EXHIBIT 99.1
[CONSOLIDATED(R) COMMUNICATIONS LOGO]
COMPANY CONTACT: INVESTOR RELATIONS CONTACT:
Stephen Jones Lippert / Heilshorn & Associates
Vice President - Investor Relations Kirsten Chapman / David Barnard
217-258-9522 415-433-3777
investor.relations@consolidated.com David@lhai-sf.com
CONSOLIDATED COMMUNICATIONS HOLDINGS REPORTS SECOND QUARTER 2005 RESULTS
- POST QUARTER RAISED $73.1 MILLION NET PROCEEDS AND COMPLETED IPO
RECAPITALIZATION -
- DSL EXCEEDS 13.3% PENETRATION AND TOPS 33,000 SUBS -
- INTEGRATION REMAINS ON TARGET -
Mattoon, IL - August 24, 2005 - Consolidated Communications Holdings, Inc.
(Nasdaq: CNSL, Consolidated) today announced results for the second quarter and
six months ended June 30, 2005. The company reported revenues of $78.3 million
for the second quarter and $158.0 million for the six-month period. Adjusted
EBITDA and net cash provided by operating activities for the quarter were $32.7
million and $14.7 million, respectively, and for the six-month period $65.4
million and $29.3 million, respectively.
"Consolidated's strategy is to increase average revenue per user (ARPU) with
great customer service and bundled offerings, while driving operational
efficiencies, and we are delighted with our progress," said Bob Currey,
Consolidated's president and chief executive officer. "The six-month Telephone
Operations ARPU increased to over $92, and during the quarter, we continued to
realize benefits from our enhanced service offerings, especially with digital
subscriber lines (DSL), which increased 56 percent versus a year ago. Our
technology investment, including our core internet protocol (IP) backbone,
continues on target in support of our focus on broadband service penetration.
Our network is over 90 percent DSL capable in both Texas and Illinois and
enables us to deliver digital video service (DVS) in Illinois. Although DVS has
been offered to only selected Illinois markets and is not currently a
significant revenue component, we are experiencing growing interest and intend
to continue to roll it out to markets throughout our Illinois service territory
later in 2005."
Steve Childers, Consolidated's chief financial officer, said, "During the second
quarter, we made significant progress in our strategy to integrate and manage
our Illinois and Texas operations as one company. We continue to realize cost
efficiencies consistent with our plan. For example on April 30th, we amended our
Texas pension and Other Post Employment Benefits (OPEBS) plans to be more
market-based and consistent with our Illinois benefit plans. As a result of
these actions in the second quarter, we recognized a one-time, non-cash $7.9
million curtailment gain, and expect to realize over $2.0 million in expense
savings from the date of the amendment through year-end 2005. On June 30th, we
closed our Irving, TX office and, on a consolidated basis, we reduced headcount
by 43 for the quarter and by 163 since the TXU Communications Ventures (TXUCV)
acquisition closed on April 14, 2004. In addition, we are on schedule with our
last major integration project, which is our billing system consolidation. On a
year-to-date basis through June 30th, we have spent $4.6 million on
non-recurring integration and restructuring activities."
"In July, we completed our initial public offering (IPO), which raised net
proceeds to the company of $73.1 million that will be used primarily to redeem
$65.0 million face amount of our 9 3/4 % senior notes due 2012 on August 23rd.
As a result of this and the amended and restated credit facility that we entered
Page 1 of 16
into in conjunction with the IPO, the company's 2005 annualized interest expense
would have decreased by approximately $6.0 million had these transactions been
completed as of January 1, 2005. We continue to reduce debt on our balance
sheet, lowering our total net debt to 3.9 times our last 12-month adjusted
EBITDA," added Childers.
On August 22nd, Consolidated executed a $100 million notional amount of floating
to fixed interest rate swap arrangements relating to a portion of its $425
million term loan facility. The term loan facility is priced at an annual rate
equal to the London interbank offered rate (LIBOR) plus 225 basis points. The
six-year agreements, which are effective September 30th, will fix the interest
rate on approximately 73 percent of the company's term debt versus approximately
50 percent prior to the swaps.
"This swap transaction manages our interest rate risk and brings our weighted
average interest rate to approximately 5.92 percent on our term debt," said
Childers.
Currey concluded, "By driving ARPU while garnering additional operational
improvements and efficiently deploying our capital, we expect to be able to
continue to produce strong results. We are confident in our ability to maintain
our cash flow in support of our dividend."
OPERATING STATISTICS AT JUNE 30, 2005
o Total connections were 280,316.
o Total local access lines were 247,258.
o Digital subscriber lines were 33,058.
o Long distance lines were 141,080.
o Total service bundles were approximately 33,300.
o Total Telephone Operations ARPU was $92.46 for the six-month period ended June
30th.
The June 30, 2005 local access line count of 247,258 reflects a six-month
decrease of 7,950 lines, which included the expected migration of 4,708
MCIMetro's Internet service provider (ISP) lines from primary rate interface
facilities and local T-1 facilities to interconnection trunks. Because these
lines did not generate long distance, access or subsidy revenue, the revenue
loss associated with the migration is expected to be approximately one-fifth the
impact of the same number of commercial access lines. The migration of the
MCIMetro's ISP lines in Texas has been completed. The remaining decline of
approximately 3,200 local access lines reflects challenging economic conditions,
which is reflective of industry trends. Without the effect of the MCI Metro
regrooming, on a year-to-date basis, the company would have experienced modest
growth in our business access lines and total connections would have increased
by 2,371.
