[ ]
2021
ANNUAL REPORT
DEAR SHAREHOLDERS,
2021 was the start of a transformative period for Consolidated
Communications as we began the largest fiber expansion project in
our Company’s 127-year history. Our plan to upgrade 70 percent of
our service area or 1.6 million locations to fiber, Gigabit speeds by
2025 is a once in a generation opportunity. Our achievement of this
plan will create a highly competitive, broadband company, and it
will bring economic, employment and quality of life benefits to the
hundreds of thousands of residents and businesses. We are proud
to be building networks that will positively impact the communities
we serve for generations to come. We’re leveraging our fiber
assets to pursue growth opportunities across three customer
groups: consumer, commercial and carrier customer channels.
We exceeded our target for 2021 by upgrading a record 330,000
locations with fiber services enabling Gig capable speeds. We have
created the foundation for our fiber-first strategy and proven the
scale we can achieve by doubling our fiber passings and adding
more than 15,500 consumer fiber subscribers. In 2022, we’ve set
our target even higher with a plan to upgrade 400,000 fiber passings
and significantly increase our fiber subscriber penetration. The
Fiber-to-the-Premise (FttP) technology is the “wire” of the future,
which has the ability to deliver exponentially faster data at the
speed of light. Once a location is connected to fiber, it can receive
(downstream) and transmit (upstream) data at synchronous
Gigabit or multi-Gigabit speeds.
In November, we launched Fidium Fiber, our new brand representing
our consumer fiber broadband offering and an entirely transformed
customer experience. Fidium is designed to make broadband easy
and represents simple and highly competitive plans, symmetrical
Gig speeds, premium whole-home mesh wifi capabilities and a
stellar experience from end to end. Our focus is on making the
buying, installation and use of the broadband services as simple
and frictionless as possible. We’re using the Net Promoter Score
(NPS) to measure and benchmark customer satisfaction and loyalty
toward Fidium, which has been very positive so far. We’re excited
to expand Fidium Fiber to all consumer fiber markets this year.
You can take a look at FidiumFiber.com to learn more.
Our fiber expansion also supports our commercial and carrier
customer channels by providing new opportunities to leverage an
expanded network to provide business solutions and ultimately
grow data-transport revenue. We lead with fiber solutions and
leverage industry-leading partnerships to provide business of all
sizes complete voice, data and security solutions. While we are
experiencing some competitive pressure on carrier wireless
backhaul revenue, we see this as near-term price compression in
exchange for long-term revenue and contract value. We expect to
continue to grow data and transport revenue.
Turning to our capital structure, in December, we closed on the
second investment from Searchlight Capital Partners, who has
invested a total of $425 million to support our fiber expansion plan.
We’re maintaining a disciplined capital allocation plan as we invest
in significant growth opportunities and review our market portfolio
to ensure all assets have a long-term strategic fit. This review resulted
in the recent divestiture of our Ohio assets and the announcement
of a definitive agreement to sell our Kansas City assets, two actions
which allow us to focus on execution in our fiber growth areas.
As we look to 2022 and beyond, we are focused on executing on our
fiber expansion and completing our fiber upgrades, which will enable
broadband and data-transport revenue growth. The construction
machine is scaling nicely and we’re in the process of ramping our
customer acquisition engine. All of this creates a stronger foundation
for future growth. It’s important to keep in mind we are in the early
stages of this journey and transformation. We expect to return to
revenue growth in 2023 as we work to generate significant margin
expansion connecting more than a million homes with gigabit Internet.
With a fiber, future-proof network, we are connecting consumer,
commercial and carrier customers as well as the communities we
serve with unlimited possibilities to learn, work and thrive. Over the
last year, we expanded our commitment to diversity, equity and
inclusion (DEI), and more broadly to ESG initiatives. Earlier this
year, we launched the Consolidated DEI Council and an expanded
employee engagement council, both of which are positively
impacting our culture.
I want to especially thank our employees who work relentlessly to
serve our customers and are crucial to our long-term success. We
are fortunate to work with an incredible group of people who share
our vision for the future. Thank you to our valued shareholder, for
your investment in and support of Consolidated. We are glad you
are along with us on this journey.
Sincerely,
Bob Udell
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 000-51446
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
2116 South 17th Street, Mattoon, Illinois
(Address of principal executive offices)
02-0636095
(IRS Employer
Identification No.)
61938
(Zip Code)
Registrant’s telephone number, including area code (217) 235-3311
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock - $0.01 par value
Trading Symbol
CNSL
Name of each exchange on which registered
The NASDAQ Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Yes ☒ No ☐
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of June 30, 2021, the aggregate market value of the shares held by non-affiliates of the registrant’s common stock was $639,629,085 based on the closing price as reported
on the NASDAQ Global Select Market. The market value calculations exclude shares held on the stated date by registrant’s directors and officers on the assumption such
shares may be shares owned by affiliates. Exclusion from these public market value calculations does not necessarily conclude affiliate status for any other purpose.
On February 28, 2022, the registrant had 113,612,846 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 2022 Annual Meeting of Shareholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K
to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December
31, 2021.
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Reserved
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PAGE
1
14
23
23
23
23
24
25
26
46
47
47
47
50
50
50
50
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
50
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
SIGNATURES
50
50
51
54
55
Note About Forward-Looking Statements
PART I
The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so that
investors can better understand a company’s future prospects and make informed investment decisions. Certain statements
in this Annual Report on Form 10-K, including those relating to the impact on future revenue sources, pending and future
regulatory orders, continued expansion of the telecommunications network and expected changes in the sources of our
revenue and cost structure resulting from our entrance into new markets, are forward-looking statements and are made
pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements reflect, among other things, our current expectations, plans, strategies and anticipated financial results. There
are a number of risks, uncertainties and conditions that may cause the actual results of Consolidated Communications
Holdings, Inc. and its subsidiaries (“Consolidated,” the “Company,” “we,” “our” or “us”) to differ materially from those
expressed or implied by these forward-looking statements. Many of these circumstances are beyond our ability to control
or predict. Moreover, forward-looking statements necessarily involve assumptions on our part. These forward-looking
statements generally are identified by the words “believe,” “expect,” “anticipate,” “estimate,” “project,” “intend,” “plan,”
“should,” “may,” “will,” “would,” “will be,” “will continue” or similar expressions. All forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements that
appear throughout this report. A detailed discussion of these and other risks and uncertainties that could cause actual
results and events to differ materially from such forward-looking statements is included in Part I – Item 1A – “Risk
Factors”. Furthermore, undue reliance should not be placed on forward-looking statements, which are based on the
information currently available to us and speak only as of the date they are made. Except as required under federal
securities laws or the rules and regulations of the SEC, we disclaim any intention or obligation to update or revise publicly
any forward-looking statements.
Item 1. Business.
Consolidated Communications Holdings, Inc. is a Delaware holding company with operating subsidiaries that provide a
wide range of communication solutions to consumer, commercial and carrier channels across a service area in over 20
states. We were founded in 1894 as the Mattoon Telephone Company. After several acquisitions, the Mattoon Telephone
Company was incorporated as the Illinois Consolidated Telephone Company in 1924. We were incorporated under the
laws of Delaware in 2002, and through our predecessors, we have been providing communication services in many of the
communities we serve for more than 125 years.
In addition to our focus on organic growth in our commercial and carrier channels, we have achieved business growth and
diversification of revenue and cash flow streams that have created a strong platform for future growth through our
acquisitions over the last 15 years. Through this strategic expansion, we have positioned our business to provide
competitive services in rural, suburban and metropolitan markets spanning the country. Marking a pivotal moment for
Consolidated, in 2020, we entered into a strategic investment with an affiliate of Searchlight Capital Partners L.P.
(“Searchlight”). We also completed a global debt refinancing concurrently with the strategic investment, which in
combination provides us with greater flexibility to support our fiber expansion and growth plans. The strategic investment
offered an immediate capital infusion, delivering significant benefits to the customers and communities we serve, and
creating a stronger and more resilient company that is well-positioned to further expand and grow broadband services to
meet ever-evolving customer needs.
We are closely monitoring the impact on our business of the coronavirus (“COVID-19”) pandemic. For a discussion of
the risks related to COVID-19, refer to Part I - Item 1A – “Risk Factors” and for a discussion of the impacts of COVID-
19 on our business, refer to Part II - Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and Note 1 to the consolidated financial statements included in this report in Part II – Item 8 – “Financial
Statements and Supplementary Data”.
Description of Our Business
Consolidated is a broadband and business communications provider offering a wide range of communication solutions to
consumer, commercial and carrier customers by leveraging our advanced fiber network, which spans approximately 52,400
fiber route miles across many rural areas and metro communities. We offer residential high-speed Internet, video, phone
and home security services as well as multi-service residential and small business bundles. Our business product suite
1
includes: data and Internet solutions, voice, data center services, security services, managed and IT services, and an
expanded suite of cloud services. We provide wholesale solutions to wireless and wireline carriers and other service
providers including data, voice, network connections and custom fiber builds and last mile connections. Consolidated is
dedicated to turning technology into solutions, connecting people and enriching how our customers work and live.
We generate the majority of our consolidated operating revenues primarily from monthly subscriptions to our broadband,
data and transport services (collectively “broadband services”) marketed to residential and business customers. As
consumer demands for bandwidth continue to increase, our focus is on expanding our fiber broadband services and
upgrading data speeds in order to offer a highly competitive fiber product. Our investment in more competitive broadband
speeds is critical to our long-term success. With the initial investment from Searchlight and the concurrent debt refinancing
in 2020, we are able to immediately begin the investment in our network to upgrade over five years approximately 1.6
million residential and small business premises to fiber-to-the-home/premise (“FTTP”) enabling multi-Gig symmetrical
speeds. The fiber network investments will be made across seven states, including more than 1 million passings within our
northern New England service areas. In 2021, we upgraded approximately 330,000 homes and small businesses and
launched Fidium Fiber, our new consumer product. We plan to upgrade an additional 400,000 in 2022 and further expand
Fidium Fiber in additional regions. By leveraging our existing dense core fiber network and an accelerated build plan, we
will be able to significantly increase broadband speeds, expand our multi-Gig coverage and strategically extend our
network across our strong existing commercial and carrier footprint to attract more on-net and near-net opportunities. As
we invest in network upgrades, we believe we will see stable-to-improved trends in revenue growth and increased
broadband penetration. We believe these fiber investments will help us future-proof our network and facilitate the
continued transformation of Consolidated into a leading super-regional fiber communications service provider.
Searchlight is a strategic partner in our execution of this investment and brings a differentiated perspective to our
broadband-first strategy. They are an experienced broadband and fiber infrastructure investor and they bring significant
experience investing in FTTP and broadband expansion. Through our partnership with Searchlight, we will pursue targeted
investments in our business and future growth opportunities as we transform our company into a leading broadband and
solutions provider and create long-term value for our investors, customers and employees.
A discussion of factors potentially affecting our operations is set forth in Part I – Item 1A – “Risk Factors”, which is
incorporated herein by reference.
Recent Business Developments
On December 7, 2021, we closed on the second stage of the investment agreement (the “Investment Agreement”) entered
into in September 2020 with Searchlight, a global private equity firm. In connection with the Investment Agreement,
affiliates of Searchlight have invested an aggregate of $425.0 million in the Company in exchange for a combination of
the Company’s Series A perpetual preferred stock and approximately 35% of the Company’s outstanding common stock.
