2.9 | 4.1 | |||||||||||||||
Other, net (f) | (19.9 | ) | (6.6 | ) | (7.1 | ) | (3.0 | ) | (3.7 | ) | ||||||||||
Investment distributions (g) | 17.8 | 6.6 | 5.5 | 1.6 | 3.6 | |||||||||||||||
Pension curtailment gain (h) | — | — | — | (7.9 | ) | — | ||||||||||||||
Loss on extinghishment of debt (i) | 9.2 | 10.3 | — | — | — | |||||||||||||||
Intangible assets impairment (a) | 6.1 | — | 11.2 | — | 11.6 | |||||||||||||||
Extraordinary item (j) | (7.2 | ) | — | — | — | — | ||||||||||||||
Non-cash compensation (k) | 1.9 | 4.0 | 2.5 | 8.6 | — | |||||||||||||||
Consolidated EBITDA | $ | 189.8 | $ | 143.8 | $ | 139.8 | $ | 136.8 | $ | 115.8 | ||||||||||
(a) | Other adjustments, net includes $6.1 million, $11.2 million and $11.6 million of intangible asset impairment charges for years ended December 31, 2008, December 31, 2006, and December 31, 2004, respectively. During our annual impairment review for 2008, we determined that the projected future cash flows of the telemarketing business would not be sufficient to support the carrying value of the goodwill. In addition, based on a decline in estimated future cash flows in the telemarketing and operator services business, our 2006 annual impairment review determined that the value of the customer lists associated with these businesses was impaired. Our 2004 impairment testing determined that the goodwill of our operator services business and the tradenames of our telemarketing and mobile services businesses were impaired. Non-cash impairment charges are excluded in arriving at Consolidated EBITDA under our credit facility. | |
(b) | EBITDA is defined as net earnings (loss) before interest expense, income taxes, depreciation, and amortization on an unadjusted basis. | |
(c) | These adjustments reflect those required or permitted by the lenders under the credit facility in place at the end of each of the years included in the periods presented. | |
(d) | In connection with the TXUCV acquisition, we incurred certain expenses associated with integrating and restructuring the businesses. These expenses include severance; employee relocation expenses; Sarbanes-Oxley start-up costs; and costs to integrate our technology, administrative and customer service functions, and billing systems. In connection with the North Pittsburgh acquisition we incurred similar expenses with the exception of Sarbanes-Oxley start-up costs. | |
(e) | Represents the aggregate professional service fees paid to certain large equity investors prior to our initial public offering. Upon closing of the initial public offering, these service agreements terminated. |
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(f) | Other, net includes the equity earnings from our investments, dividend income, and certain other miscellaneous non-operating items. Key man life insurance proceeds of $0.3 million and $2.8 million received in 2007 and 2005, respectively, are not deducted to arrive at Consolidated EBITDA. | |
(g) | For purposes of calculating Consolidated EBITDA, we include all cash dividends and other cash distributions received from our investments. | |
(h) | Represents a $7.9 million curtailment gain associated with the amendment of our Texas pension plan. The gain was recorded in general and administrative expenses. However, because the gain is non-cash, it is excluded from Consolidated EBITDA. | |
(i) | Represents the redemption premium and write-off of unamortized debt issuance costs in connection with the redemption and retirement of our senior notes during 2008 and the write off of debt issuance costs in connection with retiring the obligations under our former credit facility and entering into a new credit facility contemporaneously with the North Pittsburgh acquisition. | |
(j) | Upon making the election to discontinue accounting for certain regulated property under Statement of Financial Accounting Standards No. 71, “Accounting for the Effects of Certain Types of Regulation.” Accordingly, we recognized an extraordinary non-cash gain in connection with our adoption of SFAS No. 101 “Regulated Enterprises — Accounting for the Discontinuance of Application of FASB Statement No. 71.” See the financial statements and footnotes for additional information. | |
(k) | Represents compensation expenses in connection with our Restricted Share Plan. Because of their non-cash nature, these expenses are excluded from Consolidated EBITDA. |
• | a 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 and increase in the interest rate on our credit facility of 25 basis points and a decrease in interest income resulting from reduced cash on hand. |
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• | aggressively promoting DSL service, including selling DSL as a stand-alone offering; |
• | bundling value-adding services, such as DSL or IPTV, with a combination of local service and custom calling features; |
• | maintaining excellent customer service standards; and | ||
• | keeping a strong local presence in the communities we serve. |
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• | hosted digital telephone service in certain Texas and Pennsylvania markets to meet the needs of small- to medium-sized business customers that want robust function without having to purchase a traditional key or PBX phone system; |
• | Digital telephone service for residential customers, which is being offered to our Texas and Illinois customers and will expand to our Pennsylvania customers in 2009 both as a growth opportunity and as an alternative to the traditional phone line for customers who are considering a switch to a cable competitor; |
• | DSL service—even to users who do not have our access line—which expands our customer base and creates additional revenue-generating opportunities; |
• | a DSL product with speeds up to 10 Mbps for those customers desiring greater Internet speed; and | ||
• | High definition video service and digital video recorders in all of our IPTV markets. |
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December 31, | December 31, | December 31, | ||||||||||
2008 | 2007 (1) | 2006 | ||||||||||
Local access lines in service: | ||||||||||||
Residential | 162,067 | 183,070 | 155,354 | |||||||||
Business | 102,256 | 103,116 | 78,335 | |||||||||
Total local access lines | 264,323 | 286,186 | 233,689 | |||||||||
Digital telephone subscribers | 6,510 | 2,494 | — | |||||||||
IPTV subscribers | 16,666 | 12,241 | 6,954 | |||||||||
ILEC DSL subscribers | 91,817 | 81,337 | 52,732 | |||||||||
Broadband Connections | 114,993 | 96,072 | 59,686 | |||||||||
CLEC Access Line Equivalents (2) | 74,687 | 70,063 | — | |||||||||
Total connections | 454,003 | 452,321 | 293,375 | |||||||||
Long distance lines (3) | 165,953 | 166,599 | 148,181 | |||||||||
Dial-up subscribers | 3,957 | 5,578 | 11,942 |
(1) | In connection with the acquisition of North Pittsburgh, we acquired 36,411 residential access lines, 25,988 business access lines, 14,713 DSL subscribers, 87 digital telephone subscribers, 70,063 CLEC access line equivalents and 18,223 long distance lines. | |
(2) | CLEC access line equivalents represent a combination of voice services and data circuits. The calculations represent a conversion of data circuits to an access line basis. Equivalents are calculated by converting data circuits (basic rate interface, primary rate interface, DSL, DS-1, DS-3 and Ethernet) and SONET-based (optical) services (OC-3 and OC-48) to the equivalent of an access line. | |
(3) | Reflects the inclusion of long distance service provided as part of our VOIP offering while excluding CLEC long distance subscribers. |
• | 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. |
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Years | ||||
Buildings | 15-35 | |||
Network and outside plant facilities | 5-30 | |||
Furniture, fixtures and equipment | 5-17 | |||
Capital Leases | 11 |
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Year Ended December 31, | ||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
% of Total | % of Total | % of Total | ||||||||||||||||||||||
$ (millions) | Revenues | $ (millions) | Revenues | $ (millions) | Revenues | |||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Telephone Operations | ||||||||||||||||||||||||
Local calling services | $ | 104.6 | 25.0 | % | $ | 82.8 | 25.2 | % | $ | 85.1 | 26.6 | % | ||||||||||||
Network access services | 94.6 | 22.6 | 70.2 | 21.3 | 68.1 | 21.2 | ||||||||||||||||||
Subsidies | 55.2 | 13.2 | 46.0 | 14.0 | 47.6 | 14.8 | ||||||||||||||||||
Long distance services | 24.0 | 5.7 | 14.0 | 4.2 | 15.2 | 4.7 | ||||||||||||||||||
Data and Internet services | 62.7 | 15.0 | 38.0 | 11.5 | 30.9 | 9.6 | ||||||||||||||||||
Other services | 36.9 | 8.8 | 35.8 | 10.9 | 33.5 | 10.5 | ||||||||||||||||||
Total Telephone Operations | 378.0 | 90.3 | 286.8 | 87.1 | 280.4 | 87.4 | ||||||||||||||||||
Other Operations | 40.4 | 9.7 | 42.4 | 12.9 | 40.4 | 12.6 | ||||||||||||||||||
Total operating revenues | 418.4 | 100.0 | 329.2 | 100.0 | 320.8 | 100.0 | ||||||||||||||||||
Expenses | ||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Telephone Operations | 213.0 | 50.9 | 153.4 | 46.6 | 152.4 | 47.5 | ||||||||||||||||||
Other Operations | 45.4 | 10.9 | 43.5 | 13.2 | 51.7 | 16.1 | ||||||||||||||||||
Depreciation and amortization | 91.7 | 21.9 | 65.7 | 20.0 | 67.4 | 21.0 | ||||||||||||||||||
Total operating expenses | 350.1 | 83.7 | 262.6 | 79.8 | 271.5 | 84.6 | ||||||||||||||||||
Income from operations | 68.3 | 16.3 | 66.6 | 20.2 | 49.3 | 15.4 | ||||||||||||||||||