DSL continues to perform well, contributing to revenues and increasing strategic
product penetration. During the second quarter, DSL grew 7 percent sequentially,
which brings the year-over-year increase to 56 percent. Overall total service
bundles increased 24 percent year-over-year to approximately 33,300. This growth
demonstrates the results of Consolidated's focus on improving the value of
bundles and increasing market penetration.
Consolidated made capital expenditures of $9.3 million during the second
quarter, bringing the six-month capital expenditures to $14.8 million. At June
30, 2005, Consolidated had $18.1 million in cash and cash equivalents. Capital
expenditures for the second half of 2005 are expected to be approximately $18.7
million. Consolidated expects total capital expenditures for 2005 to be
approximately $33.5 million. Net cash interest expense is expected to be
approximately $20.5 million for the second half of 2005 excluding the redemption
premium.
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FINANCIAL HIGHLIGHTS FOR THE SECOND QUARTER ENDED JUNE 30, 2005
o Revenues were $78.3 million, compared to 2004 revenues of $72.5 million. If
TXUCV had been included for the full period in 2004, revenues would have
been $81.0 million. Prior period subsidy settlements decreased by $1.5
million compared to the same period in 2004. In addition to the decrease in
prior period subsidy settlements, the year-over-year change reflects
declines in local services and network access, which were slightly offset
by increases in data and internet and other services.
o Telephone Operations contributed 88 percent of revenues, compared to 87
percent for the same period last year.
o Income from operations was $19.9 million, which included a one-time,
non-cash $7.9 million curtailment gain associated with the retirement plan
amendment recorded in general and administrative expense during the quarter
and a $1.9 million increase in depreciation resulting from increased asset
valuations associated with the TXUCV acquisition. This compares to the
second quarter 2004 income from operations of $12.5 million. If TXUCV had
been included for the full period in 2004, income from operations would
have been $9.8 million, which included non-recurring expenses of $5.3
million in severance for TXUCV employees and $1.8 million in transaction
related costs associated with the acquisition of TXUCV.
o In addition to the revenues and expenses described above, net income for
the second quarter 2005 was $7.2 million, which included other income of
$2.8 million from a key man life insurance policy and a $2.1 million
reduction of interest expense, compared to a loss of $107,000 for the
second quarter of 2004. If TXUCV had been included for the full period in
2004, the second quarter 2004 net loss would have been $3.8 million.
o Net income applicable to common shareholders increased to $2.7 million from
a loss of $4.1 million, for the second quarter of 2004. Net income
applicable to common shareholders represents net income after provision for
dividends on redeemable preferred shares of $4.5 million and $4.0 million
in the second quarter of 2005 and second quarter of 2004, respectively.
Subsequent to the end of the second quarter 2005, all outstanding
redeemable preferred shares were converted into 13.6 million common shares
concurrent with Consolidated's IPO.
o Adjusted EBITDA was $32.7 million and net cash provided by operating
activities was $14.7 million, compared to $34.9 million and $32.0 million,
respectively, for the second quarter of 2004, which included the $585,000
in cellular partnership distributions and the aforementioned $1.5 million
change in prior period subsidy settlement.
FINANCIAL HIGHLIGHTS FOR THE SIX MONTHS ENDED JUNE 30, 2005
o Revenues were $158.0 million, compared to $106.6 million for the prior year
period. If TXUCV had been included for the full period in 2004, revenues
would have been $160.5 million. The year-over-year change reflects declines
in local services, network access and long distance, which were partially
offset by increases in subsidies and data and internet services.
o Telephone Operations contributed 88 percent of revenues, compared to 81
percent for the same period last year.
o Net income was $7.9 million, compared to $1.7 million for the same period
in 2004. If TXUCV had been included for the full period in 2004, net income
would have been $3.4 million.
o Net loss applicable to common shareholders for the six months ended June
30, 2005 was $1.3 million, versus a loss of $4.6 million for the comparable
period in 2004. Net income applicable to common shareholders represents net
income after provision for dividends on redeemable preferred shares of $9.1
million and $6.3 million in the six months ended June 30, 2005 and June 30,
2004, respectively.
o Adjusted EBITDA was $65.4 million and net cash provided by operating
activities was $29.3 million, compared to $65.2 million and $37.9 million,
respectively, for the prior year six-month period.