The investment commitment was structured in two stages, with the initial investment of $350.0 million occurring in
October 2020 in conjunction with the Company’s global refinancing. In the second stage, upon receipt of Federal
Communications Commission (“FCC”) and Hart Scott Rodino approvals and the satisfaction of certain other customary
closing conditions, Searchlight invested an additional $75.0 million on December 7, 2021. We believe that our strategic
investment with Searchlight will enable us to accelerate our growth plan, expand our fiber infrastructure and invest in
high-growth and competitive areas of our business. See Note 4 to the consolidated financial statements included in this
report in Part II – Item 8 – “Financial Statements and Supplementary Data” for a more detailed discussion of this
transaction.
2
Sources of Revenue
The following tables summarize our sources of revenue and key operating statistics for the last three fiscal years:
(In millions, except for percentages)
Commercial and carrier:
Data and transport services (includes VoIP)
Voice services
Other
$
Consumer:
Broadband (Data and VoIP)
Video services
Voice services
Subsidies
Network access
Other products and services
Total operating revenues
Key Operating Statistics
2021
2020
2019
% of
Revenues
$
% of
Revenues
% of
Revenues
$
$
362.3
171.8
41.6
575.7
269.3
65.1
160.7
495.1
28.3 % $
13.4
3.2
44.9
362.1
181.7
45.1
588.9
27.8 % $
13.9
3.5
45.2
355.3
188.3
52.9
596.5
21.0
5.1
12.5
38.6
263.1
74.3
170.5
507.9
20.1
5.7
13.1
38.9
257.1
81.4
180.8
519.3
26.6 %
14.1
4.0
44.6
19.2
6.1
13.5
38.9
69.8
120.5
21.1
$ 1,282.2
5.4
9.4
1.6
72.0
125.3
9.9
100.0 % $ 1,304.0
5.5
9.6
0.8
72.4
138.1
10.2
100.0 % $ 1,336.5
5.4
10.3
0.8
100.0 %
Consumer customers
Consumer data connections
Consumer voice connections
Video connections
2021
516,949
384,564
328,849
63,447
As of December 31,
2020
554,763
401,357
370,660
76,041
2019
582,818
417,410
404,943
84,171
The telecommunications industry continues to incur increased competition as a result of technology changes, new and
emerging providers, and legislative and regulatory developments. Our focus is on expanding our fiber broadband services
and upgrading data speeds in order to offer a highly competitive fiber product. We expect our broadband services revenue
to continue to grow as we make increased investments in our fiber infrastructure and the consumer demands for data-based
services and faster speeds increase. In addition, we continue to focus on commercial growth opportunities and are
continually expanding our commercial product offerings for small, medium and large businesses to capitalize on industry
technological advances. The expected growth in fiber broadband services will mitigate, in part, the anticipated reduction
in the subsidies we receive and declines in traditional voice services impacted by the ongoing industry-wide reduction in
access lines.
Commercial and Carrier
Data and Transport Services
We provide a variety of business communication solutions to commercial customers of all sizes, including voice and data
services over our advanced fiber network. The services we offer include scalable high-speed broadband Internet access
and Voice over Internet Protocol (“VoIP”) phone services, which range from basic service plans to virtual hosted systems.
Our hosted VoIP package utilizes soft switching technology and enables our customers to have the flexibility of employing
new telephone advances and features without investing in a new telephone system. The package bundles local service,
calling features, Internet protocol (“IP”) business telephones and unified messaging, which integrates multiple messaging
technologies into a single system and allows the customer to receive and listen to voice messages through email.
In addition to Internet and VoIP services, we also offer a variety of commercial data connectivity services in select markets
including Ethernet services; private line data services; software defined wide area network (“SD-WAN”), a software-based
network technology that provides a simplified management and automation of wide area network (“WAN”) connections;
multi-protocol label switching (“MPLS”). Our networking services include point-to-point and multi-point deployments
from 2.5 Mbps to 10 Gbps to accommodate the growth patterns of our business customers. We offer a suite of cloud-
3
based services, which includes a hosted unified communications solution that replaces the customer’s on-site phone
systems and data networks, managed network security services and data protection services.
Data center and disaster recovery solutions provide a reliable and local colocation option for commercial customers. We
also offer wholesale services to regional and national interexchange and wireless carriers, including cellular backhaul and
other fiber transport solutions with speeds up to 100 Gbps. The demand for backhaul services continue to grow as wireless
carriers are faced with escalating consumer and commercial demands for wireless data.
Voice Services
Voice services include basic local phone and long-distance service packages for business customers. The plans include
options for voicemail, conference calling, linking multiple office locations and other custom calling features such as caller
ID, call forwarding, speed dialing and call waiting. Services can be charged at a fixed monthly rate, a measured rate or
can be bundled with selected services at a discounted rate.
Other
Other services include business equipment sales and related hardware and maintenance support, video services and other
miscellaneous revenues, including 911 service revenues. We are a full service 911 provider and have installed and
maintained two turn-key, state of the art statewide next-generation emergency 911 systems. These systems, located in
Maine and Vermont, have processed several million calls relying on the caller's location information for routing. As of
October 29, 2020, we were no longer the 911 service provider in Vermont. Next-generation emergency 911 systems are
an improvement over traditional 911 and are expected to provide the foundation to handle future communication modes
such as texting and video.
Consumer
Broadband Services
Broadband services include revenues from residential customers for subscriptions to our VoIP and data products. We offer
high-speed Internet access at speeds of up to 1 Gbps, depending on the network facilities that are available, the level of
service selected and the location. Our data service plans also include wireless internet access, email and internet security
and protection. Our VoIP digital phone service is also available in certain markets as an alternative to the traditional
telephone line. We offer multiple voice service plans with customizable calling features and voicemail including voicemail
to email options. CCiTV, which is a customizable, cloud-enabled video service available in certain markets, supports a
wide variety of viewing habits and provides an app-based approach to video services. The content can be delivered in
high-definition quality to a big-screen TV, as well as to tablets and mobile devices.
Video Services
Depending on geographic market availability, our video services range from limited basic service to advanced digital
television, which includes several plans, each with hundreds of local, national and music channels including premium and
Pay-Per-View channels as well as video on-demand service. Certain customers may also subscribe to our advanced video
services, which consist of high-definition television, digital video recorders (“DVR”) and/or a whole home DVR. Our
Whole Home DVR allows customers the ability to watch recorded shows on any television in the home, record multiple
shows simultaneously and utilize an intuitive on-screen guide and user interface. Our TV Everywhere service available
in certain markets, allows our video subscribers to watch their favorite shows, movies and livestreams on any device. In
addition, we offer several on-demand streaming TV services, which provide endless entertainment options.
Voice Services
We offer several different basic local phone service packages and long-distance calling plans, including unlimited flat-rate
calling plans. The plans include options for voicemail and other custom calling features such as caller ID, call forwarding
and call waiting. The number of local access lines in service directly affects the recurring revenue we generate from end
users and continues to be impacted by the industry-wide decline in access lines. We expect to continue to experience
erosion in voice connections due to competition from alternative technologies, including our own competing VoIP product.
4
Subsidies
Subsidies consist of both federal and state subsidies, which are designed to promote widely available, quality broadband
services at affordable prices with higher data speeds in rural areas. Subsidies are funded by end user surcharges to which
telecommunications providers, including local, long-distance and wireless carriers, contribute on a monthly basis.
Subsidies are allocated and distributed to participating carriers monthly based upon their respective costs for providing
local service. Similar to access charges, subsidies are regulated by the federal and state regulatory commissions. See
Part I – Item 1 – “Regulatory Environment” below and Item 1A – “Risk Factors – Risks Related to the Regulation of Our
Business” for further discussion regarding the subsidies we receive.
Network Access Services
Network access services include interstate and intrastate switched access, network special access and end user
access. Switched access revenues include access services to other communications carriers to terminate or originate long-
distance calls on our network. Special access circuits provide dedicated lines and trunks to business customers and
interexchange carriers. Certain of our network access revenues are based on rates set or approved by the federal and state
regulatory commissions or as directed by law that are subject to change at any time.
Other Products and Services
Other products and services include revenues from telephone directory publishing, video advertising, billing and support
services and other miscellaneous revenues such as revenue from our Public Private Partnership arrangements. We have
entered into numerous Public Private Partnership agreements with several towns in New Hampshire to build new FTTP
Internet networks. The new town networks provide broadband speeds of up to 1 Gbps to residential and commercial
customers. Public Private Partnerships are a key component of Consolidated’s commitment to expand rural broadband
access.
No one customer accounted for more than 10% of our consolidated operating revenues during the years ended December
31, 2021, 2020 and 2019.
Wireless Partnerships
In addition to our core business, we also derive a portion of our cash flow and earnings from investments in five wireless
partnerships. Wireless partnership investment income is included as a component of other income in the consolidated
statements of operations. Our wireless partnership investment consists of five cellular partnerships: GTE Mobilnet of
South Texas Limited Partnership (“Mobilnet South Partnership”), GTE Mobilnet of Texas RSA #17 Limited Partnership
(“RSA #17”), Pittsburgh SMSA Limited Partnership (“Pittsburgh SMSA”), Pennsylvania RSA No. 6(I) Limited
Partnership (“RSA 6(I)”) and Pennsylvania RSA No. 6(II) Limited Partnership (“RSA 6(II)”).
Cellco Partnership (“Cellco”) is the general partner for each of the five cellular partnerships. Cellco is an indirect, wholly-
owned subsidiary of Verizon Communications Inc. As the general partner, Cellco is responsible for managing the
operations of each partnership.
We own 2.34% of the Mobilnet South Partnership. The principal activity of the Mobilnet South Partnership is providing
cellular service in the Houston, Galveston and Beaumont, Texas metropolitan areas. We account for this investment at
our initial cost less any impairment because fair value is not readily available for this investment. Income is recognized
only upon cash distributions of our proportionate earnings in the partnership.
We own 20.51% of RSA #17, which serves areas in and around Conroe, Texas. This investment is accounted for under
the equity method. Income is recognized on our proportionate share of earnings and cash distributions are recorded as a
reduction in our investment.
We own 3.60% of Pittsburgh SMSA, 16.67% of RSA 6(I) and 23.67% of RSA 6(II). These partnerships cover territories
that almost entirely overlap the markets served by our Pennsylvania Incumbent Local Exchange Carrier (“ILEC”) and
Competitive Local Exchange Carrier operations. Because of our limited influence over Pittsburgh SMSA, we account for
this investment at our initial cost less any impairment because fair value is not readily available for this investment. RSA
6(I) and RSA 6(II) are accounted for under the equity method.
5
For the years ended December 31, 2021, 2020 and 2019, we recognized income of $41.8 million, $40.7 million and $37.7
million, respectively, and received cash distributions of $43.0 million, $41.5 million and $35.8 million, respectively, from
these wireless partnerships.