Interest expense, net | (66.3 | ) | (15.8 | ) | (46.5 | ) | (14.1 | ) | (42.9 | ) | (13.4 | ) | ||||||||||||
Other income (expense), net | 9.9 | 2.4 | (4.0 | ) | (1.2 | ) | 7.3 | 2.2 | ||||||||||||||||
Income tax expense | (6.6 | ) | (1.6 | ) | (4.7 | ) | (1.4 | ) | (0.4 | ) | (0.1 | ) | ||||||||||||
Income before extraordinary item | 5.3 | 1.3 | 11.4 | 3.5 | 13.3 | 4.1 | ||||||||||||||||||
Extraordinary item, net of tax | 7.2 | 1.7 | — | — | — | — | ||||||||||||||||||
Net Income | $ | 12.5 | 3.0 | % | $ | 11.4 | 3.5 | % | $ | 13.3 | 4.1 | % | ||||||||||||
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Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices | Significant | |||||||||||||||
in Active | Other | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Description | December 31, 2008 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Interest Rate Derivatives | $ | 47,908 | $ | 47,908 | ||||||||||||
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Fair Value | ||||
Measurements | ||||
Using Significant | ||||
Unobservable | ||||
Inputs (Level 3) | ||||
Interest Rate | ||||
Derivatives | ||||
Balance at December 31, 2007 | $ | 12,769 | ||
Settlements | (10,412 | ) | ||
Total gains or losses (realized/unrealized) | ||||
Unrealized loss included in earnings | 395 | |||
Unrealized loss included in other comprehensive income | 45,156 | |||
Balance at December 31, 2008 | $ | 47,908 | ||
The amount of total loss for the period included in earnings for the period as a component of interest expense | $ | 395 | ||
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• | a change in the use or perceived value of our tradenames; | ||
• | significant underperformance relative to historical or projected future operating results; | ||
• | significant regulatory changes that would impact future operating revenues; | ||
• | significant changes in our customer base; | ||
• | significant negative industry or economic trends; or | ||
• | significant changes in the overall strategy we employ to operate our business. |
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December 31, | ||||||||||||||||||||
Percentage | 2008 Obligation | 2008 Expense | ||||||||||||||||||
Assumptions | Point Change | Higher | Lower | Higher | Lower | |||||||||||||||
(in millions) | ||||||||||||||||||||
Pension Plan Expense: | ||||||||||||||||||||
Discount rate | + or - 0.5 | pts | $ | (10.2 | ) | $ | 11.1 | $ | — | $ | — | |||||||||
Expected return on assets | + or - 1.0 | pts | $ | — | $ | — | $ | (1.6 | ) | $ | 1.6 | |||||||||
Other Postretirement Expense: | ||||||||||||||||||||
Discount rate | + or - 0.5 | pts | $ | (1.8 | ) | $ | 1.9 | $ | — | $ | — |
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Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(In millions) | ||||||||||||
Net Cash Provided by (Used for): | ||||||||||||
Operating activities | $ | 92.4 | $ | 82.1 | $ | 84.6 | ||||||
Investing activities | (48.0 | ) | (305.3 | ) | (26.7 | ) | ||||||
Financing activities | (63.3 | ) | 230.9 | (62.7 | ) |
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(In Millions)
Balance | Maturity Date | Rate (1) | ||||||||||
Capital lease | $ | 1.3 | April 12, 2010 | 7.40 | % | |||||||
Revolving credit facility | — | December 31, 2013 | LIBOR + 2.50% | |||||||||
Term loan | 880.0 | December 31, 2014 | LIBOR + 2.50% |
(1) | As of December 31, 2008, the 1-month and 3-month LIBOR rates were 0.43625% and 1.425%, respectively. As of December 31, 2008, we were electing 1-month LIBOR on the variable portion of our debt. |
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Less than | 1 – 3 | 3 – 5 | More than | |||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Long-term debt (a) | $ | 1,249,600 | $ | 61,600 | $ | 123,200 | $ | 123,200 | $ | 941,600 | ||||||||||
Capital lease (b) | 1,433 | 1,051 | 382 | — | — | |||||||||||||||
Operating leases | 10,294 | 4,187 | 4,661 | 758 | 688 | |||||||||||||||
Other agreements and commitments (c) | 3,062 | 1,120 | 1,692 | 140 | 110 | |||||||||||||||
Pension and other post-retirement obligations (d) | 107,306 | 10,290 | 36,858 | 36,939 | 23,219 | |||||||||||||||
Total contractual cash obligations and commitments | $ | 1,371,695 | $ | 78,248 | $ | 166,793 | $ | 161,037 | $ | 965,617 | ||||||||||
(a) | This item consists of interest and principal payments under our credit facilities. The credit facilities consist of a $760.0 million term loan facility and a $120.0 delayed draw facility, both maturing on December 31, 2014, and a $50.0 million revolving credit facility, which was fully available but undrawn as of December 31, 2008. | |
(b) | Represents payments of principal and interest on a capital lease entered into by North Pittsburgh for equipment used in its operations. | |
(c) | Represents payments for two operational support systems obligations. Should we terminate either of the contracts prior to the expiration of their term, we will be liable for minimum commitment payments as defined in the contracts for the remaining term of the contracts. In addition, we have a contractual obligation for network maintenance. | |
(d) | Pension funding is an estimate of our minimum funding requirements to provide pension benefits for employees based on service through December 31, 2008. Obligations relating to other post-retirement benefits are based on forecasts of future benefit payments, which may change over time due to factors such as life expectancy, medical costs and trends, the actual rate of return on the plan assets, discount rates, discretionary pension contributions, and regulatory rules. |
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(i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; | |
(ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors; and | |
(iii) | provide reasonable assurance that any unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements will be prevented or detected without delay. |
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Consolidated Communications Holdings, Inc.
March 13, 2009
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Consolidated Communications Holdings, Inc.
March 13, 2009
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of Pennsylvania RSA 6 (I) Limited Partnership:
We have audited the accompanying balance sheets of Pennsylvania RSA 6 (I) Limited Partnership (the “Partnership”) as of December 31, 2008 and 2007, and the related statements of operations, changes in partners’ capital, and cash flows for each of the three years in the period ended December 31, 2008. Such financial statements are not presented separately herein. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Atlanta, GA
March 16, 2009
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Consolidated Balance Sheets
(Amounts in thousands, except share amounts)
December 31, | ||||||||
2008 | 2007 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 15,471 | $ | 34,341 | ||||
Accounts receivable, net of allowance of $1,908 and $2,440, respectively | 45,092 | 44,001 | ||||||
Inventories | 7,482 | 6,364 | ||||||
Deferred income taxes | 3,600 | 4,551 | ||||||
Prepaid expenses and other current assets | 6,931 | 10,358 | ||||||
Total current assets | 78,576 | 99,615 | ||||||
Property, plant and equipment, net | 400,286 | 411,647 | ||||||
Intangibles and other assets: | ||||||||
Investments | 95,657 | 94,142 | ||||||
Goodwill | 520,562 | 526,439 | ||||||
Customer lists, net | 124,249 | 146,411 | ||||||
Tradenames | 14,291 | 14,291 | ||||||
Deferred financing costs and other assets | 8,005 | 12,046 | ||||||
Total assets | $ | 1,241,626 | $ | 1,304,591 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of capital lease obligation | $ | 922 | $ | 1,010 | ||||
Current portion of pension and postretirement benefit obligations | 2,960 | 8,765 | ||||||
Accounts payable | 12,336 | 17,386 | ||||||
Advance billings and customer deposits | 19,102 | 18,167 | ||||||
Dividends payable | 11,388 | 11,361 | ||||||
Accrued expenses | 24,584 | �� | 28,254 | |||||
Total current liabilities | 71,292 | 84,943 | ||||||
Capital lease obligation less current portion | 344 | 1,636 | ||||||
Long-term debt | 880,000 | 890,000 | ||||||
Deferred income taxes | 58,134 | 97,289 | ||||||
Pension and postretirement benefit obligations | 107,741 | 56,729 | ||||||
Other liabilities | 48,830 | 14,306 | ||||||
Total liabilities | 1,166,341 | 1,144,903 | ||||||
Minority interest | 5,185 | 4,322 | ||||||
Stockholders’ equity | ||||||||
Common stock, $0.01 par value, 100,000,000 shares authorized, 29,488,408 and 29,440,587 issued and outstanding in 2008 and 2007, respectively | 295 | 294 | ||||||
Additional paid in capital | 129,284 | 160,723 | ||||||
Retained earnings | — | — | ||||||
Accumulated other comprehensive loss | (59,479 | ) | (5,651 | ) | ||||
Total stockholders’ equity | 70,100 | 155,366 | ||||||
Total liabilities and stockholders’ equity | $ | 1,241,626 | $ | 1,304,591 | ||||
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Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Revenues | $ | 418,424 | $ | 329,248 | $ | 320,767 | ||||||
Operating expenses: | ||||||||||||
Cost of services and products (exclusive of depreciation and amortization shown separately below) | 143,563 | 107,290 | 98,093 | |||||||||
Selling, general and administrative expenses | 108,769 | 89,662 | 94,693 | |||||||||
Intangible assets impairment | 6,050 | — | 11,240 | |||||||||
Depreciation and amortization | 91,678 | 65,659 | 67,430 | |||||||||
Income from operations | 68,364 | 66,637 | 49,311 | |||||||||