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INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS
On July 27th, the company completed its IPO of its common stock, and related
transactions. The IPO consisted of the sale of 6,000,000 shares of common stock
by the company and 12,016,666 shares of common stock sold by certain selling
stockholders, 2,350,000 of which were sold pursuant to the underwriters'
over-allotment option on August 2nd. Total number of common shares outstanding
on August 3rd was 29.7 million. The shares were sold at an IPO price of $13.00
per share resulting in net proceeds to the company of $73.1 million. In
connection with the IPO, the borrowers and lenders under the company's existing
credit facilities amended and restated the credit agreement to enable the
company to pay dividends on its common stock and to provide aggregate financing
of up to $455 million consisting of a new term loan D facility of $425 million
available as of July 27, 2005 and maturing on October 14, 2011 and a $30 million
revolving credit facility maturing on April 14, 2010. The amended and restated
revolving credit facility is currently undrawn and remains available for general
corporate purposes. The proceeds from the IPO will be used primarily to redeem
approximately $65.0 million of the aggregate principal amount of the 9 3/4 %
senior notes due 2012, including a redemption premium of 9 3/4 % of the
principal amount to be redeemed, to pre-fund expected integration and
restructuring costs for 2005 relating the company's acquisition of TXUCV in
April 2004 and to pay fees and expenses associated with the IPO and the related
transactions.
As a result of the dividend policy that the board of directors adopted effective
upon the closing of the IPO, the company currently intends to pay an initial
dividend of $0.4089 per share, representing a pro rata portion of the expected
dividend for the first year following the closing of the IPO, on or about
November 1, 2005 to stockholders of record as of October 15, 2005 and intends to
continue to pay quarterly dividends at an annual rate of $1.5495 per share for
the first year following the closing of the IPO, subject to various restrictions
on the company's ability to do so. In connection with the IPO, the company
amended and restated its restricted share plan to, among other things, vest an
additional 25 percent of the outstanding restricted shares granted.
The company expects the IPO and related transactions will affect the future
results of operations and liquidity. It expects to incur a total of
approximately $19.2 million in one-time fees and expenses, of which $9.5 million
will be recorded as a reduction in paid in capital and $3.4 million will be
recorded as deferred financing costs. It believes it will have a net decrease in
interest expense of $6.0 million per year; a $1.1 million net increase in
deferred financing costs; $18.9 million less in scheduled amortization payments
due to the elimination of the requirement to amortize outstanding principal
amounts; and no longer be required to prepay its term loans with 50 percent of
its excess cash flow. The company expects to incur approximately $1.0 million in
incremental, ongoing, selling, general and administrative expenses associated
with being a public company. It expects to have $5.0 million less annually in
selling, general and administrative expenses in connection with the termination
of two professional service agreements upon the closing of the IPO. It will have
incurred non-cash compensation expense of $6.4 million as a result of the
amendment and restatement of its restricted share plan in connection with the
IPO. In the future, it expects to incur an additional $6.4 million of non-cash
compensation expenses under the restricted share plan that will be recognized
ratably over the remaining three year vesting period of the outstanding
restricted shares. And it expects to pay aggregate dividends of $46.0 million in
the year following the closing of the IPO.
CONFERENCE CALL INFORMATION
The company will host a conference call and simultaneous webcast today at 11:00
a.m. Eastern Daylight Time / 10:00 a.m. Central Daylight Time. The call is being
webcast and can be accessed from the "Investor Relations" section of the
company's website at http://www.consolidated.com. The webcast will be available
for a period of 90 days after the conference call. If you do not have internet
access, the conference call dial-in number is 1-800-642-1783. International
parties can access the call by dialing 1-706-679-5600. A telephonic replay of
the conference call will also be available starting two hours after completion
of the call until August 26, 2005 at midnight EDT. To hear the replay, parties
in the United
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States and Canada should call 1-800-642-1687 and enter pass code 8655154.
International parties should call 1-706-645-9291 and enter pass code 8655154.
COMPANY STRUCTURE
In connection with the IPO, the company affected a reorganization, which
resulted in Consolidated Communications Holdings, Inc. (CCHI) becoming the new
holding company, in place of Homebase Acquisition, LLC (Homebase), among other
things. In the reorganization, Consolidated Communications Texas Holdings, Inc.
(Texas Holding) first merged into Consolidated Communications Illinois Holdings,
Inc. (Illinois Holdings) and then Homebase merged into Illinois Holdings, in
each case, with Illinois Holdings being the entity surviving the mergers. As a
result of the mergers, Illinois Holdings succeeded to the obligations of Texas
Holdings, as co-issuer, under the senior notes and the indenture and to the
obligations of Homebase under its guarantee of the senior notes and the credit
facilities. Illinois Holdings amended and restated its certificate of
incorporation to, among other things, change its name from Consolidated
Communications Illinois Holdings, Inc. to Consolidated Communications Holdings,
Inc. (CCHI).
These results, and this press release, present the results of Homebase on a
consolidated basis, except as stated otherwise. Homebase was the predecessor
holding company prior to the IPO, which closed on July 27, 2005 as described.
USE OF NON-GAAP FINANCIAL MEASURES
This press release includes disclosures regarding "Adjusted EBITDA", and "total
net debt to last 12-month Adjusted EBITDA ratio, both of which are non-GAAP
financial measures. A reconciliation of the differences between these non-GAAP
financial measures and the most directly comparable financial measure presented
in accordance with GAAP is included in the tables that follow.
Adjusted EBITDA, which corresponds to pro forma Bank EBITDA as used and defined
in the prospectus dated July 21, 2005 filed in connection with the IPO is
comprised of historical Adjusted EBITDA; adjustments to give effect to the TXUCV
acquisition; and further adjustments permitted and contemplated by our amended
and restated credit facilities.