Network Architecture and Technology
We have made significant investments in our technologically advanced telecommunications networks and continue to
enhance and expand our network by deploying technologies to provide additional capacity to our customers. As a result,
we are able to deliver high-quality, reliable data, video and voice services in the markets we serve. Our wide-ranging
network and extensive use of fiber provide an easy reach into existing and new areas. By bringing the fiber network closer
to the customer premise, we can increase our service offerings, quality and bandwidth services. Our existing network
enables us to efficiently respond and adapt to changes in technology and is capable of supporting the rising customer
demand for bandwidth in order to support the growing amount of wireless data devices in our customers’ homes and
businesses.
Our networks are supported by advanced 100% digital switches, with a core fiber network connecting all remote
exchanges. We continue to enhance our copper network to increase bandwidth in order to provide additional products and
services to our marketable homes. In addition to our copper plant enhancements, we have deployed fiber-optic cable
extensively throughout our network, resulting in a 100% fiber backbone network that supports all of the inter-office and
host-remote links, as well as the majority of business parks within our service areas. In addition, this fiber infrastructure
provides the connectivity required to provide broadband and long-distance services to our residential and commercial
customers. Our fiber network utilizes FTTP and fiber-to-the-node (“FTTN”) networks to offer bundled residential and
commercial services.
We operate advanced fiber networks which we own or have entered into long-term leases for fiber network access. At
December 31, 2021, our fiber-optic network consisted of over 52,400 route-miles, which includes approximately 11,910
miles of FTTP deployments, approximately 21,350 route miles of fiber located in the northern New England area,
approximately 3,910 miles of fiber network in Minnesota and surrounding areas, approximately 4,650 miles of fiber
network in Texas including an expansion into the greater Dallas/Fort Worth market, approximately 1,740 route-miles of
fiber-optic facilities in the Pittsburgh metropolitan area, approximately 2,290 miles of fiber network in Illinois,
approximately 1,150 route-miles of fiber optic facilities in California that cover large parts of the greater Sacramento
metropolitan area and approximately 1,120 route-miles of fiber optic facilities in Kansas City that service the greater
Kansas City area, including both Kansas and Missouri. Our remaining network includes approximately 4,280 route-miles
spanning across various states including portions of Alabama, Colorado, Florida, Georgia, Massachusetts, New York,
Ohio, Pennsylvania and Washington.
As of December 31, 2021, we passed more than 2.7 million homes and have direct fiber connections to 14,981 on-net
commercial building locations. We intend to continue to make strategic enhancements to our network including
improvements in overall network reliability and increases to our broadband speeds. We offer data speeds of up to 1 Gbps
in select markets, and up to 100 Mbps in markets where 1 Gbps is not yet available, depending on the geographical
region. As part of the strategic investment and partnership with Searchlight, we plan to accelerate our fiber build plan and
extend fiber coverage enabling multi-Gig data speeds to over 70% of our passings by 2025. The upgrades will be made
primarily across seven states including more than 1 million passings within the northern New England service areas to
significantly enhance our broadband speeds. Further network investments will enable us to continue to meet consumer
demand for faster broadband speeds, symmetrical broadband and more bandwidth consumption as well as more effectively
serve our commercial customers.
Through our extensive fiber network, we also expect to be able to support the increased demand on wireless carriers for
high-capacity transport services. In all the markets we serve, we have launched initiatives to support fiber backhaul
services to cell sites. As of December 31, 2021, we had 3,628 cell sites in service and an additional 153 future sites
pending completion.
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Sales and Marketing
The key components of our overall marketing strategy include:
• Organizing our sales and marketing activities around our three customer channels: consumer, commercial and carrier
customers;
• Positioning ourselves as a single point of contact for our customers’ communications needs;
• Providing customers with a broad array of data, voice and communication solutions;
•
Identifying and broadening our commercial customer needs by developing solutions and providing integrated service
offerings;
• Offering digital self-service tools and apps including an enhanced website, automated consumer online orders,
appointment reminders, robust Wifi apps, user guides and troubleshooting tools and videos;
• Providing excellent customer service, including 24/7 centralized customer support to coordinate installation of new
services, repair and maintenance functions and creating more self-service tools through our online customer portal;
• Developing and delivering new services to meet evolving customer needs and market demands; and
• Leveraging our local presence and strong reputation across our market areas.
We currently offer our services through customer service call centers, our website, commissioned sales representatives
and third-party sales agents. Our customer service call centers and dedicated sales teams serve as the primary sales
channels for consumer, commercial and carrier services. Our sales efforts are supported by digital media, direct mail, bill
inserts, radio, television and internet advertising, public relations activities, community events and customer promotions.
We sell our Gigabit consumer fiber broadband service using the brand known as Fidium Fiber, which was launched in
November 2021 in select markets.
In addition to our customer service call centers, customers can contact us through our website, online chat and social media
channels. Our online customer portal enables customers to pay their bills, manage their accounts, order new services and
utilize self-service help and support. Our priority is to continue enhancing our comprehensive customer care system in
order to produce a high level of customer satisfaction and loyalty, which is important to our ability to reduce churn and
generate recurring revenues.
Business Strategies
Transform our Company into a dominant fiber, gigabit broadband provider
In 2020, in connection with the Searchlight investment, we announced plans to upgrade and expand our fiber network
through a five-year build plan with construction beginning in early 2021. The build plan will include the upgrade of
approximately 1.6 million passings to fiber enabling multi Gigabit-capable services to over 70% of our passings by 2025.
In 2021, we built fiber to approximately 330,000 homes and small businesses enabling faster broadband speeds and in
2022, we plan to upgrade an additional 400,000 locations. This marks the biggest fiber deployment project in our
Company’s history. Our strategy, supported by the Searchlight investment, is to meaningfully upgrade our residential and
small business network in those service territories with a predominantly copper-based infrastructure to a FTTP network.
Of the planned upgrades, we expect that more than 1 million passings will be upgraded within the northern New England
service areas. We believe that the upgraded network will be capable of providing up to 10 Gbps of symmetrical broadband,
which we believe will make us the only broadband provider in these markets capable of delivering 10 Gbps symmetrical
broadband to consumers. In addition to best-in-class upload and download speeds, we believe the resulting network will
offer better reliability, improved speed consistency, and a lower operating cost relative to competing broadband network
technologies. Given these benefits, we believe that our fiber deployment strategy will allow us to realize meaningful
improvements in average revenue per user (“ARPU”), broadband subscriber penetration and customer retention.
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Continue to grow and invest in commercial and carrier services
Our commercial and carrier strategy is built on leveraging our dense fiber network in key markets to offer IP-based
products and services to our small and medium-sized business (“SMB”), enterprise and carrier customers. We will continue
transitioning our customer base away from legacy TDM-based products to fiber and IP-based data and transport services,
where we see significant opportunity to increase market share in our footprint. We will also make strategic network
investments in both existing markets and edge-out locations to enhance our footprint and increase on-net and near-net
opportunities. These builds will be focused on projects with high revenue visibility and attractive payback periods. Our
carrier strategy entails leveraging our dense fiber network and long-term relationships in key markets to expand our carrier
partnerships and grow small cell and fiber-to-the-tower connections. Investing not just in the network, but in these
customer relationships, has been core to our success. Our growth strategy is also supported by the continuous evolution of
our product offerings. We are regularly developing and enhancing our suite of managed and cloud services, increasing
efficiency and enabling greater scalability and reliability for our business customers. We believe that by developing and
investing in next-generation fiber-based products, we will be able to further support our customer needs for networking,
communications, and collaboration services.
Improve the overall customer experience
We continue to evaluate our operations in order to improve and enhance the overall customer experience for all customers.
In conjunction with the five-year fiber build plan, we also expect to make significant investments in our back-office
infrastructure. We expect our full transformation to occur over a multi-year period. Our planned enhancements include an
improved customer portal where customers can manage all aspects of their service. We plan to launch expanded e-
commerce, omnichannel customer service and self-service capabilities for all customer groups. We believe that our digital
transformation projects will improve our order and install processes making the transition to our services more seamless
than ever. Our sales process is also being redesigned in order to provide personalized sales channels and a dedicated care
team for our fiber customers. We have a culture of delivering the highest quality customer service experience possible and
plan to continue to make investments in our platforms in order to create a truly differentiated customer experience.
Competition
The telecommunications industry is subject to extensive competition, which has increased significantly in recent years.
Technological advances have expanded the types and uses of services and products available. In addition, differences in
the regulatory environment applicable to comparable alternative services have lowered costs for these competitors. As a
result, we face heightened competition but also have new opportunities to grow our broadband business. Our competitors
vary by market and may include other incumbent and competitive local telephone companies; cable operators offering
video, data and VoIP products; wireless carriers; long distance providers; satellite companies; Internet service providers,
fixed wireless Internet service providers (“WISPs”), online video providers and in some cases new forms of providers who
are able to offer a broad range of competitive services. We expect competition to remain a significant factor affecting our
operating results and that the nature and extent of that competition will continue to increase in the future. See Part I - Item
1A – “Risk Factors – Risks Relating to Our Business”.
Depending on the market area, we compete against Comcast, Charter, AT&T, Mediacom, Armstrong, Suddenlink, First
Light, NewWave Communications and a number of other carriers, in both the commercial and consumer markets. Our
competitors offer traditional telecommunications services as well as IP-based services and other emerging data-based
services. Our competitors continue to add features and adopt aggressive pricing and packaging for services comparable to
the services we offer.
We continue to face competition from cable, wireless and other fiber data providers as the demand for substitute
communication services, such as wireless phones and data devices, continues to increase. Customers are increasingly
foregoing traditional telephone services and land-based Internet service and relying exclusively on wireless service.
Wireless companies are aggressively developing networks using next-generation data technologies, including 4G and 5G,
in order to provide increasingly faster data speeds to their customers. Broadband-deployment funding initiatives from
federal and state agencies, including federal infrastructure legislation enacted in 2021, may also result in other service
providers deploying new subsidized fiber networks within our service territories. In addition, the expanded availability for
free or lower cost services, such as video over the Internet, complimentary Wi-Fi service and other streaming devices has
increased competition among other providers. In order to offer competitive services, we continue to invest in our network
and business operations in order to offer new and enhanced services including faster broadband speeds and cloud-enabled
services.
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In our rural markets, services are more costly to provide than services in urban areas as a lower customer density
necessitates higher capital expenditures on a per-customer basis. As a result, it may not be economically viable for new
entrants to overlap existing networks in rural territories; however, federal and state funding initiatives may enable new
entrants to deploy new subsidized networks in our rural markets. Despite the barriers to entry, rural telephone companies
still face significant competition from wireless and video providers and, to a lesser extent, competitive telephone
companies.
Our other lines of business are subject to substantial competition from local, regional and national competitors. In
particular, our wholesale and transport business serves other interexchange carriers and we compete with a variety of
service providers including incumbent and competitive local telephone companies and other fiber data companies. These
services are subject to additional competitive pressures from the development of new technologies, which may result in
price compression as customers migrate from legacy data products to lower priced alternatives. For our business systems
products, we compete with other equipment providers or value added resellers, network providers, incumbent and
competitive local telephone companies, and with cloud and data hosting service providers.
We expect that competition across all of our customer channels will continue to intensify as new technologies develop and
new competition emerges.
Human Capital Resources
As of December 31, 2021, we employed approximately 3,200 employees, including part-time employees. We also use
temporary employees in the normal course of our business. Approximately 48% of our employees were covered by
collective bargaining agreements as of December 31, 2021. For a more detailed discussion regarding how the collective
bargaining agreements could affect our business, see Part I - Item 1A – Risk Factors – “Risks Relating to Our Business”.