Other income (expense): | ||||||||||||
Interest income | 367 | 893 | 974 | |||||||||
Interest expense | (66,659 | ) | (47,350 | ) | (43,873 | ) | ||||||
Investment income | 20,495 | 7,034 | 7,691 | |||||||||
Minority interest | (863 | ) | (627 | ) | (721 | ) | ||||||
Loss on extinguishment of debt | (9,224 | ) | (10,323 | ) | — | |||||||
Other, net | (577 | ) | (167 | ) | 290 | |||||||
Income before income taxes and extraordinary item | 11,903 | 16,097 | 13,672 | |||||||||
Income tax expense | 6,639 | 4,674 | 405 | |||||||||
Income before extraordinary item | 5,264 | 11,423 | 13,267 | |||||||||
Extraordinary item (net of income tax of $4,154) | 7,240 | — | — | |||||||||
Net income | $ | 12,504 | $ | 11,423 | $ | 13,267 | ||||||
Net income per common share — | ||||||||||||
Basic: | ||||||||||||
Income per share before extraordinary item | $ | 0.18 | $ | 0.44 | $ | 0.48 | ||||||
Extraordinary item per share | 0.25 | — | — | |||||||||
Net income per share | $ | 0.43 | $ | 0.44 | $ | 0.48 | ||||||
Diluted: | ||||||||||||
Income per share before extraordinary item | $ | 0.18 | $ | 0.44 | $ | 0.47 | ||||||
Extraordinary item per share | 0.24 | — | — | |||||||||
Net income per share | $ | 0.42 | $ | 0.44 | $ | 0.47 | ||||||
Cash dividends per common share | $ | 1.55 | $ | 1.55 | $ | 1.55 | ||||||
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Consolidated Statement of Changes in Stockholders’ Equity
Year Ended December 31, 2008, 2007 and 2006
(Dollars in thousands, except share amounts)
Accumulated | ||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||
Common Stock | Additional | Retained | Comprehensive | Comprehensive | ||||||||||||||||||||||||
Shares | Amount | Paid in Capital | Earnings | Income (Loss) | Total | Income (Loss) | ||||||||||||||||||||||
Balance, January 1, 2006 | 29,775,010 | 297 | 202,234 | (5,605 | ) | 2,302 | 199,228 | |||||||||||||||||||||
Net income | — | — | — | 13,267 | — | 13,267 | $ | 13,267 | ||||||||||||||||||||
Dividends on common stock | — | — | (35,434 | ) | (7,662 | ) | — | (43,096 | ) | — | ||||||||||||||||||
Shares issued under employee plan, net of forfeitures | 13,841 | — | — | — | — | — | — | |||||||||||||||||||||
Non-cash stock compensation | — | — | 2,482 | — | — | 2,482 | ||||||||||||||||||||||
Purchase and retirement of common stock | (3,786,979 | ) | (37 | ) | (56,786 | ) | — | — | (56,823 | ) | — | |||||||||||||||||
Reversal of minimum pension liability upon adoption of SFAS No. 158, net of $303 of tax | — | — | — | — | 427 | 427 | — | |||||||||||||||||||||
Recognition of funded status upon adoption of SFAS No. 158, net of ($194) of tax | — | — | — | — | (324 | ) | (324 | ) | — | |||||||||||||||||||
Unrealized gain on marketable securities, net of $34 of tax | — | — | — | — | 49 | 49 | 49 | |||||||||||||||||||||
Change in fair value of cash flow hedges, net of ($492) of tax | — | — | — | — | (252 | ) | (252 | ) | (252 | ) | ||||||||||||||||||
Balance, December 31, 2006 | 26,001,872 | 260 | 112,496 | — | 2,202 | 114,958 | $ | 13,064 | ||||||||||||||||||||
Net income | — | — | — | 11,423 | — | 11,423 | $ | 11,423 | ||||||||||||||||||||
Dividends on common stock | — | — | (30,090 | ) | (11,423 | ) | — | (41,513 | ) | — | ||||||||||||||||||
Issuance of common stock | 3,319,142 | 34 | 74,376 | — | — | 74,410 | — | |||||||||||||||||||||
Shares issued under employee plan, net of forfeitures | 126,834 | — | — | — | — | — | — | |||||||||||||||||||||
Non-cash stock compensation | — | — | 4,034 | — | — | 4,034 | ||||||||||||||||||||||
Purchase and retirement of common stock | (7,261 | ) | — | (131 | ) | — | — | (131 | ) | — | ||||||||||||||||||
Permanent portion of tax on restricted stock vesting | — | — | 38 | — | — | 38 | — | |||||||||||||||||||||
Recognition of funded status of pension and other post retirement benefit plans net of $1,606 of tax | — | — | — | — | 2,785 | 2,785 | 2,785 | |||||||||||||||||||||
Change in fair value of cash flow hedges, net of ($6,139) of tax | — | — | — | — | (10,638 | ) | (10,638 | ) | (10,638 | ) | ||||||||||||||||||
Balance, December 31, 2007 | 29,440,587 | 294 | 160,723 | — | (5,651 | ) | 155,366 | 3,570 | ||||||||||||||||||||
Effects of accounting change regarding postretirement plan measurement dates pursuant to SFAS No. 158: | ||||||||||||||||||||||||||||
Service cost, interest cost, and expected return on plan assets for October 1, 2007 through December 31, 2007, net of ($88) of tax | — | — | — | (154 | ) | — | (154 | ) | — | |||||||||||||||||||
Amortization of prior service cost and net loss for October 1, 2007 through December 31, 2007, net of ($9) of tax | — | — | — | (15 | ) | 15 | — | — | ||||||||||||||||||||
— | — | — | (169 | ) | 15 | (154 | ) | — | ||||||||||||||||||||
Balance, January 1, 2008 as adjusted | 29,440,587 | 294 | 160,723 | (169 | ) | (5,636 | ) | 155,212 | 3,570 | |||||||||||||||||||
Net income | — | — | — | 12,504 | — | 12,504 | $ | 12,504 | ||||||||||||||||||||
Dividends on common stock | — | — | (33,141 | ) | (12,335 | ) | — | (45,476 | ) | — | ||||||||||||||||||
Shares issued under employee plan, net of forfeitures | 71,467 | — | — | — | — | — | — | |||||||||||||||||||||
Non-cash stock compensation | — | 1 | 1,900 | — | — | 1,901 | ||||||||||||||||||||||
Purchase and retirement of common stock | (23,646 | ) | — | (257 | ) | — | — | (257 | ) | — | ||||||||||||||||||
Permanent portion of tax on restricted stock vesting | — | — | (38 | ) | — | — | (38 | ) | — | |||||||||||||||||||
Pension tax adjustment | — | — | 97 | — | — | 97 | — | |||||||||||||||||||||
Change in prior service cost and net loss, net of ($18,730) of tax | — | — | — | — | (31,765 | ) | (31,765 | ) | (31,765 | ) | ||||||||||||||||||
Change in fair value of cash flow hedges, net of ($12,666) of tax | — | — | — | — | (22,078 | ) | (22,078 | ) | (22,078 | ) | ||||||||||||||||||
Balance, December 31, 2008 | 29,488,408 | $ | 295 | $ | 129,284 | $ | — | $ | (59,479 | ) | $ | 70,100 | $ | (37,769 | ) | |||||||||||||
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Consolidated Statements of Cash Flows
(Dollars in thousands)
Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income | $ | 12,504 | $ | 11,423 | $ | 13,267 | ||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 91,678 | 65,659 | 67,430 | |||||||||
Loss on extinguishment of debt | 9,224 | 10,323 | — | |||||||||
Deferred income tax | (12,032 | ) | (4,271 | ) | (11,379 | ) | ||||||
Intangible assets impairment | 6,050 | — | 11,240 | |||||||||
Extraordinary item, net of income tax | (7,240 | ) | — | — | ||||||||
Partnership income | (2,056 | ) | (333 | ) | (1,883 | ) | ||||||
Non-cash stock compensation | 1,901 | 4,034 | 2,482 | |||||||||
Minority interest in net income of subsidiary | 863 | 627 | 721 | |||||||||
Amortization of deferred financing costs | 1,431 | 3,128 | 3,260 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (1,091 | ) | 171 | 1,107 | ||||||||
Inventories | (1,118 | ) | (228 | ) | (750 | ) | ||||||
Other assets | 5,083 | 5,544 | (3,089 | ) | ||||||||
Accounts payable | (5,050 | ) | 1,258 | (739 | ) | |||||||
Accrued expenses and other liabilities | (7,736 | ) | (15,266 | ) | 2,926 | |||||||
Net cash provided by operating activities | 92,411 | 82,069 | 84,593 | |||||||||
INVESTING ACTIVITIES | ||||||||||||
Proceeds from sale of investments | — | 10,625 | 5,921 | |||||||||
Proceeds from sale of assets | — | — | 815 | |||||||||
Securities purchased | — | (10,625 | ) | — | ||||||||
Acquisition, net of cash acquired | — | (271,780 | ) | — | ||||||||
Capital expenditures | (48,027 | ) | (33,495 | ) | (33,388 | ) | ||||||
Net cash used in investing activities | (48,027 | ) | (305,275 | ) | (26,652 | ) | ||||||
FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of stock | — | 12 | — | |||||||||
Proceeds from long-term obligations | 120,000 | 760,000 | 39,000 | |||||||||
Payments made on long-term obligations | (136,337 | ) | (464,000 | ) | — | |||||||
Repayment of North Pittsburgh long-term obligation | — | (15,426 | ) | — | ||||||||
Costs paid to issue common stock | — | (400 | ) | — | ||||||||
Payment of deferred financing costs | (240 | ) | (8,988 | ) | (262 | ) | ||||||
Payment of capital lease obligation | (971 | ) | — | — | ||||||||
Purchase and retirement of common stock | (257 | ) | (131 | ) | (56,823 | ) | ||||||
Dividends on common stock | (45,449 | ) | (40,192 | ) | (44,593 | ) | ||||||
Net cash provided by (used in) financing activities | (63,254 | ) | 230,875 | (62,678 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | (18,870 | ) | 7,669 | (4,737 | ) | |||||||
Cash and cash equivalents at beginning of the year | 34,341 | 26,672 | 31,409 | |||||||||
Cash and cash equivalents at end of the year | $ | 15,471 | $ | 34,341 | $ | 26,672 | ||||||
Supplemental cash flow information | ||||||||||||
Interest paid | $ | 65,061 | $ | 44,343 | $ | 44,509 | ||||||
Income taxes paid | $ | 13,540 | $ | 13,976 | $ | 8,237 | ||||||
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Years | ||||
Buildings | 15-35 | |||
Network and outside plant facilities | 5-40 | |||
Furniture, fixtures, and equipment | 5-17 | |||
Capital lease asset | 11 |
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Current assets | $ | 17,729 | ||
Property, plant and equipment | 116,308 | |||
Customer list | 49,000 | |||
Goodwill | 214,562 | |||
Investments and other assets | 53,360 | |||
Liabilities assumed | (103,933 | ) | ||
Net purchase price | $ | 347,026 | ||
December 31 | ||||||||
2007 | 2006 | |||||||
Total revenues | $ | 424,917 | $ | 424,232 | ||||
Income from operations | $ | 59,752 | $ | 67,696 | ||||
