CONDENSED CONSOLIDATING FINANCIAL INFORMATION

6 Months Ended

Jun. 30, 2020

CONDENSED CONSOLIDATING FINANCIAL INFORMATION

CONDENSED CONSOLIDATING FINANCIAL INFORMATION

13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Consolidated Communications, Inc. is the primary obligor under the unsecured Senior Notes.  We and substantially all of our subsidiaries have jointly and severally guaranteed the Senior Notes.  All of the subsidiary guarantors are 100% direct or indirect wholly owned subsidiaries of the parent, and all guarantees are full, unconditional and joint and several with respect to principal, interest and liquidated damages, if any.  As such, we present condensed consolidating balance sheets as of June 30, 2020 and December 31, 2019, condensed consolidating statements of operations for the quarters and six-month periods ended June 30, 2020 and 2019 and condensed consolidating statements of cash flows for the six-month periods ended June 30, 2020 and 2019 for each of the Company (Parent), Consolidated Communications, Inc. (Subsidiary Issuer), guarantor subsidiaries and other non-guarantor subsidiaries with any consolidating adjustments.  See Note 6 for more information regarding our Senior Notes.

Condensed Consolidating Balance Sheets

(In thousands)

	June 30, 2020
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	45,876	$	—	$	—	$	—	$	45,876
Accounts receivable, net		—		76		110,569		5,848		—		116,493
Income taxes receivable		13,686		7,856		—		—		(17,168)		4,374
Prepaid expenses and other current assets		126		—		40,869		295		(126)		41,164
Total current assets		13,812		53,808		151,438		6,143		(17,294)		207,907
Property, plant and equipment, net		—		—		1,728,249		65,091		—		1,793,340
Intangibles and other assets:
Investments		—		9,064		103,477		—		—		112,541
Investments in subsidiaries		3,571,803		3,577,749		17,632		—		(7,167,184)		—
Goodwill		—		—		969,093		66,181		—		1,035,274
Customer relationships, net		—		—		138,744		—		—		138,744
Other intangible assets		—		—		1,470		9,087		—		10,557
Advances due to/from affiliates, net		—		2,171,272		1,008,596		117,236		(3,297,104)		—
Deferred income taxes		77,156		8,557		—		—		(85,713)		—
Other assets		—		—		48,843		431		—		49,274
Total assets	$	3,662,771	$	5,820,450	$	4,167,542	$	264,169	$	(10,567,295)	$	3,347,637
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	—	$	16,707	$	—	$	—	$	16,707
Advance billings and customer deposits		—		—		43,258		1,316		—		44,574
Accrued compensation		—		—		54,369		720		—		55,089
Accrued interest		—		7,358		435		—		—		7,793
Accrued expense		—		884		73,663		1,284		(126)		75,705
Income tax payable		—		—		15,485		1,683		(17,168)		—
Current portion of long term debt and finance lease obligations		—		18,350		6,398		141		—		24,889
Total current liabilities		—		26,592		210,315		5,144		(17,294)		224,757
Long-term debt and finance lease obligations		—		2,184,397		13,606		—		—		2,198,003
Advances due to/from affiliates, net		3,297,104		—		—		—		(3,297,104)		—
Deferred income taxes		—		—		241,128		24,158		(85,713)		179,573
Pension and postretirement benefit obligations		—		—		274,819		10,434		—		285,253
Other long-term liabilities		—		37,657		49,439		747		—		87,843
Total liabilities		3,297,104		2,248,646		789,307		40,483		(3,400,111)		2,975,429
Shareholders’ equity:
Common Stock		731		—		17,411		30,000		(47,411)		731
Other shareholders’ equity		364,936		3,571,804		3,354,283		193,686		(7,119,773)		364,936
Total Consolidated Communications Holdings, Inc. shareholders’ equity		365,667		3,571,804		3,371,694		223,686		(7,167,184)		365,667
Noncontrolling interest		—		—		6,541		—		—		6,541
Total shareholders’ equity		365,667		3,571,804		3,378,235		223,686		(7,167,184)		372,208
Total liabilities and shareholders’ equity	$	3,662,771	$	5,820,450	$	4,167,542	$	264,169	$	(10,567,295)	$	3,347,637

