-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HPphTl0f1j+5SNLWuCPktZxCVjjVvSG/DqOB6JVGj4yvR9d4LmMeeS/mj7m/U3Cc widM1WLNLAv03DXMeSPy/Q== 0000950123-05-010275.txt : 20050824 0000950123-05-010275.hdr.sgml : 20050824 20050824070942 ACCESSION NUMBER: 0000950123-05-010275 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20050824 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050824 DATE AS OF CHANGE: 20050824 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Consolidated Communications Holdings, Inc. CENTRAL INDEX KEY: 0001304421 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 020636095 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-51446 FILM NUMBER: 051044792 BUSINESS ADDRESS: STREET 1: 121 SOUTH 17TH STREET CITY: MATTOON STATE: IL ZIP: 61938 BUSINESS PHONE: (217) 235-3311 MAIL ADDRESS: STREET 1: 121 SOUTH 17TH STREET CITY: MATTOON STATE: IL ZIP: 61938 FORMER COMPANY: FORMER CONFORMED NAME: Consolidated Communications Illinois Holdings, Inc. DATE OF NAME CHANGE: 20040927 8-K 1 y12295e8vk.txt FORM 8-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): AUGUST 24, 2005 CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 000-51446 02-0636095 - ------------------------ ---------------------- -------------------------------- (State of Incorporation) Commission File Number (IRS employer identification no.)
121 SOUTH 17TH STREET MATTOON, ILLINOIS 61938-3987 - --------------------------------------------- -------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (217) 235-3311 NOT APPLICABLE (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ================================================================================ ITEM 2.02 - RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On August 24, 2005, Consolidated Communications Holdings, Inc. issued a press release to report its results of operations and financial condition for the second quarter ended June 30, 2005. A copy of this press release is included as Exhibit 99.1 to this Form 8-K and incorporated into this Item 2.02 by reference. The information in this Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits. Exhibit No. Description - ----------- ----------- 99.1 Press Release dated August 24, 2005 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: August 24, 2005 Consolidated Communications Holdings, Inc. By: /s/ Steven L. Childers --------------------------------------- Name: Steven L. Childers Title: Chief Financial Officer EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 99.1 Press Release dated August 24, 2005 EX-99.1 2 y12295exv99w1.txt EX-99.1: PRESS RELEASE 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. Page 2 of 16 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. Page 3 of 16 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 Page 4 of 16 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 Page 6 of 16 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)
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 =========== ============
Page 8 of 16 CONSOLIDATED COMMUNICATIONS CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) (Unaudited)
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) ========= ========= ========= =========
Page 9 of 16 CONSOLIDATED COMMUNICATIONS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
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 ========= ========= ========= =========
Page 10 of 16 CONSOLIDATED COMMUNICATIONS SCHEDULE OF ADJUSTED EBITDA CALCULATION (Dollars in thousands) (Unaudited)
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 ======== ======== ======== ========
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)
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 =============== ================
(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)
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 ================ ================
(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)
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 ============ ============ ============ ============ ============ ============
Page 14 of 16 CONSOLIDATED COMMUNICATIONS KEY OPERATING STATISTICS
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
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)
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
(1) Assumes that the IPO and related transactions occurred as of June 30, 2005 Page 16 of 16 -----END PRIVACY-ENHANCED MESSAGE-----