Proforma net income | $ | 5,592 | $ | 26,888 | ||||
Income per share — basic | $ | 0.19 | $ | 0.87 | ||||
Income per share — diluted | $ | 0.19 | $ | 0.85 | ||||
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December 31, | ||||||||
2008 | 2007 | |||||||
Deferred charges | $ | 981 | $ | 1,334 | ||||
Prepaid expenses | 5,913 | 7,864 | ||||||
Other current assets | 37 | 1,160 | ||||||
$ | 6,931 | $ | 10,358 | |||||
December 31, | ||||||||
2008 | 2007 | |||||||
Property, plant and equipment: | ||||||||
Land and buildings | $ | 65,840 | $ | 65,128 | ||||
Network and outside plant facilities | 808,886 | 781,684 | ||||||
Furniture, fixtures and equipment | 83,889 | 79,944 | ||||||
Assets under capital leases | 5,144 | 6,032 | ||||||
Work in process | 10,540 | 10,251 | ||||||
974,299 | 943,039 | |||||||
Less: accumulated depreciation | (574,013 | ) | (531,392 | ) | ||||
Net property, plant and equipment | $ | 400,286 | $ | 411,647 | ||||
December 31, | ||||||||
2008 | 2007 | |||||||
Cash surender value of life insurance policies | $ | 1,779 | $ | 2,566 | ||||
Cost method investments: | ||||||||
GTE Mobilnet of South Texas Limited Partnership | 21,450 | 21,450 | ||||||
Pittsburgh SMSA Limited Partnership | 22,950 | 22,950 | ||||||
CoBank, ACB stock | 2,651 | 2,388 | ||||||
Other | 10 | 18 | ||||||
Equity method investments: | ||||||||
GTE Mobilnet of Texas RSA #17 Limited Partnership (17.02% owned) | 17,116 | 15,359 | ||||||
Pennsylvania RSA 6(I) Limited Partnership (16.6725% owned) | 7,276 | 7,102 | ||||||
Pennsylvania RSA 6(II) Limited Partnership (23.67% owned) | 22,267 | 21,949 | ||||||
Boulevard Communications, LLP (50% owned) | 158 | 167 | ||||||
Fort Bend Fibernet Limited Partnership (39.06% owned) | — | 193 | ||||||
$ | 95,657 | $ | 94,142 | |||||
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2008 | 2007 | 2006 | ||||||||||
For the year ended December 31: | ||||||||||||
Total revenues | $ | 212,498 | $ | 180,412 | $ | 49,298 | ||||||
Income from operations | 50,479 | 41,682 | 15,161 | |||||||||
Income before income taxes | 50,479 | 42,680 | 15,633 | |||||||||
Net income | 50,619 | 42,680 | 15,633 | |||||||||
As of December 31: | ||||||||||||
Current assets | 33,586 | 31,049 | 14,409 | |||||||||
Non-current assets | 74,521 | 64,172 | 34,399 | |||||||||
Current liabilities | 8,937 | 8,869 | 1,844 | |||||||||
Non-current liabilities | 567 | 468 | 246 | |||||||||
Partnership equity | 98,603 | 85,885 | 46,097 |
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Telephone | Other | |||||||||||
Operations | Operations | Total | ||||||||||
Balance at December 31, 2006 | $ | 308,850 | $ | 7,184 | $ | 316,034 | ||||||
Utilization and release of NOL valuation allowance | (3,984 | ) | — | (3,984 | ) | |||||||
Purchase of North Pittsburgh | 214,389 | — | 214,389 | |||||||||
Balance at December 31, 2007 | 519,255 | 7,184 | 526,439 | |||||||||
Adjustment to purchase of North Pittsburgh | 173 | — | 173 | |||||||||
Impairment | — | (6,050 | ) | (6,050 | ) | |||||||
Balance at December 31, 2008 | $ | 519,428 | $ | 1,134 | $ | 520,562 | ||||||
December 31, | ||||||||
2008 | 2007 | |||||||
Gross carrying amount | $ | 205,648 | $ | 205,648 | ||||
Less: accumulated amortization | (81,399 | ) | (59,237 | ) | ||||
Net carrying amount | $ | 124,249 | $ | 146,411 | ||||
Calendar 2009 | $ | 22,163 | ||
Calendar 2010 | 22,138 | |||
Calendar 2011 | 22,138 | |||
Calendar 2012 | 22,138 | |||
Calendar 2013 | 8,323 | |||
Thereafter | 27,349 | |||
$ | 124,249 | |||
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Year ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Fees charged from First Mid-Illnois for: | ||||||||||||
Banking fees | $ | 11 | $ | 10 | $ | 10 | ||||||
401K plan adminstration | 65 | 81 | 100 | |||||||||
Interest income earned by the Company on deposits at First Mid-Illinois | 48 | 174 | 206 | |||||||||
Fees charged by the Company to First Mid-Illinois for telecommunication services | 482 | 465 | 542 |
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Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Current: | ||||||||||||
Federal | $ | 12,519 | $ | 7,790 | $ | 10,152 | ||||||
State | 6,152 | 1,155 | 1,632 | |||||||||
18,671 | 8,945 | 11,784 | ||||||||||
Deferred: | ||||||||||||
Federal | (9,650 | ) | (1,523 | ) | (4,568 | ) | ||||||
State | (2,382 | ) | (2,748 | ) | (6,811 | ) | ||||||
(12,032 | ) | (4,271 | ) | (11,379 | ) | |||||||
Income tax expense | $ | 6,639 | $ | 4,674 | $ | 405 | ||||||
Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Statutory federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income taxes, net of federal benefit | 27.0 | 2.5 | 2.1 | |||||||||
Stock compensation | 1.7 | 4.7 | 6.4 | |||||||||
Other permanent differences | 4.3 | 1.9 | 3.3 | |||||||||
Change in tax law | — | (10.7 | ) | (45.8 | ) | |||||||
Change in deferred tax rate | (9.9 | ) | (5.4 | ) | 2.0 | |||||||
Other | (2.3 | ) | 1.0 | — | ||||||||
55.8 | % | 29.0 | % | 3.0 | % | |||||||
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Year Ended December 31, | ||||||||
2008 | 2007 | |||||||
Current deferred tax assets: | ||||||||
Reserve for uncollectible accounts | $ | 862 | $ | 877 | ||||
Accrued vacation pay deducted when paid | 1,200 | 1,259 | ||||||
Accrued expenses and deferred revenue | 1,538 | 2,415 | ||||||
3,600 | 4,551 | |||||||
Noncurrent deferred tax assets: | ||||||||
Net operating loss carryforwards | 1,998 | 5,968 | ||||||
Pension and postretirement obligations | 40,184 | 25,161 | ||||||
Stock compensation | 251 | 158 | ||||||
Derivative instruments | 17,321 | 4,657 | ||||||
State tax credit carryforward | 2,450 | 2,441 | ||||||
Valuation Allowance | — | (2,871 | ) | |||||
62,204 | 35,514 | |||||||
Noncurrent deferred tax liabilities: | ||||||||
Goodwill and other intangibles | (44,487 | ) | (50,483 | ) | ||||
Partnership investment | (22,203 | ) | (22,096 | ) | ||||
Property, plant and equipment | (53,648 | ) | (60,224 | ) | ||||
(120,338 | ) | (132,803 | ) | |||||
Net non-current deferred tax liabilities | (58,134 | ) | (97,289 | ) | ||||
Net deferred income tax liabilities | $ | (54,534 | ) | $ | (92,738 | ) | ||
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Liability for | ||||
Unrecognized Tax | ||||
Benefits | ||||
Balance at January 1, 2008 | $ | 6,030 | ||
Additions for tax positions of acquisition | — | |||
Reductions for lapse of 2003 and 2004 federal and state statute of limitations | (562 | ) | ||
Additions for tax positions of prior years | 272 | |||
Reduction for lapse of 2003 federal statute of limitations | — | |||
Reduction for lapse of 2002 state statute of limitations | — | |||
Balance at December 31, 2008 | $ | 5,740 | ||
December 31, | ||||||||
2008 | 2007 | |||||||
Salaries and employee benefits | $ | 9,453 | $ | 10,350 | ||||
Taxes payable | 6,004 | 5,180 | ||||||
Accrued interest | 785 | 3,614 | ||||||
Other accrued expenses | 8,342 | 9,110 | ||||||
$ | 24,584 | $ | 28,254 | |||||
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Pension Benefits | Other Benefits | |||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
The change in benefit obligation | ||||||||||||||||||||||||
Projected benefit obligation, beginning of year | $ | 187,851 | $ | 126,910 | $ | 124,334 | $ | 40,895 | $ | 26,994 | $ | 27,831 | ||||||||||||
Aquired with the acquisition of North Pittsburgh | — | 61,651 | — | — | 13,165 | — | ||||||||||||||||||
Service cost | 2,120 | 1,802 | 2,024 | 900 | 809 | 842 | ||||||||||||||||||
Interest cost | 11,214 | 7,378 | 7,012 | 2,420 | 1,527 | 1,346 | ||||||||||||||||||
Service cost adjustment to retained earnings | 202 | — | — | 72 | — | — | ||||||||||||||||||
Interest cost adjustment to retained earnings | 976 | — | — | 163 | — | — | ||||||||||||||||||
Post-measurement date contributions | — | — | — | (339 | ) | — | — | |||||||||||||||||
Plan participant contributions | — | — | — | 375 | 246 | 109 | ||||||||||||||||||
Plan amendments | (320 | ) | — | — | (3,724 | ) | 916 | — | ||||||||||||||||
Special termination benefits and settlements | 51 | — | — | 41 | — | — | ||||||||||||||||||
Benefits paid | (17,534 | ) | (7,743 | ) | (6,666 | ) | (2,873 | ) | (1,792 | ) | (1,150 | ) | ||||||||||||
Actuarial (gain) / loss | 3,472 | (2,147 | ) | 206 | (207 | ) | (970 | ) | (1,984 | ) | ||||||||||||||
Projected benefit obligation, end of year | $ | 188,032 | $ | 187,851 | $ | 126,910 | $ | 37,723 | $ | 40,895 | $ | 26,994 | ||||||||||||
Accumulated benefit obligation | $ | 180,795 | $ | 180,003 | $ | 125,377 | ||||||||||||||||||
The change in plan assets | ||||||||||||||||||||||||
Fair value of plan assets, beginning of year | $ | 166,638 | $ | 103,790 | $ | 100,446 | $ | — | $ | — | $ | — | ||||||||||||
Acquired with the acquisition of North Pittsburgh | — | 54,912 | — | — | — | — | ||||||||||||||||||
Actual return on plan assets | (36,794 | ) | 10,870 | 9,685 | — | — | — | |||||||||||||||||
Employer contributions | 6,139 | 4,809 | 402 | 2,498 | 1,546 | 1,041 | ||||||||||||||||||
Plan participant contributions | — | — | — | 375 | 246 | 109 | ||||||||||||||||||
Administrative expenses paid | — | — | (77 | ) | — | — | — | |||||||||||||||||
Benefits paid | (17,534 | ) | (7,743 | ) | (6,666 | ) | (2,873 | ) | (1,792 | ) | (1,150 | ) | ||||||||||||
Fair value of plan assets, end of year | $ | 118,449 | $ | 166,638 | $ | 103,790 | $ | — | $ | — | $ | — | ||||||||||||
Funded status | ||||||||||||||||||||||||
Projected benefit obligation | $ | (188,032 | ) | $ | (187,851 | ) | $ | (126,910 | ) | $ | (37,723 | ) | $ | (40,895 | ) | $ | (26,994 | ) | ||||||