Condensed Consolidating Balance Sheet

(In thousands)

	December 31, 2019
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	12,387	$	8	$	—	$	—	$	12,395
Accounts receivable, net		—		78		112,415		7,523		—		120,016
Income taxes receivable		1,812		—		791		66		—		2,669
Prepaid expenses and other current assets		—		—		41,431		356		—		41,787
Total current assets		1,812		12,465		154,645		7,945		—		176,867
Property, plant and equipment, net		—		—		1,770,187		65,691		—		1,835,878
Intangibles and other assets:
Investments		—		8,863		103,854		—		—		112,717
Investments in subsidiaries		3,547,466		3,520,346		17,165		—		(7,084,977)		—
Goodwill		—		—		969,093		66,181		—		1,035,274
Customer relationships, net		—		—		164,069		—		—		164,069
Other intangible assets		—		—		1,470		9,087		—		10,557
Advances due to/from affiliates, net		—		2,289,433		893,394		113,473		(3,296,300)		—
Deferred income taxes		86,447		5,661		—		—		(92,108)		—
Other assets		1,506		—		52,887		522		—		54,915
Total assets	$	3,637,231	$	5,836,768	$	4,126,764	$	262,899	$	(10,473,385)	$	3,390,277
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	—	$	—	$	30,936	$	—	$	—	$	30,936
Advance billings and customer deposits		—		—		44,436		1,274		—		45,710
Accrued compensation		—		—		56,356		713		—		57,069
Accrued interest		—		7,523		351		—		—		7,874
Accrued expense		50		2,565		71,659		1,132		—		75,406
Current portion of long term debt and finance lease obligations		—		18,350		8,808		143		—		27,301
Total current liabilities		50		28,438		212,546		3,262		—		244,296
Long-term debt and finance lease obligations		—		2,235,609		15,001		67		—		2,250,677
Advances due to/from affiliates, net		3,296,300		—		—		—		(3,296,300)		—
Deferred income taxes		—		—		240,983		24,152		(92,108)		173,027
Pension and postretirement benefit obligations		—		—		285,832		16,464		—		302,296
Other long-term liabilities		—		25,255		46,656		819		—		72,730
Total liabilities		3,296,350		2,289,302		801,018		44,764		(3,388,408)		3,043,026
Shareholders’ equity:
Common Stock		720		—		17,411		30,000		(47,411)		720
Other shareholders’ equity		340,161		3,547,466		3,301,965		188,135		(7,037,566)		340,161
Total Consolidated Communications Holdings, Inc. shareholders’ equity		340,881		3,547,466		3,319,376		218,135		(7,084,977)		340,881
Noncontrolling interest		—		—		6,370		—		—		6,370
Total shareholders’ equity		340,881		3,547,466		3,325,746		218,135		(7,084,977)		347,251
Total liabilities and shareholders’ equity	$	3,637,231	$	5,836,768	$	4,126,764	$	262,899	$	(10,473,385)	$	3,390,277

Condensed Consolidating Statements of Operations

(In thousands)

	Quarter Ended June 30, 2020
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	—	$	—	$	316,557	$	11,710	$	(3,091)	$	325,176
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)		—		—		138,779		3,737		(2,982)		139,534
Selling, general and administrative expenses		2,521		1		60,561		1,822		(109)		64,796
Depreciation and amortization		—		—		78,568		2,498		—		81,066
Operating income (loss)		(2,521)		(1)		38,649		3,653		—		39,780
Other income (expense):
Interest expense, net of interest income		(25)		(31,035)		(425)		26		—		(31,459)
Intercompany interest income (expense)		—		14,727		(14,711)		(16)		—		—
Investment income		—		—		9,180		—		—		9,180
Equity in earnings of subsidiaries, net		15,779		28,238		260		—		(44,277)		—
Other, net		—		—		653		56		—		709
Income (loss) before income taxes		13,233		11,929		33,606		3,719		(44,277)		18,210
Income tax expense (benefit)		(607)		(3,850)		7,854		878		—		4,275
Net income (loss)		13,840		15,779		25,752		2,841		(44,277)		13,935
Less: net income attributable to noncontrolling interest		—		—		95		—		—		95
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	13,840	$	15,779	$	25,657	$	2,841	$	(44,277)	$	13,840
Total comprehensive income (loss) attributable to common shareholders	$	16,289	$	18,228	$	25,983	$	2,850	$	(47,061)	$	16,289