Compensation and Benefits
Our employees are the cornerstone of our success. We are committed to providing meaningful, challenging work and
opportunities for professional growth in a positive environment. To attract and retain qualified and experienced employees,
we offer competitive compensation and benefit packages, which we believe are competitive within the industry and the
local markets in which we operate. Our benefit packages may include, among other items, incentive compensation based
on the achievement of financial targets, healthcare and insurance benefits, health savings and flexible spending accounts,
a 401(k) savings plan with an employer match, paid time off, and wellness and employee assistance programs.
Additionally, for certain eligible directors and employees, we provide long-term incentive compensation, in the form of
restricted stock awards. In addition, we are committed to providing employees continuing education and training programs
in order for employees to achieve career goals and professional growth.
Diversity and Inclusion
We embrace diversity and inclusion and seek to hire and retain high-quality employees of all backgrounds and experiences.
Honoring our employees as individuals is key to our culture. We believe diversity of backgrounds contributes to different
ideas, which in turn drives better results for customers. We respect differences and diversity as qualities that enhance our
efforts as a team and believe embracing diversity and a culture of inclusion makes our company a better place to work.
We believe in and support the principles incorporated in all anti-discrimination and equal employment laws. In 2021, we
offered leadership Diversity, Equity and Inclusion (“DEI”) training to senior leaders across the Company and formed a
new DEI Council which is meeting regularly in 2022 and outlining the roadmap and goals for our Company’s DEI journey.
Safety, Health and Security
We also strive to create and provide a safe, healthful and secure workplace that is free from discrimination or harassment.
Our workplace policies and procedures protect against behavior that creates an offensive, hostile, or intimidating work
environment. Safety is top priority and we have a strong, ongoing commitment to ensure employees are properly trained
and have appropriate safety and emergency equipment. In 2020, in response to the COVID-19 pandemic, we implemented
safety protocols and procedures to protect our employees, customers and business partners. These procedures included
transitioning as many employees as possible to remote work-from-home arrangements, providing additional safety training
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and personal protective equipment for customer and business partner-facing employees, and complying with social
distancing and other health and safety measures as required by federal, state and local governmental agencies.
Regulatory Environment
The following summary does not describe all existing and proposed legislation and regulations affecting the
telecommunications industry. Regulation can change rapidly and ongoing proceedings and hearings could alter the
manner in which the telecommunications industry operates. We cannot predict the outcome of any of these developments,
nor their potential impact on us. See Part I – Item 1A – “Risk Factors—Risks Related to the Regulation of Our Business”.
Overview
Our revenues, which include revenues from such telecommunications services as local telephone service, network access
service and toll service are subject to broad federal and/or state regulations. The telecommunications industry is subject
to extensive federal, state and local regulation. Under the Telecommunications Act of 1996 (the “Telecommunications
Act”), federal and state regulators share responsibility for implementing and enforcing statutes and regulations designed
to encourage competition and to preserve and advance widely available, quality telephone service at affordable prices.
At the federal level, the FCC generally exercises jurisdiction over facilities and services of local exchange carriers, such
as our rural telephone companies, to the extent they are used to provide, originate or terminate interstate or international
communications. The FCC has the authority to condition, modify, cancel, terminate or revoke our operating authority for
failure to comply with applicable federal laws or FCC rules, regulations and policies. Fines or penalties also may be
imposed for any of these violations.
State regulatory commissions generally exercise jurisdiction over carriers’ facilities and services to the extent they are
used to provide, originate or terminate intrastate communications. In particular, state regulatory agencies have substantial
oversight over interconnection and network access by competitors of our rural telephone companies. In addition,
municipalities and other local government agencies regulate the public rights-of-way necessary to install and operate
networks. State regulators can sanction our rural telephone companies or revoke our certifications if we violate relevant
laws or regulations.
Federal Regulation
Our incumbent local exchange companies and competitive local exchange companies must comply with the
Communications Act of 1934, which requires, among other things, that telecommunications carriers offer services at just
and reasonable rates and on non-discriminatory terms and conditions. The 1996 amendments to the Communications Act
(contained in the Telecommunications Act discussed below) dramatically changed, and likely will continue to change, the
landscape of the industry.
Access Charges
On November 18, 2011, the FCC released its comprehensive order on inter-carrier compensation (“ICC”) and universal
service reform. Intrastate network access charges are regulated by state commissions. The FCC order on ICC and
universal service reform required terminating state access charges to mirror terminating interstate access charges, and as
of July 1, 2013, all terminating switched intrastate access charges mirror interstate access charges.
The FCC has structured these prices as a combination of flat monthly charges paid by customers and both usage-sensitive
(per-minute) charges and flat monthly charges paid by long-distance or other carriers.
The FCC regulates interstate network access charges by imposing price caps on Regional Bell Operating Companies
(“RBOCs”) and other large incumbent telephone companies. Some of our properties operate as RBOCs under price cap
regulation while some operate under rate of return regulation for interstate purposes. These price caps can be adjusted
based on various formulas, such as inflation and productivity, and otherwise through regulatory proceedings. Incumbent
telephone companies, such as our incumbent local exchange companies, may elect to base network access charges on price
caps, but are not required to do so.
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We believe that price cap regulation gives us greater pricing flexibility for interstate services, especially in the increasingly
competitive special access market. It also provides us with the potential to increase our net earnings by becoming more
productive and introducing new services. As we have acquired new properties, we have converted them to federal price
cap regulation.
In recent years, carriers have become more aggressive in disputing the FCC’s interstate access charge rates and the
application of access charges to their telecommunications traffic. We believe these disputes have increased, in part, because
advances in technology have made it more difficult to determine the identity and jurisdiction of traffic, giving carriers an
increased opportunity to challenge access costs for their traffic. We cannot predict what other actions other long-distance
carriers may take before the FCC or with their local exchange carriers, including our incumbent local exchange companies,
to challenge the applicability of access charges. Due to the increasing deployment of VoIP services and other technological
changes, we believe these types of disputes and claims are likely to continue to increase.
Unbundled Network Element Rules
In 2019, the FCC issued two orders on Unbundled Network Element (“UNE”) forbearance. The first order addressed
wholesale discounts on resold services and Voice Grade analog UNE loops and the second order (“Transport Order”),
addressed UNE transport between competitive wire centers. Both orders provide a three-year transition period.
The Transport Order addresses two separate but related topics. One is the relief from transport UNEs and the other is to
respond to a remand on its Business Data Services (“BDS”) order. BDS was previously known as Special Access and like
services. The FCC broadly deregulated BDS services in 2017. This decision was appealed and the Court upheld the order
but vacated the BDS transport relief because the Court decided that the FCC had not provided sufficient notice intended
to deregulate all BDS transport services. The Court was convinced not to act on the vacated rules since the ILECs could
not easily restore the regulated services. The FCC addressed this issue in the same order used to provide forbearance relief
on UNE transport.
In 2020, Consolidated renegotiated its Wholesale Performance Plans (“WPP”) in Maine, New Hampshire and Vermont to
comply with the FCC’s UNE forbearance order issued in 2019.
Promotion of Universal Service
In general, telecommunications service in rural areas is costlier to provide than service in urban areas. The lower customer
density means that switching and other facilities serve fewer customers and loops are typically longer, requiring greater
expenditures per customer to build and maintain. By supporting the high cost of operations in rural markets, Universal
Service Fund (“USF”) subsidies promote widely available, quality telephone service at affordable prices in rural
areas. Revenues from federal and certain states’ USFs totaled $69.7 million, $72.0 million and $72.4 million in 2021,
2020 and 2019, respectively.
FCC Access Charge and Universal Service Reform Order
In November 2011, the FCC released a comprehensive order on access charge and universal service reform (the “Order”).
The access charge portion of the Order systematically reduces minute-of-use-based interstate access, intrastate access and
reciprocal compensation rates over a six to nine-year period to an end state of bill-and-keep, in which each carrier recovers
the costs of its network through charges to its own subscribers, rather than through ICC. The reductions apply to
terminating access rates and usage, with originating access to be addressed by the FCC in a later proceeding. To help with
the transition to bill-and-keep, the FCC created two mechanisms. The first is an Access Recovery Mechanism (“ARM”)
which is funded from the Connect America Fund (“CAF”), and the second is an Access Recovery Charge (“ARC”) which
is recovered from end users. The universal service portion of the Order redirects support from voice services to broadband
services, and is now called the CAF.
The Order requires rate of return study areas associated with holding companies to be treated as price cap carriers for
universal service funding. For ICC purposes, these rate of return carriers fall under the rate of return ICC transition plan.
Price cap study areas fall under the price cap rules for both universal service reform and ICC reform.
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In December 2014, the FCC released a report and order that addressed, among other things, the transition to CAF Phase
II funding for price cap carriers and the acceptance criteria for CAF Phase II funding. Companies are required to commit
to a statewide build out requirement of 10 Mbps downstream and 1 Mbps upstream in funded locations.
Our annual support through the FCC’s CAF Phase II funding was $48.1 million through 2021 as described below. The
specific obligations associated with CAF Phase II funding included the obligation to serve approximately 124,500
locations by December 31, 2020 (with interim milestones of 40%, 60% and 80% completion by December 2017, 2018 and
2019, respectively); to provide broadband service with speeds of 10 Mbps downstream and 1 Mbps upstream; to achieve
latency of less than 100 milliseconds; to provide data of at least 100 gigabytes per month; and to offer pricing reasonably
comparable to pricing in urban areas. The Company met the buildout milestones and performance metrics requirements
for 2017 through 2020 for all states where it received funding.
We accepted CAF Phase II support in all of our operating states except Colorado and Kansas where we declined the offered
CAF Phase II support. We continued to receive annual frozen CAF Phase I support of $1.0 million in Colorado and Kansas
until April 2019, when the FCC CAF Phase II auction assigned support to another provider.
In April 2019, the FCC announced plans for the Rural Digital Opportunity Fund (“RDOF”), the next phase of the CAF
program. The RDOF is a $20.4 billion fund to bring speeds of 25 Mbps downstream and 3 Mbps upstream to unserved
and underserved areas of America. The FCC issued a Notice of Proposed Rulemaking at their August 2019 Open
Commission Meeting. The order prioritizes terrestrial broadband as a bridge to rural 5G networks by providing a
significant weight advantage to traditional broadband providers. Funding will occur in two phases with the first phase
auctioning $16.0 billion and the second phase auctioning $4.4 billion, each to be distributed over 10 years. The minimum
speed required to receive funding is 25 Mbps downstream and 3 Mbps upstream. CAF Phase II funding was extended
through December 31, 2021 for price cap holding companies. The FCC issued the final census block groups with locations
and reserve price. We filed the RDOF short form application on July 14, 2020 and were listed as a qualified bidder by the
FCC on October 13, 2020 and participated in the auction. The auction began on October 29, 2020 and ended on November
24, 2020. Consolidated won 246 census block groups serving in seven states. The bids we won are at the 1 Gbps
downstream and 500 Mbps upstream speed tier to approximately 27,000 locations at a funding level of $5.9 million, which
will result in a reduction of approximately $42.2 million in annual support beginning January 1, 2022 through December
31, 2031. Consolidated filed its long form application with supporting documents on January 29, 2021 and received final
FCC approval on December 14, 2021.