Historical Adjusted EBITDA is defined as net earnings (loss) before interest
expenses, income taxes, depreciation and amortization on an historical basis,
without giving effect to the TXUCV acquisition, the offering and the related
transactions. The company believes net cash provided by operating activities is
the most directly comparable financial measure to Adjusted EBITDA under
generally accepted accounting principles GAAP. The company presents Adjusted
EBITDA for several reasons. Management believes Adjusted EBITDA is useful as a
means to evaluate our ability to pay the estimated cash needs and pay dividends.
In addition, the company has presented Adjusted EBITDA to investors in the past
because it is frequently used by investors, securities analysts and other
interested parties in the evaluation of companies in our industry, and
management believes presenting it here provides a measure of consistency in our
financial reporting. Adjusted EBITDA is also a component of the restrictive
covenants and financial ratios contained and will be contained in the agreements
governing our debt that will require the company to maintain compliance with
these covenants and will limit certain activities, such as its ability to incur
debt and to pay dividends. The definitions in these covenants and ratios are
based on Adjusted EBITDA after giving effect to specified charges. As a result,
management believes the presentation of Adjusted EBITDA as supplemented by these
other items provides important additional information to investors. In addition,
Adjusted EBITDA provides the board of directors meaningful information to
determine, with other data, assumptions and considerations, the dividend policy
and the company's ability to pay dividends under the restrictive covenants in
the agreements governing our debt and to measure our ability to service and
repay debt.
Page 5 of 16
EBITDA is a non-GAAP financial measure. Accordingly, it should not be construed
as an alternative to net cash from operating or investing activities, cash flows
from operations or net income (loss) as defined by GAAP and is not on its own
necessarily indicative of cash available to fund cash needs as determined in
accordance with GAAP. In addition, not all companies use identical calculations,
and this presentation of EBITDA may not be comparable to other similarly titled
measures of other companies.
To give pro forma effect to the TXUCV acquisition as if it had occurred on the
first day of the periods presented, the company has made two sets of
adjustments. First, because the operating results of TXUCV are not reflected in
the company's historical Adjusted EBITDA and financial results for the period
prior to the date of its acquisition (January 1, 2004 through April 13, 2004),
CCI Texas' historical Adjusted EBITDA for this period has been added to the
company's historical Adjusted EBITDA. Second, the company made pro forma
adjustments to the selling, general and administrative expenses to reflect (1) a
reduction in costs due to the termination of certain TXUCV employees upon the
closing of the acquisition and (2) incremental professional service fees paid to
certain equity investors pursuant to a new professional services agreement
entered into in connection with the TXUCV acquisition.
Finally, when calculating Adjusted EBITDA in accordance with the amended and
restated credit agreement, it excludes the effect of certain items that are not
expected to affect the ongoing ability to pay interest on our debt or pay
dividends on our common stock. Specifically, the amended and restated credit
agreement does not give effect to the following: (1) retention bonuses paid to
keep certain key TXUCV employees while it was being prepared for sale; (2)
severance paid to employees terminated in connection with the TXUCV acquisition;
(3) certain transaction costs incurred by TXUCV in connection with its sale; (4)
professional services fees that terminated upon the consummation of our initial
public offering; (5) the equity earnings from our investments in cellular
partnerships, dividend income and other miscellaneous non-operating items; and
(6) certain non-cash charges, such as the pension curtailment. However, the
amended and restated credit agreement does give effect to cash distributions
received from our cellular partnership investments. Each of these adjustments is
described in the attached reconciliations.
Because Adjusted EBITDA is a component of the ratio of total net debt to last
12-month Adjusted EBITDA, it is subject to the material limitations discussed
above, and the risk that we may not be able to use the cash on the balance sheet
to reduce our debt on a dollar-for-dollar basis. Management believes that this
ratio is useful as a means to evaluate our ability to incur additional
indebtedness in the future and to enable investors, securities analysts and
other interested parties to evaluate the company against its industry peers.
Management believes Adjusted EBITDA is a useful measure because our amended and
restated credit agreement will restrict the company's ability to pay dividends
directly in proportion to the amount of Adjusted EBITDA that the company
generates and the compliance with a total net leverage ratio, among other
things. While the company is also restricted from paying dividends under the
indenture governing our senior notes, the indenture is less restrictive than the
amended and restated credit facilities.
Adjusted EBITDA does not include approximately $1.0 million in incremental,
ongoing expenses associated with being a public company, nor does it give effect
to the IPO and the related transactions.
ABOUT CONSOLIDATED
Consolidated Communications Holdings, Inc. is an established rural local
exchange company (RLEC) providing communications services to residential and
business customers in Illinois and Texas. Each of the operating companies has
been operating in their local markets for over 100 years. With approximately
247,000 local access lines and over 33,000 digital subscriber lines (DSL),
Consolidated Communications offers a wide range of telecommunications services,
including local dial tone, custom calling features, private line services, long
distance, dial-up and high-speed Internet access, carrier
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access and billing and collection services. Consolidated Communications is the
15th largest local telephone company in the United States.