	Quarter Ended June 30, 2019
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	—	$	—	$	324,710	$	11,982	$	(3,160)	$	333,532
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)		—		—		143,283		3,541		(3,044)		143,780
Selling, general and administrative expenses		2,012		—		73,707		2,545		(116)		78,148
Depreciation and amortization		—		—		94,811		2,493		—		97,304
Operating income (loss)		(2,012)		—		12,909		3,403		—		14,300
Other income (expense):
Interest expense, net of interest income		(27)		(34,628)		(90)		8		—		(34,737)
Intercompany interest income (expense)		—		14,727		(14,707)		(20)		—		—
Gain on extinguishment of debt		—		249		—		—		—		249
Investment income		—		—		10,750		—		—		10,750
Equity in earnings of subsidiaries, net		(6,015)		7,202		205		—		(1,392)		—
Other, net		4		(14)		(1,625)		(17)		—		(1,652)
Income (loss) before income taxes		(8,050)		(12,464)		7,442		3,374		(1,392)		(11,090)
Income tax expense (benefit)		(663)		(6,449)		2,215		1,119		—		(3,778)
Net income (loss)		(7,387)		(6,015)		5,227		2,255		(1,392)		(7,312)
Less: net income attributable to noncontrolling interest		—		—		75		—		—		75
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	(7,387)	$	(6,015)	$	5,152	$	2,255	$	(1,392)	$	(7,387)
Total comprehensive income (loss) attributable to common shareholders	$	(18,947)	$	(17,575)	$	6,110	$	2,323	$	9,142	$	(18,947)

	Six Months Ended June 30, 2020
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	—	$	—	$	633,611	$	23,372	$	(6,145)	$	650,838
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)		—		—		275,813		7,406		(5,930)		277,289
Selling, general and administrative expenses		3,599		1		125,407		3,821		(215)		132,613
Depreciation and amortization		—		—		158,826		4,978		—		163,804
Operating income (loss)		(3,599)		(1)		73,565		7,167		—		77,132
Other income (expense):
Interest expense, net of interest income		(50)		(62,589)		(951)		36		—		(63,554)
Intercompany interest income (expense)		—		29,454		(29,422)		(32)		—		—
Gain on extinguishment of debt		—		234		—		—		—		234
Investment income		—		202		19,557		—		—		19,759
Equity in earnings of subsidiaries, net		32,162		57,007		467		—		(89,636)		—
Other, net		—		—		5,191		112		—		5,303
Income (loss) before income taxes		28,513		24,307		68,407		7,283		(89,636)		38,874
Income tax expense (benefit)		(874)		(7,855)		16,296		1,749		—		9,316
Net income (loss)		29,387		32,162		52,111		5,534		(89,636)		29,558
Less: net income attributable to noncontrolling interest		—		—		171		—		—		171
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	29,387	$	32,162	$	51,940	$	5,534	$	(89,636)	$	29,387
Total comprehensive income (loss) attributable to common shareholders	$	21,836	$	24,611	$	52,593	$	5,552	$	(82,756)	$	21,836