State Regulation
We are subject to regulation by state governments in various states in which we operate. State regulatory commissions
generally exercise jurisdiction over intrastate matters and other requirements. In recent years, most states have reduced
their regulation of ILECs, including our ILEC operations. Nonetheless, state regulatory commissions generally continue
to (i) set the rates that telecommunication companies charge each other for exchanging traffic, (ii) administer support
programs designed to subsidize the provision of services to high-cost rural areas, (iii) regulate the purchase and sale of
ILECs, (iv) require ILECs to provide service under publicly-filed tariffs setting forth the terms, conditions and prices of
regulated services, (v) limit ILECs' ability to borrow and pledge their assets, (vi) regulate transactions between ILECs and
their affiliates and (vii) impose various other service standards. In most states, switched and BDS and interconnection
services are subject to price regulation, although the extent of regulation varies by type of service and geographic region.
We operate in states where traditional cost recovery mechanisms, including state USF, are under evaluation or have been
modified. As the states continue to assess their laws and implement various regulations changes, there can be no assurance
that these mechanisms will continue to provide us with the same level of cost recovery we historically received.
Local Government Authorizations
In the various states we operate in, we operate under a structure in which each municipality or other regulatory agencies
may impose various fees, such as for the privilege of originating and terminating messages and placing facilities within
the municipality, for obtaining permits for street opening and construction, and/or for operating franchises to install and
expand fiber optic facilities.
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Regulation of Broadband and Internet Services
Video Services
Our cable television subsidiaries each require a state or local franchise or other authorization in order to provide cable
service to customers. Each of these subsidiaries is subject to regulation under a framework that exists in Title VI of the
Communications Act.
Under this framework, the responsibilities and obligations of franchising bodies and cable operators have been carefully
defined. The law addresses such issues as the use of local streets and rights-of-way; the carriage of public, educational
and governmental channels; the provision of channel space for leased commercial access; the amount and payment of
franchise fees; consumer protection and similar issues. In addition, Federal laws place limits on the common ownership
of cable systems and competing multichannel video distribution systems, and on the common ownership of cable systems
and local telephone systems in the same geographic area. Many provisions of the federal law have been implemented
through FCC regulations. The FCC has expanded its oversight and regulation of the cable television-related matters
recently. In some cases, it has acted to assure that new competitors in the cable television business are able to gain access
to potential customers and can also obtain licenses to carry certain types of video programming.
Internet Services
The provision of Internet access services is not significantly regulated by either the FCC or the state commissions. The
Federal Trade Commission (“FTC”) has authority to regulate Internet Service Providers with respect to privacy and
competitive practices. In 2017, the FCC adopted an order eliminating its previous classification of Internet service as a
telecommunications service regulated under Title II of the Telecommunications Act of 1996. This effectively limits the
FCC’s authority over Internet Service Providers. The FCC retained rules requiring Internet Service Providers to disclose
practices associated with blocking, throttling and paid prioritization of Internet traffic. The FCC order has been challenged
in court and the outcome of the challenge cannot be determined at this time.
The outcome of pending matters before the FCC and the FTC and any potential congressional action cannot be determined
at this time but could lead to increased costs for the Company in connection with our provision of Internet services, and
could affect our ability to compete in the markets we serve.
Coronavirus Aid, Relief, and Economic Security Act Funding
States are reviewing opportunities to use federal Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
funding to assist in the deployment of broadband to unserved and underserved areas within their respective states. In 2020,
New Hampshire allocated $50.0 million of CARES Act funding to fund broadband expansion to unserved and underserved
locations throughout the state. Consolidated was granted up to $3.5 million to build high-speed Internet networks for
homes and businesses in New Hampshire for the towns of Danbury, Springfield and Mason. The state funded 10% upfront
with the remainder received upon completion of projects in December 2020.
American Rescue Plan Act Funding
President Biden signed the American Rescue Plan Act of 2021 (“ARPA”) on March 11, 2021. States have been allocated
federal funds to be utilized for capital infrastructure, including broadband deployment, and are in various stages of
implementation. We are working with the states and municipalities, in which we operate, to participate in this broadband
grant program.
COVID-19
On March 13, 2020, the FCC issued a pledge to Keep America Connected through May 13, 2020, which was later extended
to June 30, 2020. The pledge asked all communications providers to not terminate service to any residential or small
business customers because of their inability to pay their bills due to the disruptions caused by the coronavirus pandemic;
to waive any late fees that any residential or small business customers incur because of their economic circumstances
related to the coronavirus pandemic; and to open their Wi-Fi hotspots to any American who needs them.
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Consolidated signed on to the pledge through June 30, 2020. Several states took the FCC pledge a step further by not
allowing any carrier to disconnect service within their state during the Governors’ declared state of emergency, which
Consolidated also supported. Most state moratoriums on disconnections have expired; however, certain states such as
Washington and New York were extended to July 31, 2021 and December 31, 2021, respectively.
In February 2021, the FCC created the Emergency Broadband Benefit Program (“EBB”), a temporary program to help
low income households stay connected during the COVID-19 pandemic by providing broadband service discounts for
eligible households. Consolidated is a participant in this program. The EBB ended on December 31, 2021. EBB recipients
fully enrolled as of December 31, 2021 automatically continued to receive their current monthly benefit until March 1,
2022 when the Affordable Connectivity Program took its place.
Affordable Connectivity Program
The Affordable Connectivity Program (“ACP”) is a permanent broadband affordability program set up to replace the EBB.
The ACP program helps ensure that households can afford the broadband they need for work, school, healthcare and more.
The benefit provides a discount of up to $30 per month toward internet service for eligible households and up to $75 per
month for households on qualifying Tribal lands. Eligible households can also receive a one-time discount of up to $100
to purchase a laptop, desktop computer, or tablet from participating providers if they contribute more than $10 and less
than $50 toward the purchase price. The ACP is limited to one monthly service discount and one device discount per
household. The program begins funding March 1, 2022. Consolidated will be participating in this program.
Infrastructure Investment and Jobs Act
The Infrastructure Investment and Jobs Act (“Infrastructure Act”) passed on March 31, 2021 included $65.0 billion toward
broadband. The broadband internet portion of the Infrastructure Act is aimed at increasing internet coverage for more
universal access, including for rural, low-income, and tribal communities. 65% of this funding is set aside specifically for
underserved communities. Additionally, this measure is designed to help make internet access more affordable and
increase digital literacy.
The Infrastructure Act set aside $42.5 billion for Broadband Equity, Access and Deployment grants. The National
Telecommunications and Information Administration administers the grant program and is in the process of soliciting
comments before issuing final rules.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to
reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are
available free of charge on our website at www.consolidated.com, as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC. Our website also contains copies of our Corporate Governance Principles,
Code of Business Conduct and Ethics and charter of each committee of our Board of Directors. The information found on
our website is not part of this report or any other report we file with or furnish to the SEC. The public may read and copy
reports, proxy and information statements and other information we file with the SEC at the SEC’s website at www.sec.gov.
Item 1A. Risk Factors.
Our operations and financial results are subject to various risks and uncertainties, including but not limited to those
described below, that could adversely affect our business, financial condition, results of operations, cash flows and the
trading price of our common stock.
Risks Relating to Our Business
We expect to continue to face significant competition in all parts of our business and the level of competition could
intensify among our customer channels. The telecommunications industry is highly competitive. We face actual and
potential competition from many existing and emerging companies, including other incumbent and competitive local
telephone companies, long-distance carriers and resellers, wireless companies, Internet service providers, satellite
companies and cable television companies, and, in some cases, new forms of providers who are able to offer competitive
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services through software applications requiring a comparatively small initial investment. Due to consolidations and
strategic alliances within the industry, we cannot predict the number of competitors we will face at any given time.
The wireless business has expanded significantly and has caused many subscribers with traditional telephone and land-
based Internet access services to give up those services and rely exclusively on wireless service. In addition, consumers’
options for viewing television shows have expanded as content becomes increasingly available through alternative sources.
Some providers, including television and cable television content owners, have initiated Over-The-Top (“OTT”) services
that deliver video content to televisions, computers and other devices over the Internet. OTT services can include episodes
of highly-rated television series in their current broadcast seasons. They can also include original content and broadcast
or sports content similar to those that we carry, but that is distinct and exclusively available through the alternative source.
Consumers can pursue each of these options without foregoing any of the other options. We may not be able to successfully
anticipate and respond to many of the various competitive factors affecting the industry, including regulatory changes that
may affect our competitors and us differently, new technologies, services and applications that may be introduced, changes
in consumer preferences, demographic trends, and discount or bundled pricing strategies by competitors.
The incumbent telephone carriers in the markets we serve enjoy certain business advantages, including size, financial
resources, favorable regulatory position, a more diverse product mix, brand recognition and connection to virtually all of
our customers and potential customers. The largest cable operators also enjoy certain business advantages, including size,
financial resources, ownership of or superior access to desirable programming and other content, a more diverse product
mix, brand recognition and first-in-field advantages with a customer base that generates positive cash flow for its
operations. Our competitors continue to add features, increase data speeds and adopt aggressive pricing and packaging
for services comparable to the services we offer. Their success in selling services that are competitive with ours among
our various customer channels could lead to revenue erosion in our business. We face intense competition in our markets
for long-distance, Internet access, video service and other ancillary services that are important to our business and to our
growth strategy. If we do not compete effectively we could lose customers, revenue and market share.
We must adapt to rapid technological changes. If we are unable to take advantage of technological developments, or
if we adopt and implement them at a slower rate than our competitors, we may experience a decline in the demand for
our services. Our industry operates in a technologically complex environment. New technologies are continually
developed and existing products and services undergo constant improvement. Emerging technologies offer consumers a
variety of choices for their communication and broadband needs. To remain competitive, we will need to adapt to future
changes in technology to enhance our existing offerings and to introduce new or improved offerings that anticipate and
respond to the varied and continually changing demands of our various customer channels. Our business and results of
operations could be adversely affected if we are unable to match the benefits offered by competing technologies on a
timely basis and at an acceptable cost, or if we fail to employ technologies desired by our customers before our competitors
do so.
New technologies, particularly alternative methods for the distribution, access and viewing of content, have been, and will
likely continue to be, developed that will further increase the number of competitors that we face and drive changes in
consumer behavior. Consumers seek more control over when, where and how they consume content and are increasingly
interested in communication services outside of the home and in newer services in wireless Internet technology and devices
such as tablets, smartphones and mobile wireless routers that connect to such devices. These new technologies, distribution
platforms and consumer behaviors may have a negative impact on our business.
In addition, evolving technologies can reduce the costs of entry for others, resulting in greater competition and significant
new advantages for competitors. Technological developments could require us to make significant new capital investments
in order to remain competitive with other service providers. If we do not replace or upgrade our network and its technology
on a timely basis, we may not be able to compete effectively and could lose customers. We may also be placed at a cost
disadvantage in offering our services. Technology changes are also allowing individuals to bypass telephone companies
and cable operators entirely to make and receive calls, and to provide for the distribution and viewing of video
programming without the need to subscribe to traditional voice and video products and services. Increasingly, this can be
done over wireless facilities and other emerging mobile technologies in addition to traditional wired networks. Wireless
companies are aggressively developing networks using next-generation data technologies, which are capable of delivering
high-speed Internet service via wireless technology to a large geographic footprint. As these technologies continue to
expand in availability and reliability, they could become an effective alternative to our high-speed Internet services.