SAFE HARBOR
Any statements contained in this pres release that are not statements of
historical fact, including statements about our beliefs and expectations, are
forward-looking statements and should be evaluated as such. The words
"anticipates", "believes", "expects", "intends", "plans", "estimates",
"targets", "projects", "should", "may", "will" and similar words and expressions
are intended to identify forward-looking statements. Such forward-looking
statements reflect, among other things, CCHI's current expectations, plans,
strategies and anticipated financial results and involve a number of known and
unknown risks, uncertainties and factors that may cause our actual results to
differ materially from those expressed or implied by these forward-looking
statements. These risks include, but are not limited to the following: various
risks to stockholders of not receiving dividends and risks to our ability to
pursue growth opportunities if we continue to pay dividends according to our
current dividend policy; various risks to the price and volatility of our common
stock; our substantial amount of debt and our ability to incur additional debt
in the future; our need for a significant amount of cash to service and repay
our debt and to pay dividends on our common stock; restrictions contained in our
debt agreements that limit the discretion of our management in operating our
business; the ability to refinance our existing debt as necessary; regulatory
changes, rapid development and introduction of new technologies and intense
competition in the telecommunications industry; risks associated with the
integration of TXUCV; risks associated with our possible pursuit of
acquisitions; economic conditions in our service areas in Illinois and Texas;
system failures; loss of large customers or government contracts; risks
associated with the rights-of-way for our network; disruptions in our
relationship with third party vendors; loss of key management personnel and the
inability to attract and retain highly qualified management and personnel in the
future; changes in the extensive governmental legislation and regulations
governing telecommunications providers and the provision of telecommunications
services; telecommunications carriers disputing and/or avoiding their
obligations to pay network access changes for use of our network; high costs of
regulatory compliance; the competitive impact of legislation and regulatory
changes in the telecommunications industry; and liability and compliance costs
regarding environmental regulations.
Many of these risks are beyond our ability to control or predict. All
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary statements and risk
factors contained in this press release and our filings with the Securities and
Exchange Commission. Because of these risks, uncertainties and assumptions, you
should not place undue reliance on these forward-looking statements.
Furthermore, forward-looking statements speak only as of the date they are made.
Except as required under the federal securities laws or the rules and
regulations of the SEC, we do not undertake any obligation to update or review
any forward-looking information, whether as a result of new information, future
events or otherwise.
- Tables Follow -
Page 7 of 16
CONSOLIDATED COMMUNICATIONS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2005 2004
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 18,145 $ 52,084
Accounts receivable, net 31,897 33,817
Prepaid expenses and other current assets 17,974 12,986
----------- ------------
Total current assets 68,016 98,887
Property, plant and equipment, net 344,834 360,760
Intangibles and other assets 546,817 546,452
----------- ------------
Total assets $ 959,667 $ 1,006,099
=========== ============
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 19,399 $ 41,079
Accounts payable 10,593 11,176
Accrued expenses and other current liabilities 37,300 45,312
----------- ------------
Total current liabilities 67,292 97,567
Long-term debt less current maturities 599,913 588,342
Other long-term liabilities 131,892 131,225
----------- ------------
Total liabilities 799,097 817,134
----------- ------------
Minority interests 2,639 2,291
----------- ------------
Redeemable preferred shares:
Class A, redeemable preferred shares, $1 par value 177,090 205,469
Common members' deficit:
Common shares, no par value -- --
Paid in capital 46 58
Accumulated deficit (20,372) (19,111)
Accumulated other comprehensive income (loss) 1,167 258
----------- ------------
Total common members' deficit (19,159) (18,795)
----------- ------------
Total liabilities and members' deficit $ 959,667 $ 1,006,099
=========== ============
</Table>
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CONSOLIDATED COMMUNICATIONS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Revenues $ 78,264 $ 72,538 $ 158,036 $ 106,605
Operating expenses:
Cost of services and products 24,353 22,401 48,770 34,775
Selling, general and administrative
expenses 16,902 22,441 43,098 33,030
Depreciation and amortization 17,114 15,176 33,932 20,542
--------- --------- --------- ---------
Income from operations 19,895 12,520 32,236 18,258
Other income (expense):
Interest expense, net (11,557) (13,823) (22,998) (16,620)
Other income, net 3,206 839 3,593 839
--------- --------- --------- ---------
Income (loss) before income taxes 11,544 (464) 12,831 2,477
Income tax (benefit) expense 4,385 (357) 4,971 820