	Six Months Ended June 30, 2019
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	—	$	—	$	653,988	$	24,451	$	(6,258)	$	672,181
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)		—		—		291,084		7,047		(6,032)		292,099
Selling, general and administrative expenses		3,667		(193)		144,307		4,960		(226)		152,515
Depreciation and amortization		—		—		191,592		4,955		—		196,547
Operating income (loss)		(3,667)		193		27,005		7,489		—		31,020
Other income (expense):
Interest expense, net of interest income		(55)		(68,716)		(257)		8		—		(69,020)
Intercompany interest income (expense)		—		29,454		(29,415)		(39)		—		—
Gain on extinguishment of debt		—		249		—		—		—		249
Investment income		—		190		19,161		—		—		19,351
Equity in earnings of subsidiaries, net		(12,091)		14,444		418		—		(2,771)		—
Other, net		1		42		(3,033)		(31)		—		(3,021)
Income (loss) before income taxes		(15,812)		(24,144)		13,879		7,427		(2,771)		(21,421)
Income tax expense (benefit)		(1,160)		(12,053)		3,971		2,319		—		(6,923)
Net income (loss)		(14,652)		(12,091)		9,908		5,108		(2,771)		(14,498)
Less: net income attributable to noncontrolling interest		—		—		154		—		—		154
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	(14,652)	$	(12,091)	$	9,754	$	5,108	$	(2,771)	$	(14,652)
Total comprehensive income (loss) attributable to common shareholders	$	(32,658)	$	(30,097)	$	11,670	$	5,244	$	13,183	$	(32,658)

Condensed Consolidating Statements of Cash Flows

(In thousands)

	Six Months Ended June 30, 2020
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Consolidated
Net cash (used in) provided by operating activities	$	(804)	$	(31,290)	$	205,942	$	7,873	$	181,721
Cash flows from investing activities:
Purchases of property, plant and equipment		—		—		(92,194)		(4,043)		(96,237)
Proceeds from sale of assets		—		—		6,070		3		6,073
Proceeds from sale of investments		—		—		426		—		426
Net cash used in investing activities		—		—		(85,698)		(4,040)		(89,738)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		—		40,000		—		—		40,000
Payment of finance lease obligation		—		—		(5,051)		(68)		(5,119)
Payment on long-term debt		—		(89,175)		—		—		(89,175)
Repurchase of senior notes		—		(4,208)		—		—		(4,208)
Transactions with affiliates, net		804		118,162		(115,201)		(3,765)		—
Net cash provided by (used in) financing activities		804		64,779		(120,252)		(3,833)		(58,502)
Increase (decrease) in cash and cash equivalents		—		33,489		(8)		—		33,481
Cash and cash equivalents at beginning of period		—		12,387		8		—		12,395
Cash and cash equivalents at end of period	$	—	$	45,876	$	—	$	—	$	45,876

	Six Months Ended June 30, 2019
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Consolidated
Net cash (used in) provided by operating activities	$	(607)	$	(35,907)	$	192,092	$	7,684	$	163,262
Cash flows from investing activities:
Purchases of property, plant and equipment		—		—		(115,063)		(4,705)		(119,768)
Proceeds from sale of assets		—		—		14,201		2		14,203
Proceeds from sale of investments		—		—		329		—		329
Other		—		—		(450)		—		(450)
Net cash used in investing activities		—		—		(100,983)		(4,703)		(105,686)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		—		107,000		—		—		107,000
Payment of finance lease obligation		—		—		(6,739)		(72)		(6,811)
Payment on long-term debt		—		(97,175)		—		—		(97,175)
Repurchase of senior notes		—		(4,294)		—		—		(4,294)
Dividends on common stock		(55,445)		—		—		—		(55,445)
Transactions with affiliates, net		56,052		29,849		(82,992)		(2,909)		—
Net cash provided by (used in) financing activities		607		35,380		(89,731)		(2,981)		(56,725)
Increase (decrease) in cash and cash equivalents		—		(527)		1,378		—		851
Cash and cash equivalents at beginning of period		—		9,616		(18)		1		9,599
Cash and cash equivalents at end of period	$	—	$	9,089	$	1,360	$	1	$	10,450