Although we use fiber optics in parts of our networks, including in some residential areas, we continue to rely on coaxial
cable and copper transport media to serve customers in many areas. The facilities we use to offer our video services,
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including the interfaces with customers, are undergoing a rapid evolution, and depend in part on the products, expertise
and capabilities of third-parties. If we cannot develop new services and products to keep pace with technological advances,
or if such services and products are not widely embraced by our customers, our results of operations could be adversely
impacted.
Shifts in our product mix may result in a decline in operating profitability. Margins vary among our products and
services. Our profitability may be impacted by technological changes, customer demands, regulatory changes, the
competitive nature of our business and changes in the product mix of our sales. These shifts may also result in our long-
lived assets becoming impaired or our inventory becoming obsolete. We review long-lived assets for potential impairment
if certain events or changes in circumstances indicate that impairment may be present. We currently manage potential
inventory obsolescence through reserves, but future technology changes may cause inventory obsolescence to exceed
current reserves.
Public health threats, such as the recent outbreak of COVID-19, could have a material adverse effect on our business,
results of operations, cash flows and stock price. We may face risks associated with public health threats or outbreaks of
epidemic, pandemic or communicable diseases, such as the outbreak of the coronavirus (“COVID-19”) and its
variants. The COVID-19 pandemic has in the short-term and may in the long-term adversely impact the global economy,
financial markets and supply chains and has resulted in increased unemployment levels. The outbreak has resulted in
federal, state and local governments implementing mitigation measures, including shelter-in-place orders, travel
restrictions, limitations on business, school closures, vaccination and testing requirements and other measures.
Governments have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.
As a critical infrastructure provider, we have continued to operate our business and provide services to our
customers. Although we are considered an essential business, the outbreak of COVID-19 and any preventive or protective
actions implemented by governmental authorities may have a material adverse effect on our operations, customers and
suppliers and could do so for an indefinite period of time. Adverse economic and market conditions as a result of COVID-
19 could also adversely affect the demand for our products and services and may also impact the ability of our customers
to satisfy their obligations to us. In addition, concerns regarding the economic impact of COVID-19 have caused volatility
in financial and other capital markets which has and may continue to adversely affect the market price of our common
stock and our ability to access capital markets. In response to the COVID-19 pandemic, we have transitioned a substantial
number of our employees to telecommuting and remote work arrangements, which may increase the risk of a security
breach or cybersecurity attack on our information technology systems that could impact our business.
We cannot reasonably estimate at this time the resulting future financial impact of COVID-19 on our business, but the
prolonged effect of it could have a material adverse effect to our results of operations, financial condition and
liquidity. The extent to which the COVID-19 pandemic may adversely impact our business, results of operations, financial
condition and liquidity will depend on future developments, which are highly uncertain and unpredictable, including the
severity and duration of the outbreak, current and new variants of COVID-19, the availability and distribution of effective
treatments and vaccines, the effectiveness of actions taken to contain or mitigate its effects and any resulting economic
downturn, recession or depression in the markets we serve.
We receive cash distributions from our wireless partnership interests. The amount and continued receipt of such future
distributions is not guaranteed. We own five wireless partnership interests consisting of 2.34% of GTE Mobilnet of
South Texas Limited Partnership, which provides cellular service in the Houston, Galveston and Beaumont, Texas
metropolitan areas; 3.60% of Pittsburgh SMSA Limited Partnership, which provides cellular service in and around the
Pittsburgh metropolitan area; 20.51% of GTE Mobilnet of Texas RSA #17 Limited Partnership (“RSA #17”); 16.67% of
Pennsylvania RSA 6(I) Limited Partnership (“RSA 6(I)”) and 23.67% of Pennsylvania RSA 6(II) Limited Partnership
(“RSA 6(II)”). RSA #17 provides cellular service to a limited rural area in Texas. RSA 6(I) and RSA 6(II) provide cellular
service in and around our Pennsylvania service territory.
In 2021, 2020 and 2019, we received cash distributions from these partnerships of $43.0 million, $41.5 million and $35.8
million, respectively. The cash distributions we receive from these partnerships are based on our percentage of ownership,
the partnerships’ operating results, cash availability and financing needs as determined by the General Partner at the date
of the distribution. We cannot control the timing, amount or certainty of any future cash distributions from these
partnerships. If cash distributions from these partnerships are reduced or eliminated, our results of operations could be
adversely affected, and as a result, our ability to fulfill our long-term obligations may be restricted.
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We receive support from various funds established under federal and state laws, and the continued receipt of that
support is not assured. A significant portion of our revenues come from network access and subsidies. An order adopted
by the FCC in 2011 (the “Order”) significantly impacted the amount of support revenue we receive from the Universal
Service Fund (“USF”), Connect America Fund (“CAF”) and intercarrier compensation (“ICC”). The Order reformed core
parts of the USF, broadly recast the existing ICC scheme, established the CAF to replace support revenues provided by
the USF and redirected support from voice services to broadband services. In 2012, CAF funding was implemented, which
froze USF support to price cap carriers until the FCC implemented a broadband cost model to shift support from voice
services to broadband services. In 2020, the FCC adopted an order establishing the Rural Digital Opportunity Fund, the
next phase of the CAF program, which will result in a reduction of approximately $42.2 million in the annual support we
receive beginning January 1, 2022. See Part I – Item 1 – “Regulatory Environment” above for statistics of current CAF
funding levels.
We receive subsidy payments from various federal and state universal service support programs, including high-cost
support, Lifeline and E-Rate programs for schools and libraries. The total cost of the various federal universal service
programs has increased significantly in recent years, putting pressure on regulators to reform the programs and to limit
both eligibility and support. We cannot predict future changes that may impact the subsidies we receive. However, a
reduction in subsidies support may directly affect our profitability and cash flows.
A disruption in our networks and infrastructure could cause service delays or interruptions, which could cause us to
lose customers and incur additional expenses. Our customers depend on reliable service over our network. The primary
risks to our network infrastructure include physical damage to lines, security breaches, capacity limitations, power surges
or outages, software defects and disruptions beyond our control, such as natural disasters and acts of terrorism. From time
to time in the ordinary course of business, we experience short disruptions in our service due to factors such as physical
damage, inclement weather and service failures of our third-party service providers. We could experience more significant
disruptions in the future. Disruptions may cause service interruptions or reduced capacity for customers, either of which
could cause us to lose customers and incur unexpected expenses.
A cyber-attack may lead to unauthorized access to confidential customer, personnel and business information that
could adversely affect our business. Attempts by others to gain unauthorized access to organizations' information
technology systems are becoming more frequent and sophisticated, and are sometimes successful. These attempts may
include covertly introducing malware to companies' computers and networks, impersonating authorized users or "hacking"
into systems. We seek to prevent, detect and investigate all security incidents that do occur, however we may be unable
to prevent or detect a significant attack in the future. Significant information technology security failures could result in
the theft, loss, damage, unauthorized use or publication of our confidential business information, which could harm our
competitive position, subject us to additional regulatory scrutiny, expose us to litigation or otherwise adversely affect our
business. If a security breach results in misuse of our customers' confidential information, we may incur liability as a
result.
Our operations require substantial capital expenditures and our business, financial condition, results of operations and
liquidity may be impacted if funds for capital expenditures are not available when needed. We require significant capital
expenditures to maintain, upgrade and enhance our network facilities and operations. While we have historically been
able to fund capital expenditures from cash generated from operations and borrowings under our revolving credit facility,
the other risk factors described in this section could materially reduce cash available from operations or significantly
increase our capital expenditure requirements, which may result in our inability to fund the necessary level of capital
expenditures to maintain, upgrade or enhance our network. This could adversely affect our business, financial condition,
results of operations and liquidity.
If we cannot obtain and maintain necessary rights-of-way for our network, our operations may be interrupted and we
could be faced with increased costs. We are dependent on easements, franchises and licenses from various private parties,
such as established telephone companies and other utilities, railroads, long-distance companies, state highway authorities,
local governments and transit authorities for access to aerial pole space, underground conduits and other rights-of-way in
order to construct and operate our networks. Some agreements relating to rights-of-way may be short-term or revocable
at will, and we cannot be certain that we will continue to have access to existing rights-of-way after the governing
agreements terminate or expire. If any of our right-of-way agreements were terminated or could not be renewed, we may
be forced to remove, relocate or abandon our network facilities in the affected areas, which could interrupt our operations,
force us to find alternative rights-of-way and incur unexpected capital expenditures.
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We may be unable to obtain necessary hardware, software and operational support from third-party vendors. We
depend on third-party vendors to supply us with a significant amount of hardware, software and operational support
necessary to provide certain of our services, to maintain, upgrade and enhance our network facilities and operations, and
to support our information and billing systems. Some of our third-party vendors are our primary source of supply for
certain products and services for which there are few substitutes. The global supply chains have been and may continue to
be impacted by the COVID-19 pandemic, which has caused a delay in the development, manufacturing and shipping of
products and in some cases an increase in product costs. If any of these vendors should experience financial difficulties,
experience supply chain issues, have demand that exceeds their capacity or can no longer meet our specifications or provide
products or services we need or at reasonable prices, our ability to provide some services may be hindered, in which case
our business, financial condition and results of operations may be adversely affected.
Video content costs are substantial and continue to increase. We expect video content costs to continue to be one of our
largest operating costs associated with providing video service. Video programming content includes network
programming designed to be shown in linear channels, as well as the programming of local over-the-air television stations
that we retransmit. The cable industry has experienced continued increases in the cost of programming, especially the cost
of sports programming and local broadcast station retransmission content. Programming costs are generally assessed on a
per-subscriber basis, and therefore, are directly related to the number of subscribers to which the programming is provided.
Our relatively small subscriber base limits our ability to negotiate lower per-subscriber programming costs. Larger
providers can often qualify for discounts based on the number of their subscribers. This cost difference can cause us to
experience reduced operating margins, while our competitors with a larger subscriber base may not experience similar
margin compression. In addition, escalators in existing content agreements can result in cost increases that exceed general
inflation. While we expect video content costs to continue to increase, we may not be able to pass such cost increases on
to our customers, especially as an increasing amount of programming content becomes available via the Internet at little
or no cost. Also, some competitors or their affiliates own programming in their own right and we may not be able to
secure license rights to that programming. As our programming contracts with content providers expire, there is no
assurance that they will be renewed on acceptable terms or that they will be renewed at all, in which case we may not be
able to provide such programming as part of our video services packages and our business and results of operations may
be adversely affected.
We have employees who are covered by collective bargaining agreements. If we are unable to enter into new agreements
or renew existing agreements timely, we could experience work stoppages or other labor actions that could materially
disrupt our business of providing services to our customers. As of December 31, 2021, approximately 48% of our
employees were covered by collective bargaining agreements. These employees are hourly workers throughout our service
territories and are represented by various unions and locals. Our existing collective bargaining agreements expire between
2022 through 2025, of which contracts covering 41% of our employees will expire in 2022.
We cannot predict the outcome of the negotiations related to the collective bargaining agreements covering our employees.