Fair value of plan assets | 118,449 | 166,638 | 103,790 | — | — | — | ||||||||||||||||||
Employer contributions after measurement date and before end of year | — | — | — | — | 339 | 136 | ||||||||||||||||||
Funded status | (69,583 | ) | (21,213 | ) | (23,120 | ) | (37,723 | ) | (40,556 | ) | (26,858 | ) | ||||||||||||
Unrecognized prior service (credit) | (455 | ) | (151 | ) | (164 | ) | (3,233 | ) | (131 | ) | (1,758 | ) | ||||||||||||
Unrecognized net actuarial (gain) loss | 50,455 | (3,640 | ) | 1,376 | (169 | ) | 49 | 1,064 | ||||||||||||||||
Net amount recognized | $ | (19,583 | ) | $ | (25,004 | ) | $ | (21,908 | ) | $ | (41,125 | ) | $ | (40,638 | ) | $ | (27,552 | ) | ||||||
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Pension Benefits | Other Benefits | |||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
Amounts recognized in the balance sheet included in | ||||||||||||||||||||||||
Current liabilities | $ | (52 | ) | $ | (5,924 | ) | $ | — | $ | (2,908 | ) | $ | (2,841 | ) | $ | — | ||||||||
Noncurrent liabilities | (69,531 | ) | (15,289 | ) | (23,120 | ) | (34,815 | ) | (37,715 | ) | (26,858 | ) | ||||||||||||
$ | (69,583 | ) | $ | (21,213 | ) | $ | (23,120 | ) | $ | (37,723 | ) | $ | (40,556 | ) | $ | (26,858 | ) | |||||||
Amounts in accumulated other comprehensive income (loss): | ||||||||||||||||||||||||
Unrecognized prior service (credit) | $ | (455 | ) | $ | (151 | ) | $ | (164 | ) | $ | (3,233 | ) | $ | (131 | ) | $ | (1,758 | ) | ||||||
Unrecognized net actuarial (gain) loss | 50,455 | (3,640 | ) | 1,376 | (169 | ) | 49 | 1,064 | ||||||||||||||||
$ | 50,000 | $ | (3,791 | ) | $ | 1,212 | $ | (3,402 | ) | $ | (82 | ) | $ | (694 | ) | |||||||||
December 31, | ||||||||
2008 | 2007 | |||||||
Plan assets by category | ||||||||
Equity securities | 52.2 | % | 38.3 | % | ||||
Debt securities | 44.2 | % | 24.3 | % | ||||
Other | 3.6 | % | 37.4 | % | ||||
100.0 | % | 100.0 | % | |||||
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Pension | Other | |||||||
Benefits | Benefits | |||||||
2009 | $ | 12,225 | $ | 2,968 | ||||
2010 | 12,429 | 2,968 | ||||||
2011 | 12,425 | 3,116 | ||||||
2012 | 12,617 | 3,131 | ||||||
2013 | 12,699 | 3,033 | ||||||
2014 through 2018 | 45,320 | 14,926 |
Pension Benefits | Other Benefits | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
Service cost | $ | 2,120 | $ | 1,802 | $ | 2,024 | $ | 900 | $ | 809 | $ | 842 | ||||||||||||
Interest cost | 11,214 | 7,378 | 7,012 | 2,420 | 1,527 | 1,346 | ||||||||||||||||||
Expected return on plan assets | (12,689 | ) | (8,034 | ) | (7,790 | ) | — | — | — | |||||||||||||||
Other, net | 18 | 22 | 544 | (638 | ) | (667 | ) | (772 | ) | |||||||||||||||
Net periodic benefit cost | $ | 663 | $ | 1,168 | $ | 1,790 | $ | 2,682 | $ | 1,669 | $ | 1,416 | ||||||||||||
Additional loss due to: | ||||||||||||||||||||||||
Special termination benefits and settlments | $ | 51 | $ | — | $ | — | $ | 41 | $ | — | $ | — | ||||||||||||
Pension Benefits | Other Benefits | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
Discount rate | 6.1 | % | 6.3 | % | 6.0 | % | 6.1 | % | 6.3 | % | 6.0 | % | ||||||||||||
Compensation rate increase | 3.9 | % | 3.5 | % | 3.3 | % | — | — | — | |||||||||||||||
Return on plan assets | 8.0 | % | 8.0 | % | 8.0 | % | — | — | — | |||||||||||||||
Initial heathcare cost trend rate | — | — | — | 10.0 | % | 10.0 | % | 10.0 | % | |||||||||||||||
Ultimate heathcare cost rate | — | — | — | 5.0 | % | 5.0 | % | 5.0 | % | |||||||||||||||
Year ultimate trend rate reached | — | — | — | 2016 | 2013 | 2012 |
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Pension | Other | |||||||
Benefits | Benefits | |||||||
Discount rate | 6.4 | % | 6.1 | % | ||||
Compensation rate increase | 4.3 | % | 4.3 | % | ||||
Return on plan assets | 8.0 | % | — | |||||
Initial healthcare cost trend rate | — | 10.0 | % | |||||
Ultimate healthcare cost rate | — | 5.0 | % | |||||
Year ultimate trend rate reached | — | 2013 |
1% Increase | 1% Decrease | |||||||
Effect on 2008 service and interest costs | $ | 339 | $ | (291 | ) | |||
Effect on accumulated postretirement benefit obligations as of December 31, 2008 | $ | 3,083 | $ | (2,692 | ) |
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December 31, | ||||||||
2008 | 2007 | |||||||
Senior Secured Credit Facility: | ||||||||
Revolving loan | $ | — | $ | — | ||||
Term loan | 880,000 | 760,000 | ||||||
Obligations under capital lease | 1,266 | 2,646 | ||||||
Senior notes | — | 130,000 | ||||||
881,266 | 892,646 | |||||||
Less: current portion | (922 | ) | (1,010 | ) | ||||
$ | 880,344 | $ | 891,636 | |||||
2009 | $ | 922 | ||
2010 | 344 | |||
2011 | — | |||
2012 | — | |||
2013 | — | |||
Thereafter | 880,000 | |||
$ | 881,266 | |||
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Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices | Significant | |||||||||||||||
in Active | Other | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Description | December 31, 2008 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Interest Rate Derivatives | $ | 47,908 | $ | 47,908 | ||||||||||||
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Measurements | ||||
Using Significant | ||||
Unobservable | ||||
Inputs (Level 3) | ||||
Interest Rate | ||||
Derivatives | ||||
Balance at December 31, 2007 | $ | 12,769 | ||
Settlements | (10,412 | ) | ||
Total gains or losses (realized/unrealized) | ||||
Unrealized loss included in earnings | 395 | |||
Unrealized loss included in other comprehensive income | 45,156 | |||
Balance at December 31, 2008 | $ | 47,908 | ||
The amount of total loss for the period included in earnings for the period as a component of interest expense | $ | 395 | ||
2008 | 2007 | 2006 | ||||||||||
Restricted shares outstanding, beginning of period | 129,302 | 248,745 | 422,065 | |||||||||
Shares granted | 71,467 | 136,584 | 18,000 | |||||||||
Shares vested | (95,241 | ) | (246,277 | ) | (187,000 | ) | ||||||
Shares forfeited or retired | — | (9,750 | ) | (4,320 | ) | |||||||
Restricted shares outstanding, end of period | 105,528 | 129,302 | 248,745 | |||||||||
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December 31, | ||||||||
2008 | 2007 | |||||||
Fair value of cash flow hedges | $ | (47,513 | ) | $ | (12,769 | ) | ||
Prior service credits and net losses on postretirement plans | (46,598 | ) | 3,873 | |||||
(94,111 | ) | (8,896 | ) | |||||
Deferred taxes | 34,632 | 3,245 | ||||||
Accumulated other comprehensive loss | $ | (59,479 | ) | $ | (5,651 | ) | ||
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December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Net income applicable to common stockholders | $ | 12,504 | $ | 11,423 | $ | 13,267 | ||||||
Basic weighted average number of common shares outstanding | 29,321,404 | 25,764,380 | 27,739,697 | |||||||||
Effect of dilutive securities | 209,332 | 358,104 | 430,804 | |||||||||
Diluted weighted average number of common shares outstanding | 29,530,736 | 26,122,484 | 28,170,501 | |||||||||
Basic earnings per share | $ | 0.43 | $ | 0.44 | $ | 0.48 | ||||||
Diluted earnings per share | $ | 0.42 | $ | 0.44 | $ | 0.47 | ||||||
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Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Operating revenues | ||||||||||||
Telephone Operations | $ | 377,967 | $ | 286,774 | $ | 280,334 | ||||||
Other Operations | 40,457 | 42,474 | 40,433 | |||||||||
Total | $ | 418,424 | $ | 329,248 | $ | 320,767 | ||||||
Operating income (loss) | ||||||||||||
Telephone Operations | $ | 74,554 | $ | 70,162 | $ | 65,939 | ||||||
Other Operations | (6,190 | ) | (3,525 | ) | (16,628 | ) | ||||||
Total | 68,364 | 66,637 | 49,311 | |||||||||
Interest income | 367 | 893 | 974 | |||||||||
Interest expense | (66,659 | ) | (47,350 | ) | (43,873 | ) | ||||||
Investment income | 20,495 | 7,034 | 7,691 | |||||||||
Minority interest | (863 | ) | (627 | ) | (721 | ) | ||||||
Loss on extinguishment of debt | (9,224 | ) | (10,323 | ) | — | |||||||
Other, net | (577 | ) | (167 | ) | 290 | |||||||
Income before income taxes and extraordinary item | $ | 11,903 | $ | 16,097 | $ | 13,672 | ||||||
Capital expenditures: | ||||||||||||
Telephone Operations | $ | 47,181 | $ | 32,245 | $ | 32,698 | ||||||
Other Operations | 846 | 1,250 | 690 | |||||||||
Total | $ | 48,027 | $ | 33,495 | $ | 33,388 | ||||||
Telephone | Other | |||||||||||
Operations | Operations | Total | ||||||||||
As of December 31, 2008: | ||||||||||||
Goodwill | $ | 519,428 | $ | 1,134 | $ | 520,562 | ||||||
Total assets | $ | 1,227,320 | $ | 14,306 | $ | 1,241,626 | ||||||
As of December 31, 2007: | ||||||||||||
Goodwill | $ | 519,255 | $ | 7,184 | $ | 526,439 | ||||||
Total assets | $ | 1,281,011 | $ | 23,580 | $ | 1,304,591 | ||||||
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Quarterly Consolidated Statements of Income
March 31 | June 30 | September 30 | December 31 | |||||||||||||
2008 | ||||||||||||||||
Revenues | $ | 105,414 | $ | 106,444 | $ | 103,824 | $ | 102,742 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of services and products | 33,863 | 36,108 | 37,778 | 35,814 | ||||||||||||
Selling, general and administrative expenses | 28,144 | 26,911 | 26,162 | 27,552 | ||||||||||||
Intangible assets impairment | — | — | — | 6,050 | ||||||||||||
Depreciation and amortization | 22,871 | 22,350 | 22,841 | 23,616 | ||||||||||||
Total operating expenses | 84,878 | 85,369 | 86,781 | 93,032 | ||||||||||||
Income from operations | 20,536 | 21,075 | 17,043 | 9,710 | ||||||||||||