--------- --------- --------- ---------
Net income (loss) 7,159 (107) 7,860 1,657
Dividends on redeemable preferred
shares (4,498) (4,019) (9,121) (6,293)
--------- --------- --------- ---------
Net income (loss) applicable to common
shareholders $ 2,661 $ (4,126) $ (1,261) $ (4,636)
========= ========= ========= =========
</Table>
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CONSOLIDATED COMMUNICATIONS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
OPERATING ACTIVITIES
Net income (loss) $ 7,159 $ (107) $ 7,860 $ 1,657
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 17,114 15,176 33,932 20,542
Pension curtailment gain (7,880) -- (7,880) --
Other adjustments, net 4,816 5,727 8,514 6,957
Changes in operating assets and liabilities, net (6,554) 11,213 (13,159) 8,723
--------- --------- --------- ---------
Net cash provided by operating activities 14,655 32,009 29,267 37,879
--------- --------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures (9,297) (7,038) (14,830) (9,775)
Acquisition, net of cash acquired -- (524,090) -- (524,090)
--------- --------- --------- ---------
Net cash used in investing activities (9,297) (531,128) (14,830) (533,865)
--------- --------- --------- ---------
FINANCING ACTIVITIES
Capital contributions from investors -- 89,058 -- 89,058
Proceeds from long-term obligations -- 637,000 -- 637,000
Payments made on long-term obligations (5,597) (178,068) (10,109) (180,643)
Payment of deferred financing costs (642) (18,956) (755) (18,956)
Purchase of treasury shares (12) -- (12) --
Distribution to preferred shareholders (37,500) -- (37,500) --
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities (43,751) 529,034 (48,376) 526,459
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents (38,393) 29,915 (33,939) 30,473
Cash and cash equivalents at beginning of period 56,538 10,700 52,084 10,142
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 18,145 $ 40,615 $ 18,145 $ 40,615
========= ========= ========= =========
</Table>
Page 10 of 16
CONSOLIDATED COMMUNICATIONS
SCHEDULE OF ADJUSTED EBITDA CALCULATION
(Dollars in thousands)
(Unaudited)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2005 2004 2005 2004
-------- -------- -------- --------
Historical Adjusted EBITDA
Net cash provided by operating activities $ 14,655 $ 32,009 $ 29,267 $ 37,879
Adjustments:
Pension curtailment gain 7,880 -- 7,880 --
Other adjustments, net (4,816) (5,727) (8,514) (6,957)
Changes in operating assets and liabilities 6,554 (11,213) 13,159 (8,723)
Interest expense, net 11,557 13,823 22,998 16,620
Income taxes 4,385 (357) 4,971 820
-------- -------- -------- --------
Consolidated EBITDA (1) 40,215 28,535 69,761 39,639
CCI Texas EBITDA (2) -- (2,384) -- 15,538
-------- -------- -------- --------
Pro Forma EBITDA (3) 40,215 26,151 69,761 55,177
Adjustments to EBITDA
Transaction costs associated
with TXUCV acquisition (4) -- 7,146 -- 8,205
Integration and restructuring (5) 2,325 1,073 4,575 1,073
Professional service fees (6) 1,250 1,135 2,500 1,635
Other, net (7) (3,206) (1,168) (3,593) (1,944)
Partnership distributions (8) -- 585 -- 1,096
Affect of pension curtailment (9) (7,880) -- (7,880) --
-------- -------- -------- --------
ADJUSTED EBITDA $ 32,704 $ 34,922 $ 65,363 $ 65,242
======== ======== ======== ========
</Table>
FOOTNOTES FOR ADJUSTED EBITDA
1. Consolidated's Adjusted EBITDA is defined as net earnings (loss) before
interest expense, income taxes, depreciation and amortization on an
historical basis, without giving effect to the TXUCV acquisition.
2. CCI Texas EBITDA represents the EBITDA of the predecessor to CCI Texas for
the periods from April 1, 2004 through April 13, 2004 and from January 1,
2004 through April 13, 2004, respectively, since the operating results of
CCI Texas are not reflected in our historical EBITDA for the periods prior
to acquisition on April 13, 2004.
3. Pro forma EBITDA represents our historical EBITDA as adjusted for the TXUCV
acquisition.
4. During 2004 TXUCV incurred costs, which, due to the unusual and
non-recurring nature of these expenses, are excluded from Adjusted EBITDA.
These expenses include retention bonuses to keep key employees to run its
day-to-day operations while it was being prepared for sale; severance costs
primarily associated with employee terminations associated with the TXUCV
acquisition; and other costs associated with its sale.
5. In connection with the TXUCV acquisition, we are incurring certain one-time
expenses associated with integrating and restructuring the CCI Texas and
CCI Illinois businesses. Because of the unusual and non-recurring nature of
these expenses, they are excluded from Adjusted EBITDA.
6. 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 agreements terminated.
7. Other, net includes the equity earnings from our investments, dividend
income and certain other miscellaneous non-operating items.
8. For purposes of calculating Adjusted EBITDA, we include all dividends and
other distributions received from our cellular partnership investments.
Partnership distributions included in the calculation of Adjusted EBITDA
assumes that the TXUCV acquisition occurred on the first day of the periods
presented.
9. Represents a one-time, non-cash $7.9 million curtailment gain associated
with the amendment of our retirement plan. The gain was recorded in general
and administrative expenses. However, because the gain is non-cash and
non-recurring, it is excluded from adjusted EBITDA.