If we are unable to reach new agreements or renew existing agreements, employees subject to collective bargaining
agreements may engage in strikes, work stoppages or slowdowns, or other labor actions, which could materially disrupt
our ability to provide services to our customers. New labor agreements, or the renewal of existing agreements, may impose
significant new costs on us, which could adversely affect our financial condition and result of operations. While we believe
our relations with the unions representing these employees are good, any protracted labor disputes or labor disruptions by
our employees could negatively impact our business.
Our ability to attract and/or retain certain key management and other personnel in the future could have an adverse
effect on our business. We rely on the talents and efforts of key management personnel, many of whom have been with
our company or in our industry for decades. While we maintain long-term and emergency transition plans for key
management personnel and believe we could either identify internal candidates or attract outside candidates to fill any
vacancy created by the loss of any key management personnel, the loss of one or more of our key management personnel
could have a negative impact on our business.
Acquisitions present many risks and we may be unable to realize the anticipated benefits of acquisitions. From time to
time, we make acquisitions and investments or enter into other strategic transactions. In connection with these types of
transactions, we may incur unanticipated expenses; fail to realize anticipated benefits; have difficulty integrating the
acquired businesses; disrupt relationships with current and new employees, customers and vendors; incur significant
indebtedness or have to delay or not proceed with announced transactions. The occurrence of any of the foregoing events
could have a material adverse effect on our business, financial condition, results of operations and cash flows.
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We may face significant challenges in combining the operations of an acquired business with ours in a timely and efficient
manner. The failure to successfully integrate an acquired business and to successfully manage the challenges presented
by the integration process may result in our inability to achieve anticipated benefits of the acquisition, including operational
and financial synergies. Even if we are successful in integrating acquired businesses, we cannot guarantee that the
integration will result in the complete realization of anticipated financial synergies or that they will be realized within the
expected time frames.
Risks Relating to Current Economic Conditions
Unfavorable changes in financial markets could adversely affect pension plan investments resulting in material
funding requirements to meet our pension obligations. We expect that we will continue to make future cash contributions
to our pension plans, the amount and timing of which will depend on various factors including funding regulations, future
investment performance, changes in future discount rates and mortality tables and changes in participant demographics.
Unfavorable fluctuations or adverse changes in any of these factors, most of which are outside our control, could impact
the funded status of the plans and increase future funding requirements. Returns generated on plan assets have historically
funded a large portion of the benefits paid under these plans. If the financial markets experience a downturn and returns
fall below the estimated long-term rate of return, our future funding requirements could increase significantly, which could
adversely affect our cash flows from operations.
Weak economic conditions may have a negative impact on our business, results of operations and financial condition.
Downturns in the economic conditions in the markets and industries we serve could adversely affect demand for our
products and services and have a negative impact on our results of operations. Economic weakness or uncertainty may
make it difficult for us to obtain new customers and may cause our existing customers to reduce or discontinue their
services to which they subscribe. This risk may be worsened by the expanded availability of free or lower cost services,
such as streaming or OTT services or substitute services, such as wireless phones and public Wi-Fi networks. Weak
economic conditions may also impact the ability of third parties to satisfy their obligations to us.
Risks Relating to Our Common and Preferred Stock
The price of our common stock may be volatile and may fluctuate substantially, which could negatively affect holders
of our common stock. The market price of our common stock may fluctuate widely as a result of various factors including,
but not limited to, period-to-period fluctuations in our operating results, the volume of sales of our common stock, the
limited number of holders of our common stock and the resulting limited liquidity in our common stock, dilution,
developments in the communications industry, the failure of securities analysts to cover our common stock, changes in
financial estimates by securities analysts, short interests in our common stock, competitive factors, regulatory
developments, labor disruptions, general market conditions and market conditions affecting the stock of communications
companies. Communications companies have, in the past, experienced extreme volatility in the trading prices and volumes
of their securities, which has often been unrelated to operating performance. High levels of market volatility may have a
significant adverse effect on the market price of our common stock. In addition, in the past, securities class action litigation
has often been instituted against companies following periods of volatility in their stock price. This type of litigation could
result in substantial costs and divert management's attention and resources, which could have a material adverse impact
on our business, financial condition, results of operations, liquidity and/or the market price of our common stock.
Our organizational documents could limit or delay another party’s ability to acquire us and, therefore, could deprive
our investors of a possible takeover premium for their shares. A number of provisions in our amended and restated
certificate of incorporation and bylaws could make it difficult for another company to acquire us. Among other things,
these provisions:
• Provide that directors may only be removed for cause and then only upon the affirmative vote of holders of
two-thirds or more of the voting power of our outstanding common stock;
• Require the affirmative vote of holders of two-thirds or more of the voting power of our outstanding common
stock to amend, alter, change or repeal specified provisions of our amended and restated certificate of
incorporation and bylaws;
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• Require stockholders to provide us with advance notice if they wish to nominate any candidates for election
to our Board of Directors or if they intend to propose any matters for consideration at an annual stockholders
meeting; and
• Authorize the issuance of so-called “blank check” preferred stock without stockholder approval upon such
terms as the Board of Directors may determine.
We also are subject to laws that may have a similar effect. For example, federal and certain state telecommunications laws
and regulations generally prohibit a direct or indirect transfer of control over our business without prior regulatory
approval. Similarly, Section 203 of the Delaware General Corporation Law restricts our ability to engage in a business
combination with an “interested stockholder”. These laws and regulations make it difficult for another company to acquire
us, and therefore, could limit the price that investors might be willing to pay in the future for shares of our common stock.
In addition, the rights of our common stockholders are subject to, and may be adversely affected by, the rights of holders
of any class or series of preferred stock that we may issue in the future.
The rights of our Series A Preferred Stock could negatively impact our cash flows. The terms of our Series A Preferred
Stock provide rights to holders that could negatively impact us. Holders of our Series A Preferred Stock are entitled to
receive cumulative dividends on the liquidation preference at a rate of 9% per annum payable semi-annually, until October
2, 2025 at our election, either in cash or in-kind through an accrual of unpaid dividends, which are automatically added to
the liquidation preference; and after October 2, 2025, solely in cash.
In addition, upon a liquidation event, holders of the Series A Preferred Stock will have the right to require the Company
to repurchase all or any part of the outstanding Series A Preferred Stock for cash at a price equal to the liquidation
preference plus any accrued and unpaid dividends. The existence of senior securities such as the Series A Preferred Stock
could have an adverse effect on the value of our common stock.
The Series A Preferred Stock ranks senior to our common stock with respect to dividend distribution payments upon
liquidation. The rights of holders of our Series A Preferred Stock rank senior to the rights of holders of our common
stock. Before dividends, if any, can be paid to holders of our common stock, any dividends, including accrued and unpaid
dividends, must first be paid to holders of our Series A Preferred Stock. In addition, upon a liquidation event, holders of
Series A Preferred Stock are entitled to receive full payment for their shares before any payment can be made to holders
of our common stock. The existence of senior securities such as the Series A Preferred Stock could have an adverse effect
on the value of our common stock.
Risks Relating to Our Indebtedness and Our Capital Structure
We have a substantial amount of debt outstanding, which could adversely affect our business and restrict our ability to
fund working capital and planned capital expenditures. As of December 31, 2021, we had $2.1 billion of debt
outstanding. Our substantial level of indebtedness could adversely impact our business, including:
• We may be required to use a substantial portion of our cash flow from operations to make principal and
interest payments on our debt, which will reduce funds available for operations, capital expenditures, future
business opportunities and strategic initiatives;
• We may have limited flexibility to react to changes in our business and our industry;
•
It may be more difficult for us to satisfy our other obligations;
• We may have a limited ability to borrow additional funds or to sell assets to raise funds if needed for working
capital, capital expenditures, acquisitions or other purposes;
• We may become more vulnerable to general adverse economic and industry conditions, including changes
in interest rates; and
• We may be at a disadvantage compared to our competitors that have less debt.
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We cannot guarantee that we will generate sufficient revenues to service our debt and have adequate funds left over to
achieve or sustain profitability in our operations, meet our working capital and capital expenditure needs or compete
successfully in our markets.
Our credit agreement and the indentures governing our Senior Notes contain covenants that limit management’s
discretion in operating our business and could prevent us from capitalizing on opportunities and taking other corporate
actions. Among other things, our credit agreement limits or restricts our ability (and the ability of certain of our
subsidiaries), and the separate indenture governing the Senior Notes limits the ability of our subsidiary, Consolidated
Communications, Inc., and its restricted subsidiaries to: incur or guarantee additional indebtedness or issue preferred stock;
make restricted payments, including paying dividends on, redeeming, repurchasing or retiring our capital stock; make
investments and prepay or redeem debt; enter into agreements restricting our subsidiaries’ ability to pay dividends, make
loans or transfer assets to us; create liens; sell or otherwise dispose of assets, including capital stock of, or other ownership
interests in subsidiaries; engage in transactions with affiliates; engage in sale and leaseback transactions; make capital
expenditures; engage in a business other than telecommunications; and consolidate, merge or transfer all or substantially
all of the assets of the Company.
In addition, our credit agreement requires us to comply with specified financial ratios, including a financial covenant based
on first lien leverage. Our ability to comply with these ratios may be affected by events beyond our control. These
restrictions limit our ability to plan for or react to market conditions, meet capital needs or otherwise constrain our activities
or business plans. They also may adversely affect our ability to finance our operations, enter into acquisitions or engage
in other business activities that would be in our interest.
A breach of any of the covenants contained in our credit agreement, in any future credit agreement, or in the separate
indentures governing the Senior Notes, or our inability to comply with the financial ratios could result in an event of
default, which would allow the lenders to declare all borrowings outstanding to be due and payable. If the amounts
outstanding under our credit facilities were to be accelerated, we cannot assure that our assets would be sufficient to repay
in full the money owed. In such a situation, the lenders could foreclose on the assets and capital stock pledged to them.
We may not be able to refinance our existing debt if necessary, or we may only be able to do so at a higher interest rate.
We may be unable to refinance or renew our credit facilities and our failure to repay all amounts due on the maturity dates
would cause a default under the credit agreement. Alternatively, any renewal or refinancing may occur on less favorable
terms. If we refinance our credit facilities on terms that are less favorable to us than the terms of our existing debt, our
interest expense may increase significantly, which could impact our results of operations and impair our ability to use our
funds for other purposes.
Our variable-rate debt subjects us to interest rate risk, which could impact our cost of borrowing and operating results.
Certain of our debt obligations are at variable rates of interest and expose us to interest rate risk. Increases in interest rates
could negatively impact our results of operations and operating cash flows. We utilize interest rate swap agreements to
convert a portion of our variable-rate debt to a fixed-rate basis. However, we do not maintain interest rate hedging
agreements for all of our variable-rate debt and our existing hedging agreements may not fully mitigate our interest rate
risk, may prove disadvantageous or may create additional risks. Changes in fair value of cash flow hedges that have been
de-designated or determined to be ineffective are recognized in earnings. Significant increases or decreases in the fair
value of these cash flow hedges could cause favorable or adverse fluctuations in our results of operations.