Other expenses, net | 13,949 | 20,625 | 7,810 | 14,077 | ||||||||||||
Income (loss) before income taxes and extraordinary item | 6,587 | 450 | 9,233 | (4,367 | ) | |||||||||||
Income tax expense (benefit) | 2,878 | 270 | 4,262 | (771 | ) | |||||||||||
Income (loss) before extraordinary item | 3,709 | 180 | 4,971 | (3,596 | ) | |||||||||||
Extraordinary item (net of income tax) | — | — | — | 7,240 | ||||||||||||
Net income | $ | 3,709 | $ | 180 | $ | 4,971 | $ | 3,644 | ||||||||
Net income per common share | ||||||||||||||||
Basic | $ | 0.13 | $ | 0.01 | $ | 0.17 | $ | 0.12 | ||||||||
Diluted | $ | 0.13 | $ | 0.01 | $ | 0.17 | $ | 0.11 | ||||||||
2007 | ||||||||||||||||
Revenues | $ | 82,980 | $ | 80,944 | $ | 80,320 | $ | 85,004 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of services and products | 25,629 | 25,788 | 27,698 | 28,175 | ||||||||||||
Selling, general and administrative expenses | 22,299 | 22,296 | 21,800 | 23,267 | ||||||||||||
Depreciation and amortization | 16,629 | 16,606 | 16,350 | 16,074 | ||||||||||||
Total operating expenses | 64,557 | 64,690 | 65,848 | 67,516 | ||||||||||||
Income from operations | 18,423 | 16,254 | 14,472 | 17,488 | ||||||||||||
Other expenses, net | 10,117 | 9,704 | 10,119 | 20,600 | ||||||||||||
Pretax income (loss) | 8,306 | 6,550 | 4,353 | (3,112 | ) | |||||||||||
Income tax expense (benefit) | 3,687 | 1,057 | 2,012 | (2,082 | ) | |||||||||||
Net income (loss) | $ | 4,619 | $ | 5,493 | $ | 2,341 | $ | (1,030 | ) | |||||||
Net income (loss) per common share basic and diluted | $ | 0.18 | $ | 0.21 | $ | 0.09 | $ | (0.04 | ) | |||||||
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2008 | 2007 | 2006 | ||||||||||
Allowance for Doubtful Accounts: | ||||||||||||
Balance at beginning of year | $ | 2,440 | $ | 2,110 | $ | 2,825 | ||||||
North Pittsburgh acquisition | — | 471 | — | |||||||||
Provision charged to expense | 4,819 | 4,734 | 5,059 | |||||||||
Write-offs, less recoveries | (5,351 | ) | (4,875 | ) | (5,774 | ) | ||||||
Balance at end of year | $ | 1,908 | $ | 2,440 | $ | 2,110 | ||||||
Inventory reserves: | ||||||||||||
Balance at beginning of year | $ | 400 | $ | 429 | $ | 630 | ||||||
North Pittsburgh acquisition | — | 171 | — | |||||||||
Provision charged to expense | 597 | 125 | — | |||||||||
Write-offs | (119 | ) | (325 | ) | (201 | ) | ||||||
Balance at end of year | $ | 878 | $ | 400 | $ | 429 | ||||||
Income tax valuation allowance: | ||||||||||||
Balance at beginning of year | $ | 2,871 | $ | 5,349 | $ | 16,040 | ||||||
North Pittsburgh acquisition | — | 1,530 | — | |||||||||
North Pittsburgh ETFL adjustment to goodwill | (1,530 | ) | — | — | ||||||||
Reduction of related deferred tax asset | (1,341 | ) | (3,984 | ) | (5,021 | ) | ||||||
Provision (benefit) charged to expense | — | (24 | ) | (283 | ) | |||||||
Release of valuation allowance | — | — | (5,387 | ) | ||||||||
Balance at end of year | $ | — | $ | 2,871 | $ | 5,349 | ||||||
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March 16, 2009
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DECEMBER 31, 2008 AND 2007
(Dollars in Thousands)
2008 | 2007 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Accounts receivable, net of allowance of $225 and $154 | $ | 7,964 | $ | 6,638 | ||||
Unbilled revenue | 784 | 727 | ||||||
Due from General Partner | 6,412 | 6,527 | ||||||
Prepaid expenses and other current assets | 17 | 17 | ||||||
Total current assets | 15,177 | 13,909 | ||||||
PROPERTY, PLANT AND EQUIPMENT—Net | 12,418 | 12,373 | ||||||
OTHER ASSETS | 140 | — | ||||||
TOTAL ASSETS | $ | 27,735 | $ | 26,282 | ||||
LIABILITIES AND PARTNERS’ CAPITAL | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable and accrued liabilities | $ | 2,173 | $ | 2,388 | ||||
Advance billings and customer deposits | 2,392 | 2,097 | ||||||
Total current liabilities | 4,565 | 4,485 | ||||||
LONG TERM LIABILITIES | 187 | 160 | ||||||
Total liabilities | 4,752 | 4,645 | ||||||
COMMITMENTS AND CONTINGENCIES (see Notes 6 and 7) | ||||||||
PARTNERS’ CAPITAL | 22,983 | 21,637 | ||||||
TOTAL LIABILITIES AND PARTNERS’ CAPITAL | $ | 27,735 | $ | 26,282 | ||||
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YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(Dollars in Thousands)
2008 | 2007 | 2006 | ||||||||||
OPERATING REVENUES | ||||||||||||
Service revenues, net | $ | 83,807 | $ | 72,777 | $ | 69,795 | ||||||
Equipment, net and other revenues | 24,652 | 23,332 | 21,480 | |||||||||
Total operating revenues | 108,459 | 96,109 | 91,275 | |||||||||
OPERATING COSTS AND EXPENSES: | ||||||||||||
Cost of service (excluding depreciation and amortization related to network assets included below) | 31,276 | 26,726 | 31,139 | |||||||||
Cost of equipment | 25,329 | 22,718 | 19,701 | |||||||||
Selling, general and administrative | 26,566 | 24,645 | 21,634 | |||||||||
Depreciation and amortization | 2,177 | 2,356 | 2,607 | |||||||||
Total operating costs and expenses | 85,348 | 76,445 | 75,081 | |||||||||
OPERATING INCOME | 23,111 | 19,664 | 16,194 | |||||||||
INTEREST INCOME, NET | 235 | 270 | 292 | |||||||||
NET INCOME | $ | 23,346 | $ | 19,934 | $ | 16,486 | ||||||
Allocation of Net Income: | ||||||||||||
Limited Partners | $ | 9,417 | $ | 8,042 | $ | 6,651 | ||||||
General Partner | $ | 13,929 | $ | 11,892 | $ | 9,835 |
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YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(Dollars in Thousands)
General | ||||||||||||||||
Partner | Limited Partners | |||||||||||||||
Consolidated | Venus | |||||||||||||||
Communications | Cellular | |||||||||||||||
of Pennsylvania | Telephone | Total | ||||||||||||||
Cellco | Company | Services, | Partners’ | |||||||||||||
Partnership | (Note 1) | Inc. | Capital | |||||||||||||
BALANCE—January 1, 2006 | $ | 11,018 | $ | 4,371 | $ | 3,078 | $ | 18,467 | ||||||||
Distributions | (10,291 | ) | (4,083 | ) | (2,876 | ) | (17,250 | ) | ||||||||
Net income | 9,835 | 3,902 | 2,749 | 16,486 | ||||||||||||
BALANCE—December 31, 2006 | 10,562 | 4,190 | 2,951 | 17,703 | ||||||||||||
Distributions | (9,546 | ) | (3,787 | ) | (2,667 | ) | (16,000 | ) | ||||||||
Net income | 11,892 | 4,719 | 3,323 | 19,934 | ||||||||||||
BALANCE—December 31, 2007 | 12,908 | 5,122 | 3,607 | 21,637 | ||||||||||||
Distributions | (13,125 | ) | (5,207 | ) | (3,668 | ) | (22,000 | ) | ||||||||
Net income | 13,929 | 5,525 | 3,892 | 23,346 | ||||||||||||
BALANCE—December 31, 2008 | $ | 13,712 | $ | 5,440 | $ | 3,831 | $ | 22,983 | ||||||||
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YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(Dollars in Thousands)
2008 | 2007 | 2006 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 23,346 | $ | 19,934 | $ | 16,486 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 2,177 | 2,356 | 2,607 | |||||||||
Provision for losses on accounts receivable | 483 | 278 | 230 | |||||||||
Changes in certain assets and liabilities: | ||||||||||||
Accounts receivable | (1,809 | ) | (1,149 | ) | (798 | ) | ||||||
Unbilled revenue | (57 | ) | 409 | (442 | ) | |||||||
Prepaid expenses and other current assets | — | (1 | ) | (3 | ) | |||||||
Accounts payable and accrued liabilities | 58 | (390 | ) | 634 | ||||||||
Advance billings and customer deposits | 295 | 302 | 156 | |||||||||
Other long term liabilities | 27 | 11 | 56 | |||||||||
Net cash provided by operating activities | 24,520 | 21,750 | 18,926 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Capital expenditures, including purchases from affiliates, net | (2,453 | ) | (3,206 | ) | (2,115 | ) | ||||||
Purchase of Customers from an affiliate | (182 | ) | — | — | ||||||||
Change in due from General Partner, net | 115 | (2,544 | ) | 439 | ||||||||
Net cash used in investing activities | (2,520 | ) | (5,750 | ) | (1,676 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Distributions to partners | (22,000 | ) | (16,000 | ) | (17,250 | ) | ||||||
Net cash used in financing activities | (22,000 | ) | (16,000 | ) | (17,250 | ) | ||||||
CHANGE IN CASH | — | — | — | |||||||||
CASH—Beginning of year | — | — | — | |||||||||
CASH—End of year | $ | — | $ | — | $ | — | ||||||
NONCASH TRANSACTIONS FROM INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
Accruals for capital expenditures | $ | 15 | $ | 14 | $ | 148 | ||||||
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YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(Dollars in Thousands)
1. | ORGANIZATION AND MANAGEMENT |
General Partner: | ||||
Cellco Partnership* (“General Partner”) | 59.66 | % | ||
Limited Partners: | ||||
Consolidated Communications of Pennsylvania Company** | 23.67 | % | ||
Venus Cellular Telephone Services, Inc | 16.67 | % |
* | Cellco Partnership (“Cellco”) doing business as Verizon Wireless. | |
** | On January 1, 2008 North Pittsburgh Telephone Company changed its name to Consolidated Communications of Pennsylvania Company. |
2. | SIGNIFICANT ACCOUNTING POLICIES |
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3. | PROPERTY, PLANT AND EQUIPMENT |
Useful Lives | 2008 | 2007 | ||||||||||
Buildings and improvements | 10-40 years | $ | 5,915 | $ | 5,650 | |||||||
Cellular plant equipment | 3-15 years | 22,043 | 25,770 | |||||||||
Furniture, fixtures and equipment | 2-5 years | 346 | 695 | |||||||||
Leasehold improvements | 5 years | 1,068 | 930 | |||||||||
29,372 | 33,045 | |||||||||||
Less accumulated depreciation and amortization | 16,954 | 20,672 | ||||||||||
Property, plant and equipment, net | $ | 12,418 | $ | 12,373 | ||||||||
4. | CURRENT LIABILITIES |
2008 | 2007 | |||||||