Page 11 of 16
CONSOLIDATED COMMUNICATIONS
COMBINED REVENUE BY CATEGORY
(Dollars in thousands, except ARPU)
(Unaudited)
<Table>
<Caption>
THREE MONTHS ENDED
---------------------------------------------------------------------------
AS PRESENTED APRIL 1, 2004 TO COMBINED
JUNE 30, 2004 APRIL 13, 2004 JUNE 30, 2004 JUNE 30, 2005
--------------- ---------------- --------------- ----------------
CCI ILLINOIS REVENUES:
Telephone Operations
Local calling services $ 8,710 $ -- $ 8,710 $ 8,168
Network access services 7,607 -- 7,607 6,411
Subsidies 1,566 -- 1,566 2,721
Long distance services 1,869 -- 1,869 1,569
Data and Internet services 2,681 -- 2,681 2,643
Other services 1,034 -- 1,034 995
--------------- ---------------- --------------- ----------------
Total Telephone Operations 23,467 -- 23,467 22,507
Other Operations 9,562 -- 9,562 9,720
--------------- ---------------- --------------- ----------------
Total Operating Revenues $ 33,029 $ -- $ 33,029 $ 32,227
=============== ================ =============== ================
CCI TEXAS REVENUES:
Telephone Operations
Local calling services $ 12,589 $ 2,426 $ 15,015 $ 14,281
Network access services 7,239 1,608 8,847 8,935
Subsidies 8,578 2,462 11,040 9,346
Long distance services 2,269 450 2,719 2,633
Data and Internet services 2,957 465 3,422 3,635
Other services 5,877 1,078 6,955 7,207
--------------- ---------------- --------------- ----------------
Total Telephone Operations 39,509 8,489 47,998 46,037
Other Operations -- -- -- --
--------------- ---------------- --------------- ----------------
Total Operating Revenues $ 39,509 $ 8,489 $ 47,998 $ 46,037
=============== ================ =============== ================
TOTAL REVENUES:
Telephone Operations
Local calling services $ 21,299 $ 2,426 $ 23,725 $ 22,449
Network access services 14,846 1,608 16,454 15,346
Subsidies 10,144 2,462 12,606 12,067
Long distance services 4,138 450 4,588 4,202
Data and Internet services 5,638 465 6,103 6,278
Other services 6,911 1,078 7,989 8,202
--------------- ---------------- --------------- ----------------
Total Telephone Operations 62,976 8,489 71,465 68,544
Other Operations 9,562 -- 9,562 9,720
--------------- ---------------- --------------- ----------------
Total Operating Revenues $ 72,538 $ 8,489 $ 81,027 $ 78,264
=============== ================ =============== ================
Monthly Telephone Operations
ARPU (a) $ 91.35 $ 91.66
=============== ================
</Table>
(a) ARPU is defined as total telephone operations revenue, divided by the
average access lines for the period, divided by the number of months in the
period
Page 12 of 16
CONSOLIDATED COMMUNICATIONS
COMBINED REVENUE BY CATEGORY
(Dollars in thousands, except ARPU)
(Unaudited)
<Table>
<Caption>
SIX MONTHS ENDED
-------------------------------------------------------------------------------
AS PRESENTED APRIL 1, 2004 TO COMBINED
JUNE 30, 2004 APRIL 13, 2004 JUNE 30, 2004 JUNE 30, 2005
---------------- ----------------- ---------------- ----------------
CCI ILLINOIS REVENUES:
Telephone Operations
Local calling services $ 17,189 $ -- $ 17,189 $ 16,501
Network access services 14,180 -- 14,180 13,166
Subsidies 3,840 -- 3,840 6,914
Long distance services 3,860 -- 3,860 3,452
Data and Internet services 5,210 -- 5,210 5,278
Other services 2,071 -- 2,071 1,961
---------------- ----------------- ---------------- ----------------
Total Telephone Operations 46,350 -- 46,350 47,272
Other Operations 20,746 -- 20,746 18,473
---------------- ----------------- ---------------- ----------------
Total Operating Revenues $ 67,096 $ -- $ 67,096 $ 65,745
================ ================= ================ ================
CCI TEXAS REVENUES:
Telephone Operations
Local calling services $ 12,589 $ 16,932 $ 29,521 $ 28,536
Network access services 7,239 10,610 17,849 18,508
Subsidies 8,578 10,993 19,571 18,877
Long distance services 2,269 3,402 5,671 4,706
Data and Internet services 2,957 3,923 6,880 7,528
Other services 5,877 7,995 13,872 14,136
---------------- ----------------- ---------------- ----------------
Total Telephone Operations 39,509 53,855 93,364 92,291
Other Operations -- -- -- --
---------------- ----------------- ---------------- ----------------
Total Operating Revenues $ 39,509 $ 53,855 $ 93,364 $ 92,291
================ ================= ================ ================
TOTAL COMPANY REVENUES:
Telephone Operations
Local calling services $ 29,778 $ 16,932 $ 46,710 $ 45,037
Network access services 21,419 10,610 32,029 31,674
Subsidies 12,418 10,993 23,411 25,791
Long distance services 6,129 3,402 9,531 8,158
Data and Internet services 8,167 3,923 12,090 12,806
Other services 7,948 7,995 15,943 16,097
---------------- ----------------- ---------------- ----------------
Total Telephone Operations 85,859 53,855 139,714 139,563
Other Operations 20,746 -- 20,746 18,473
---------------- ----------------- ---------------- ----------------
Total Operating Revenues $ 106,605 $ 53,855 $ 160,460 $ 158,036
================ ================= ================ ================
Monthly Telephone Operations ARPU (a) $ 89.05 $ 92.46