Accounts payable | $ | 1,785 | $ | 2,035 | ||||
Accrued liabilities | 389 | 353 | ||||||
Accounts payable and accrued libilities | $ | 2,174 | $ | 2,388 | ||||
2008 | 2007 | |||||||
Advance billings | $ | 2,220 | $ | 1,935 | ||||
Customer deposits | 172 | 162 | ||||||
Advance billings and customer deposits | $ | 2,392 | $ | 2,097 | ||||
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5. | TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES |
2008 | 2007 | 2006 | ||||||||||
Service revenues (a) | $ | 15,720 | $ | 13,707 | $ | 18,065 | ||||||
Equipment and other revenues (b) | 1,066 | 1,084 | 1,244 | |||||||||
Cost of service (c) | 29,439 | 25,803 | 30,319 | |||||||||
Cost of equipment (d) | 1,354 | 1,089 | 756 | |||||||||
Selling, general and administrative (e) | 17,040 | 15,889 | 13,733 |
(a) | Service revenues include roaming revenues relating to customers of other affiliated markets, long distance, data and allocated contra-revenues including revenue concessions. | |
(b) | Equipment and other revenues include cell sharing revenues, sales of handsets and accessories and allocated contra-revenues including equipment concessions and coupon rebates. | |
(c) | Cost of service includes roaming costs relating to customers roaming in other affiliated markets, switch costs, cell sharing costs and allocated cost of telecom, long distance, and handset applications. | |
(d) | Cost of equipment includes handsets, accessories, and allocated warehousing and freight. | |
(e) | Selling, general and administrative expenses include salaries, commissions and billing, and allocated office telecom, customer care, sales and marketing, advertising, and commissions. |
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6. | COMMITMENTS |
Years | Amount | |||
2009 | $ | 794 | ||
2010 | 646 | |||
2011 | 476 | |||
2012 | 349 | |||
2013 | 258 | |||
2014 and thereafter | 399 | |||
Total minimum payments | $ | 2,922 | ||
7. | CONTINGENCIES |
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8. | RECONCILIATION OF ALLOWANCE FOR DOUBTFUL ACCOUNTS |
Balance at | Additions | Write-offs | Balance at | |||||||||||||
Beginning | Charged to | Net of | End | |||||||||||||
of the Year | Operations | Recoveries | of the Year | |||||||||||||
Accounts Receivable Allowances: | ||||||||||||||||
2008 | $ | 154 | $ | 483 | $ | (412 | ) | $ | 225 | |||||||
2007 | 202 | 278 | (326 | ) | 154 | |||||||||||
2006 | 105 | 290 | (193 | ) | 202 |
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DECEMBER 31, 2008 AND 2007
(Dollars in Thousands)
2008 | 2007 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Accounts receivable, net of allowance of $385 and $373 | $ | 3,388 | $ | 3,006 | ||||
Unbilled revenue | 1,051 | 952 | ||||||
Due from General Partner | 6,320 | 7,403 | ||||||
Prepaid expenses and other current assets | 20 | 8 | ||||||
Total current assets | 10,779 | 11,369 | ||||||
PROPERTY, PLANT AND EQUIPMENT—Net | 50,719 | 40,062 | ||||||
TOTAL ASSETS | $ | 61,498 | $ | 51,431 | ||||
LIABILITIES AND PARTNERS’ CAPITAL | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable and accrued liabilities | $ | 1,896 | $ | 1,579 | ||||
Advance billings and customer deposits | 940 | 773 | ||||||
Total current liabilities | 2,836 | 2,352 | ||||||
LONG TERM LIABILITIES | 335 | 270 | ||||||
Total liabilities | 3,171 | 2,622 | ||||||
COMMITMENTS AND CONTINGENCIES (see Notes 6 and 7) | ||||||||
PARTNERS’ CAPITAL | 58,327 | 48,809 | ||||||
TOTAL LIABILITIES AND PARTNERS’ CAPITAL | $ | 61,498 | $ | 51,431 | ||||
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YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(Dollars in Thousands)
2008 | 2007 | 2006 | ||||||||||
OPERATING REVENUES (see Note 5 for Transactions with Affiliates and Related Parties): | ||||||||||||
Service revenues | $ | 55,376 | $ | 48,096 | $ | 45,295 | ||||||
Equipment and other revenues | 5,081 | 4,341 | 4,003 | |||||||||
Total operating revenues | 60,457 | 52,437 | 49,298 | |||||||||
OPERATING COSTS AND EXPENSES (see Note 5 for Transactions with Affiliates and Related Parties): | ||||||||||||
Cost of service (excluding depreciation and amortization related to network assets included below) | 17,327 | 15,028 | 13,536 | |||||||||
Cost of equipment | 6,609 | 5,085 | 3,709 | |||||||||
Selling, general and administrative | 16,132 | 14,142 | 12,401 | |||||||||
Depreciation and amortization | 6,013 | 5,020 | 4,491 | |||||||||
Total operating costs and expenses | 46,081 | 39,275 | 34,137 | |||||||||
OPERATING INCOME | 14,376 | 13,162 | 15,161 | |||||||||
OTHER INCOME: | ||||||||||||
Interest income, net | 142 | 550 | 472 | |||||||||
Total other income | 142 | 550 | 472 | |||||||||
NET INCOME | $ | 14,518 | $ | 13,712 | $ | 15,633 | ||||||
Allocation of Net Income: | ||||||||||||
Limited partners | $ | 11,614 | $ | 10,970 | $ | 12,504 | ||||||
General Partner | $ | 2,904 | $ | 2,742 | $ | 3,129 |
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YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(Dollars in Thousands)
General | �� | |||||||||||||||||||||||||||
Partner | Limited Partners | |||||||||||||||||||||||||||
San | Eastex | Consolidated | ALLTEL | San | ||||||||||||||||||||||||
Antonio | Telecom | Telecom | Communications | Communications | Antonio | Total | ||||||||||||||||||||||
MTA, | Investments, | Supply, | Transport | Investments, | MTA, | Partners’ | ||||||||||||||||||||||
L.P. | L.P. | Inc. | Company | Inc. | L.P. | Capital | ||||||||||||||||||||||
BALANCE—January 1, 2006 | $ | 7,292 | $ | 6,207 | $ | 6,207 | $ | 6,207 | $ | 6,207 | $ | 4,344 | $ | 36,464 | ||||||||||||||
Distributions | (1,201 | ) | (1,021 | ) | (1,021 | ) | (1,021 | ) | (1,021 | ) | (715 | ) | (6,000 | ) | ||||||||||||||
Net income | 3,129 | 2,660 | 2,660 | 2,660 | 2,660 | 1,864 | 15,633 | |||||||||||||||||||||
BALANCE—December 31, 2006 | 9,220 | 7,846 | 7,846 | 7,846 | 7,846 | 5,493 | 46,097 | |||||||||||||||||||||
Distributions | (2,200 | ) | (1,872 | ) | (1,872 | ) | (1,872 | ) | (1,872 | ) | (1,312 | ) | (11,000 | ) | ||||||||||||||
Net income | 2,742 | 2,334 | 2,334 | 2,334 | 2,334 | 1,634 | 13,712 | |||||||||||||||||||||
BALANCE—December 31, 2007 | 9,762 | 8,308 | 8,308 | 8,308 | 8,308 | 5,815 | 48,809 | |||||||||||||||||||||
Distributions | (1,000 | ) | (851 | ) | (851 | ) | (851 | ) | (851 | ) | (596 | ) | (5,000 | ) | ||||||||||||||
Net income | 2,904 | 2,471 | 2,471 | 2,471 | 2,471 | 1,730 | 14,518 | |||||||||||||||||||||
BALANCE—December 31, 2008 | $ | 11,666 | $ | 9,928 | $ | 9,928 | $ | 9,928 | $ | 9,928 | $ | 6,949 | $ | 58,327 | ||||||||||||||
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YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(Dollars in Thousands)
2008 | 2007 | 2006 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 14,518 | $ | 13,712 | $ | 15,633 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 6,013 | 5,020 | 4,491 | |||||||||
Provision for losses on accounts receivable | 936 | 887 | 717 | |||||||||
Changes in certain assets and liabilities: | ||||||||||||
Accounts receivable | (1,318 | ) | (1,291 | ) | (937 | ) | ||||||
Unbilled revenue | (99 | ) | 95 | (138 | ) | |||||||
Prepaid expenses and other current assets | (12 | ) | 5 | 1 | ||||||||
Accounts payable and accrued liabilities | 542 | (149 | ) | 76 | ||||||||
Advance billings and customer deposits | 167 | 152 | 4 | |||||||||
Long term liabilities | 65 | 24 | 109 | |||||||||
Net cash provided by operating activities | 20,812 | 18,455 | 19,956 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Capital expenditures, including purchases from affiliates, net | (16,895 | ) | (10,799 | ) | (10,044 | ) | ||||||
Change in due from General Partner, net | 1,083 | 3,344 | (3,912 | ) | ||||||||
Net cash used in investing activities | (15,812 | ) | (7,455 | ) | (13,956 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Distributions to partners | (5,000 | ) | (11,000 | ) | (6,000 | ) | ||||||
Net cash used in financing activities | (5,000 | ) | (11,000 | ) | (6,000 | ) | ||||||
CHANGE IN CASH | — | — | — | |||||||||
CASH—Beginning of year | — | — | — | |||||||||
CASH—End of year | $ | — | $ | — | $ | — | ||||||
NONCASH TRANSACTIONS FROM INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
Accruals for capital expenditures | $ | 178 | $ | 242 | $ | 214 |
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YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(Dollars in Thousands)
1. | ORGANIZATION AND MANAGEMENT |
General Partner: | ||||
San Antonio MTA, L.P.* | 20.0000 | % | ||
Limited Partners: | ||||
Eastex Telecom Investments, L.P. | 17.0213 | % | ||
Telecom Supply, Inc. | 17.0213 | % | ||
Consolidated Communications Transport Company | 17.0213 | % | ||
ALLTEL Communications Investments, Inc. | 17.0213 | % | ||
San Antonio MTA, L.P.* | 11.9148 | % |
* | San Antonio MTA, L.P. (“General Partner”) is a wholly-owned subsidiary of Cellco Partnership (“Cellco”) doing business as Verizon Wireless. |
2. | SIGNIFICANT ACCOUNTING POLICIES |
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3. | PROPERTY, PLANT AND EQUIPMENT |
Useful lives | 2008 | 2007 | ||||||||||
Buildings and improvements | 10-40 years | $ | 18,790 | $ | 16,290 | |||||||
Cellular plant equipment | 3-15 years | 54,396 | 51,268 | |||||||||
Furniture, fixtures and equipment | 2-5 years | 75 | 75 | |||||||||
Leasehold improvements | 5 years | 3,563 | 3,118 | |||||||||
76,824 | 70,751 | |||||||||||
Less accumulated depreciation and amortization | 26,105 | 30,689 | ||||||||||
Property, plant and equipment, net | $ | 50,719 | $ | 40,062 | ||||||||