================ ================
</Table>
(a) ARPU is defined as total telephone operations revenue, divided by the
average access lines for the period, divided by the number of months in the
period
Page 13 of 16
CONSOLIDATED COMMUNICATIONS
2004 CONDENSED COMBINING STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2004 JUNE 30, 2004
------------------------------------------ ------------------------------------------
PREDECESSOR PREDECESSOR
TO CCI-TEXAS AS PRESENTED 2ND QUARTER TO CCI-TEXAS AS PRESENTED 2ND QUARTER
4/1 - 4/13 4/14 - 6/30 COMBINED 1/1 - 4/13 4/14 - 6/30 COMBINED
------------ ------------ ------------ ------------ ------------ ------------
Revenues $ 8,489 $ 72,538 $ 81,027 $ 53,855 $ 106,605 $ 160,460
Operating expenses:
Cost of services and products 2,162 22,401 24,563 15,296 34,775 50,071
Selling, general and administrative
expenses 9,052 22,441 31,493 24,138 33,030 57,168
Asset impairment (12) -- (12) (12) -- (12)
Depreciation and amortization (26) 15,176 15,150 8,124 20,542 28,666
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from operations (2,687) 12,520 9,833 6,309 18,258 24,567
Other income (expense):
Interest expense, net (2,084) (13,823) (15,907) (3,158) (16,620) (19,778)
Other income, net 329 839 1,168 1,105 839 1,944
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes (4,442) (464) (4,906) 4,256 2,477 6,733
Income tax (benefit) expense (750) (357) (1,107) 2,473 820 3,293
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ (3,692) $ (107) $ (3,799) $ 1,783 $ 1,657 $ 3,440
============ ============ ============ ============ ============ ============
</Table>
Page 14 of 16
CONSOLIDATED COMMUNICATIONS
KEY OPERATING STATISTICS
<Table>
<Caption>
JUNE 30, DECEMBER 31, JUNE 30,
2004 2004 2005
-------- ------------ --------
CCI ILLINOIS:
Local access lines in service
Residential 57,233 55,627 54,396
Business 31,844 31,255 31,170
-------- ------------ --------
Total local access lines 89,077 86,882 85,566
DSL subscribers 9,029 10,794 12,815
-------- ------------ --------
Total connections 98,106 97,676 98,381
======== ============ ========
Long distance subscribers 52,141 54,345 55,650
Dial-up subscribers 8,655 7,846 7,111
Service bundles (approximate) 8,000 9,000 9,800
CCI TEXAS:
Local access lines in service
Residential 115,286 113,151 111,105
Business 54,807 55,175 50,587
-------- ------------ --------
Total local access lines 170,093 168,326 161,692
DSL subscribers 12,130 16,651 20,243
-------- ------------ --------
Total connections 182,223 184,977 181,935
======== ============ ========
Long distance subscribers 85,068 84,332 85,430
Dial-up subscribers 17,349 13,333 10,917
Service bundles (approximate) 18,900 21,300 23,500
TOTAL COMPANY:
Local access lines in service
Residential 172,519 168,778 165,501
Business 86,651 86,430 81,757
-------- ------------ --------
Total local access lines 259,170 255,208 247,258
DSL subscribers 21,159 27,445 33,058
-------- ------------ --------
Total connections 280,329 282,653 280,316
======== ============ ========
Long distance subscribers 137,209 138,677 141,080
Dial-up subscribers 26,004 21,179 18,028
Service bundles (approximate) 26,900 30,300 33,300
</Table>
Notes:
Service bundles are equal to the number of customers who have selected one of
our service packages.
Page 15 of 16
CONSOLIDATED COMMUNICATIONS
TOTAL DEBT TO EBITDA
(Dollars in thousands)
(unaudited)
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, TWELVE MONTHS ENDED
2005 2004 12/31/2004 6/30/2005
----------- ----------- ----------- -----------
Historical EBITDA
Net cash provided by operating activities $ 29,267 $ 37,879 $ 79,766 $ 71,154
Adjustments:
Pension curtailment gain 7,880 -- 7,880
Other adjustments, net (8,514) (6,957) (21,960) (23,517)
Changes in operating assets and liabilities 13,159 (8,723) (4,427) 17,455
Interest expense, net 22,998 16,620 39,551 45,929
Income taxes 4,971 820 232 4,383
----------- ----------- ----------- -----------
Homebase EBITDA 69,761 39,639 93,162 123,284
CCI Texas EBITDA -- 15,538 15,538 --
----------- ----------- ----------- -----------
Combined EBITDA 69,761 55,177 108,700 123,284
----------- ----------- ----------- -----------
Adjustments to EBITDA
Transaction costs associated with TXUCV acquisition -- 8,205 8,205 --
Integration and restructuring 4,575 1,073 7,009 10,511
Professional service fees 2,500 1,635 4,135 5,000
Other, net (3,593) (1,944) (4,764) (6,413)
Partnership distributions -- 1,096 4,135 3,039
Restructuring, asset impairment and other (7,880) -- 11,578 3,698
----------- ----------- ----------- -----------
ADJUSTED EBITDA $ 65,363 $ 65,242 $ 138,998 $ 139,119
=========== =========== =========== ===========
Summary of outstanding debt (1)
Senior notes $ 135,000
Term loan D 425,000
-----------
Total debt as of June 30, 2005 560,000
Less cash on hand (18,145)
-----------
Total net debt as of June 30, 2005 $ 541,855
===========
Total net debt to EBITDA for the twelve
months ending June 30, 2005 3.9
</Table>
(1) Assumes that the IPO and related transactions occurred as of June 30, 2005
Page 16 of 16