4. | CURRENT LIABILITIES |
2008 | 2007 | |||||||
Accounts payable | $ | 551 | $ | 749 | ||||
Non-income based taxes and regulatory fees | 600 | 618 | ||||||
Texas margin tax payable | 520 | — | ||||||
Accrued commissions | 225 | 212 | ||||||
Accounts payable and accrued liabilities | $ | 1,896 | $ | 1,579 | ||||
2008 | 2007 | |||||||
Advance billings | $ | 732 | $ | 595 | ||||
Customer deposits | 208 | 178 | ||||||
Advance billings and customer deposits | $ | 940 | $ | 773 | ||||
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5. | TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES |
2008 | 2007 | 2006 | ||||||||||
Service revenues (a) | $ | 15,459 | $ | 13,035 | $ | 15,819 | ||||||
Equipment and other revenues (b) | (289 | ) | (259 | ) | (278 | ) | ||||||
Cost of service (c) | 13,517 | 11,909 | 10,838 | |||||||||
Cost of equipment (d) | 1,140 | 1,037 | 531 | |||||||||
Selling, general and administrative (e) | 9,180 | 8,330 | 6,712 |
(a) | Service revenues include roaming revenues relating to customers of other affiliated markets, long distance, paging, data and allocated contra-revenues including revenue concessions. | |
(b) | Equipment and other revenues include sales of handsets and accessories and allocated contra-revenues including equipment concessions and coupon rebates. | |
(c) | Cost of service includes roaming costs relating to customers roaming in other affiliated markets, paging, switch usage and allocated cost of telecom, long distance and handset applications. | |
(d) | Cost of equipment includes handsets, accessories, and allocated warehousing and freight. | |
(e) | Selling, general and administrative expenses include commissions and billing, and allocated office telecom, customer care, billing, salaries, sales and marketing, advertising, and commissions. |
6. | COMMITMENTS |
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Years | Amount | |||
2009 | $ | 2,423 | ||
2010 | 1,350 | |||
2011 | 1,000 | |||
2012 | 853 | |||
2013 | 737 | |||
2014 and thereafter | 1,901 | |||
Total minimum payments | $ | 8,264 | ||
7. | CONTINGENCIES |
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8. | RECONCILIATION OF ALLOWANCE FOR DOUBTFUL ACCOUNTS |
Balance at | Additions | Write-offs | Balance at | |||||||||||||
Beginning | Charged to | Net of | End | |||||||||||||
of the Year | Operations | Recoveries | of the Year | |||||||||||||
Accounts Receivable Allowances: | ||||||||||||||||
2008 | $ | 373 | $ | 936 | $ | (924 | ) | $ | 385 | |||||||
2007 | $ | 329 | $ | 887 | $ | (843 | ) | 373 | ||||||||
2006 | 385 | 717 | (773 | ) | 329 |
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Consolidated Communications Holdings, Inc. (Registrant) | ||||
Date: March 16, 2009 | By: | /s/ Robert J. Currey | ||
Robert J. Currey | ||||
President and Chief Executive Officer (Principal Executive Officer) |
Signature | Title | |||
/s/ Robert J. Currey | President , Chief Executive Officer and Director (Principal Executive Officer) | |||
/s/ Steven L. Childers | Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | |||
/s/ Richard A. Lumpkin | Chairman of the Board of Directors | |||
/s/ Jack W. Blumenstein | Director | |||
/s/ Roger H. Moore | Director | |||
/s/ Maribeth S. Rahe | Director |
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Exhibit | ||||
Number | Description | |||
2.1 | Agreement and Plan of Merger, dated as of July 1, 2007, by and among Consolidated Communications Holdings, Inc., North Pittsburgh Systems, Inc. and Fort Pitt Acquisition Sub Inc. (incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K dated July 12, 2007). | |||
3.1 | Form of Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 7 to Form S-1 dated July 19, 2005). | |||
3.2 | Form of Amended and Restated Bylaws, as amended (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K dated September 11, 2007). | |||
4.1 | Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 7 to Form S-1 dated July 19, 2005). | |||
10.1 | Credit Agreement, dated December 31, 2007, among Consolidated Communications Holdings, Inc., as Parent Guarantor, Consolidated Communications, Inc., Consolidated Communications Acquisition Texas, Inc. and Fort Pitt Acquisition Sub Inc., as Co-Borrowers, the lenders referred to therein, Wachovia Bank, National Association, as administrative agent, issuing bank and swingline lender, CoBank, ACB, as syndication agent, General Electric Capital Corporation, as co-documentation agent, The Royal Bank of Scotland PLC, as co-documentation agent, and Wachovia Capital Markets, LLC, as sole lead arranger and sole bookrunner (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated December 31, 2007). | |||
10.2 | Form of Collateral Agreement, dated December 31, 2007, by and among Consolidated Communications Holdings, Inc., Consolidated Communications, Inc., Consolidated Communications Acquisition Texas, Inc., Fort Pitt Acquisition Sub Inc., certain subsidiaries of Consolidated Communications Holdings, Inc. identified on the signature pages thereto, in favor of Wachovia Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.2 to Form 10-K for the period ended December 31, 2007). | |||
10.3 | Form of Guaranty Agreement, dated December 31, 2007, made by Consolidated Communications Holdings, Inc. and certain subsidiaries of Consolidated Communications Holdings, Inc. identified on the signature pages thereto, in favor of Wachovia Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.3 to Form 10-K for the period ended December 31, 2007). | |||
10.4 | Lease Agreement, dated December 31, 2002, between LATEL, LLC and Consolidated Market Response, Inc. (incorporated by reference to Exhibit 10.11 to Form S-4 dated October 26, 2004). | |||
10.5 | Lease Agreement, dated December 31, 2002, between LATEL, LLC and Illinois Consolidated Telephone Company (incorporated by reference to Exhibit 10.12 to Form S-4 dated October 26, 2004). | |||
10.6 | Master Lease Agreement, dated February 25, 2002, between General Electric Capital Corporation and TXU Communications Ventures Company (incorporated by reference to Exhibit 10.13 to Form S-4 dated October 26, 2004). | |||
10.7 | Amendment No. 1 to Master Lease Agreement, dated February 25, 2002, between General Electric Capital Corporation and TXU Communications Ventures Company, dated March 18, 2002 (incorporated by reference to Exhibit 10.14 to Form S-4 dated October 26, 2004). | |||
10.8 | Amended and Restated Consolidated Communications Holdings, Inc. Restricted Share Plan (incorporated by reference to Exhibit 10.11 to Amendment No. 7 to Form S-1 dated July 19, 2005). |
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Exhibit | ||||
Number | Description | |||
10.9 | Form of 2005 Long-term Incentive Plan (incorporated by reference to Exhibit 10.12 to Amendment No. 7 to Form S-1 dated July 19, 2005). | |||
10.10 | Stock Repurchase Agreement, dated July 13, 2006, by and among Consolidated Communications Holdings, Inc., Providence Equity Partners IV L.P. and Providence Equity Operating Partners IV L.P. (incorporated by reference to Exhibit 10.1 to Form 8-K dated July 17, 2006). | |||
10.11 | Form of Employment Security Agreement with certain of the Company’s executive officers (incorporated by reference to Exhibit 10.1 to Form 8-K dated February 23, 2007). | |||
10.12 | Form of Employment Security Agreement with the Company’s and its subsidiaries vice president and director level employees (incorporated by reference to Exhibit 10.12 to Form 10-K for the period ended December 31, 2007). | |||
10.13 | Executive Long-Term Incentive Program, as revised March 12, 2007 (incorporated by reference to Exhibit 10.1 to Form 8-K dated March 12, 2007). | |||
10.14 | Form of 2005 Long-Term Incentive Plan Performance Stock Grant Certificate (incorporated by reference to Exhibit 10.2 to Form 8-K dated March 12, 2007). | |||
10.15 | Form of 2005 Long-Term Incentive Plan Restricted Stock Grant Certificate (incorporated by reference to Exhibit 10.3 to Form 8-K dated March 12, 2007). | |||
10.16 | Form of 2005 Long-Term Incentive Plan Restricted Stock Grant Certificate for Directors (incorporated by reference to Exhibit 10.4 to Form 8-K dated March 12, 2007). | |||
10.17 | Description of the Consolidated Communications Holdings, Inc. Bonus Plan (incorporated by reference to Exhibit 10.5 to Form 8-K dated March 12, 2007). | |||
10.18 | Letter Agreement, dated March 31, 2008, by Wachovia Bank, National Association, and agreed to and acknowledged by Consolidated Communications Holdings, Inc., Consolidated Communications, Inc., Consolidated Communications Acquisition Texas, Inc. and North Pittsburgh Systems, Inc. (formerly known as Fort Pitt Acquisition Sub Inc.) (incorporated by reference to Exhibit 10.1 to Form 8-K dated March 31, 2008). | |||
10.19 | Letter Agreement dated August 6, 2008 by Wachovia Bank, National Association, and agreed to and acknowledged by Consolidated Communications Holdings, Inc., Consolidated Communications, Inc., Consolidated Communications Acquisition Texas, Inc. and North Pittsburgh Systems, Inc. (formerly known as Fort Pitt Acquisition Sub Inc.) (incorporated by reference to Exhibit 10.1 to Form 10-Q for the period ended June 30, 2008). | |||
21 | List of Subsidiaries of Consolidated Communications Holdings, Inc. | |||
23.1 | Consent of Independent Registered Public Accounting Firm. | |||
23.2 | Consent of Independent Registered Public Accounting Firm. | |||
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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