In addition, a substantial portion of our variable-rate debt bears interest based on the London Interbank Offering Rate
(“LIBOR”). In 2017, the Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that it intends to stop
requiring banks to submit rates for the calculation of LIBOR after 2021. In November 2020, ICE Benchmark
Administration (“IBA”), the administrator of LIBOR, extended the cessation date for submission and publication of rates
for all LIBOR tenors until June 30, 2023, except for the one-week and two-month LIBOR tenors, which ceased on
December 31, 2021. As of January 1, 2022, regulated U.S. financial institutions are no longer permitted to enter into new
contracts referencing any LIBOR settings. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates
Committee (“ARRC”), has proposed replacing LIBOR with the Secured Overnight Financing Rate (“SOFR”), a new index
based on trading in overnight repurchase agreements. At this time, it is not possible to predict whether SOFR will become
the most prevalent alternative reference rate in the market or what impact the transition from LIBOR to alternative
reference rates may have on the interest rates for our current and future debt obligations as well as our interest rate swap
agreements, which may be adversely affected. In addition, any transition process from LIBOR to an alternative rate could
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cause, among other things, LIBOR to perform differently than in the past, a disruption in the financial markets, or increases
in benchmark rates, any of which could adversely affect our results of operations, cash flows and liquidity.
Risks Related to the Regulation of Our Business
We are subject to a complex and uncertain regulatory environment, and we face compliance costs and restrictions
greater than those of many of our competitors. Our businesses are subject to regulation by the FCC and other federal,
state and local entities. Rapid changes in technology and market conditions have resulted in changes in how the
government addresses telecommunications, video programming and Internet services. Many businesses that compete with
our Incumbent Local Exchange Carrier (“ILEC”) and non-ILEC subsidiaries are comparatively less regulated. Some of
our competitors are either not subject to utilities regulation or are subject to significantly fewer regulations. In contrast to
our subsidiaries regulated as cable operators and satellite video providers, competing on-demand and OTT providers and
motion picture and DVD firms have almost no regulation of their video activities. Recently, federal and state authorities
have become more active in seeking to address critical issues in each of our product and service markets. The adoption of
new laws or regulations, or changes to the existing regulatory framework at the federal, state or local level, could require
significant and costly adjustments that could adversely affect our business plans. New regulations could impose additional
costs or capital requirements, require new reporting, impair revenue opportunities, potentially impede our ability to provide
services in a manner that would be attractive to our customers and potentially create barriers to enter new markets or to
acquire new lines of business. We face continued regulatory uncertainty in the immediate future. Not only are these
governmental entities continuing to move forward on these matters, their actions remain subject to reconsideration, appeal
and legislative modification over an extended period of time, and it is unclear how their actions will ultimately impact our
business. We cannot predict future developments or changes to the regulatory environment or the impact such
developments or changes may have on us.
Increased regulation of the Internet could increase our cost of doing business. Current laws and regulations governing
access to, or commerce on, the Internet are limited. As the significance of the Internet continues to expand, federal, state
and local governments may adopt new rules and regulations applicable to, or apply existing laws and regulations to, the
Internet. During 2017, the FCC adopted an order eliminating its previous classification of Internet service as a
telecommunications service regulated under Title II of the Telecommunications Act of 1996. This effectively limits the
FCC’s authority over Internet Service Providers. The FCC retained rules requiring Internet Service Providers to disclose
practices associated with blocking, throttling and paid prioritization of Internet traffic. The FCC order has been challenged
in court and the outcome of the challenge cannot be determined at this time.
The outcome of pending matters before the FCC and the Federal Trade Commission (“FTC”) and any potential
congressional action cannot be determined at this time but could lead to increased costs for the Company in connection
with our provision of Internet services, and could affect our ability to compete in the markets we serve.
We are subject to extensive laws and regulations relating to the protection of the environment, natural resources and
worker health and safety. Our operations and properties are subject to federal, state and local laws and regulations relating
to the protection of the environment, natural resources and worker health and safety, including laws and regulations
governing and creating liability in connection with the management, storage and disposal of hazardous materials, asbestos
and petroleum products. We are also subject to laws and regulations governing air emissions from our fleet vehicles. As
a result, we face several risks, including:
• Hazardous materials may have been released at properties that we currently own or formerly owned (perhaps
through our predecessors). Under certain environmental laws, we could be held liable, without regard to
fault, for the costs of investigating and remediating any actual or threatened contamination at these properties
and for contamination associated with disposal by us, or by our predecessors, of hazardous materials at third-
party disposal sites;
• We could incur substantial costs in the future if we acquire businesses or properties subject to environmental
requirements or affected by environmental contamination. In particular, environmental laws regulating
wetlands, endangered species and other land use and natural resources may increase the costs associated with
future business or expansion or delay, alter or interfere with such plans;
• The presence of contamination can adversely affect the value of our properties and make it difficult to sell
any affected property or to use it as collateral; and
22
• We could be held responsible for third-party property damage claims, personal injury claims or natural
resource damage claims relating to contamination found at any of our current or past properties.
The cost of complying with environmental requirements could be significant. Similarly, the adoption of new
environmental laws or regulations, or changes in existing laws or regulations or their interpretations, could result in
significant compliance costs or unanticipated environmental liabilities.
Our business may be impacted by new or changing tax laws or regulations and actions by federal, state, and/or local
agencies, or by how judicial authorities apply tax laws. Our operations are subject to various federal, state and local tax
laws and regulations. In connection with the products and services we sell, we calculate, collect, and remit various federal,
state, and local taxes, surcharges and regulatory fees (“tax” or “taxes”) to numerous federal, state and local governmental
authorities. In many cases, the application of tax laws is uncertain and subject to differing interpretations, especially when
evaluated against new technologies and telecommunications services, such as broadband Internet access and cloud related
services. Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued
or applied. Changes in tax laws, or changes in interpretations of existing laws, could materially affect our financial
position, results of operations and cash flows. For example, the Tax Cuts and Jobs Act of 2017, a major federal tax reform,
that had a significant impact on our tax obligations and effective income tax rate.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We own our corporate headquarters, which are currently located at 2116 S. 17th Street, Mattoon, Illinois. We also own
and lease office facilities and related equipment for administrative personnel, central office buildings and operations in
many of the states in which we operate.
In addition to land and structures, our property consists of equipment necessary for the provision of communication
services, including central office equipment, customer premises equipment and connections, pole lines, video head-end,
remote terminals, aerial and underground cable and wire facilities, vehicles, furniture and fixtures, computers and other
equipment. We also own certain other communications equipment held as inventory for sale or lease.
In addition to plant and equipment that we wholly-own, we utilize poles, towers and cable and conduit systems jointly-
owned with other entities and lease space on facilities to other entities. These arrangements are in accordance with written
agreements customary in the industry. We also have appropriate easements, rights-of-way and other arrangements for the
accommodation of our pole lines, underground conduits, aerial and underground cables and wires.
Item 3. Legal Proceedings.
From time to time we may be involved in litigation that we believe is of the type common to companies in our industry,
including regulatory issues. While the outcome of these claims cannot be predicted with certainty, we do not believe that
the outcome of any of these legal matters will have a material adverse impact on our business, results of operations,
financial condition or cash flows. See Note 15 to the consolidated financial statements included in this report in Part II –
Item 8 – “Financial Statements and Supplementary Data” for a discussion of recent developments related to these legal
proceedings.
Item 4. Mine Safety Disclosures.
Not Applicable.
23
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock is traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “CNSL”. As of
February 28, 2022, there were approximately 4,018 stockholders of record of the Company’s common stock.
Share Repurchases
During the quarter ended December 31, 2021, we repurchased 219,067 common shares surrendered by employees in the
administration of employee share-based compensation plans. The following table summarizes the share repurchase
activity:
Purchase period
October 1-October 31, 2021
November 1-November 30, 2021
December 1-December 31, 2021
Performance Graph
Total number of Average price announced plans
shares purchased paid per share
—
—
219,067
or programs
—
—
—
—
—
$ 7.85
Total number of Maximum number
shares purchased of shares that may
as part of publicly yet be purchased
under the plans
or programs
—
—
—
The following graph shows a five-year comparison of cumulative total shareholder return of our common stock (assuming
reinvestment of dividends) with the S&P 500 Index and the NASDAQ Telecommunications Index. The comparison of
total return on investment (change in year-end stock price plus reinvested dividends) for each of the periods assumes that
$100 was invested on December 31, 2016 in each index. The stock performance shown on the graph below is not
necessarily indicative of future price performance.
24
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Consolidated Communications Holdings, the S&P 500 Index and the NASDAQ Telecommunications Index
(In dollars)
Consolidated Communications Holdings
S&P 500
NASDAQ Telecommunications
2016
2017
2018
2019
2020
2021
$ 100.00 $ 48.70 $ 44.82 $ 18.86 $ 23.78 $ 36.37
$ 100.00 $ 121.83 $ 116.49 $ 153.17 $ 181.35 $ 233.41
$ 100.00 $ 117.62 $ 108.29 $ 137.49 $ 166.70 $ 174.78
As of December 31,
Sale of Unregistered Securities
During the year ended December 31, 2021, the Company issued shares of common and preferred stock exempt from
registration under the Securities Act of 1933, as amended (the “Securities Act”), to Searchlight by virtue of the exemption
provided by Section 4(a)(2) of the Securities Act for the Searchlight investment. See Note 4 to the consolidated financial
statements included in this report in Part II – Item 8 – “Financial Statements and Supplementary Data” for a discussion of
the Searchlight investment.
Item 6. Reserved.
25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Reference is made to Part I – Item 1 – “Note About Forward-Looking Statements” and Part I – Item 1A – “Risk Factors”
which describes important factors that could cause actual results to differ from expectations and non-historical information
contained herein. In addition, the following Management’s Discussion and Analysis of Financial Condition and Results
of Operations (“MD&A”) is intended to help the reader understand the results of operations and financial condition of
Consolidated Communications Holdings, Inc. (“Consolidated,” the “Company,” “we,” “our” or “us”). MD&A should be
read in conjunction with our audited consolidated financial statements and accompanying notes to the consolidated
financial statements (“Notes”) as of and for each of the three years in the period ended December 31, 2021 included
elsewhere in this Annual Report on Form 10-K.
Throughout MD&A, we refer to certain measures that are not a measure of financial performance in accordance with
accounting principles generally accepted in the United States (“US GAAP” or “GAAP”). We believe the use of these non-
GAAP measures on a consolidated basis provides the reader with additional information that is useful in understanding
our operating results and trends. These measures should be viewed in addition to, rather than as a substitute for, those
measures prepared in accordance with GAAP. See the Non-GAAP Measures section below for a more detailed discussion
on the use and calculation of these measures.
Overview
Consolidated is a broadband and business communications provider offering a wide range of communication solutions to
consumer, commercial and carrier customers across a service area in over 20 states. We operate an advanced fiber network
spanning approximately 52,400 fiber route miles across many rural areas and metro communities. We offer residential
high-speed Internet, video, phone and home security services as well as multi-service residential and small business
bundles. Our business product suite includes: data and Internet solutions, voice, data center services, security services,
managed and IT services, and an expanded suite of cloud services. We provide wholesale solutions to wireless and
wireline carriers and other service providers including data, voice, network connections and custom fiber builds and last
mile connections.
We generate the majority of our consolidated operating revenues primarily from monthly subscriptions to our broadband,
data and transport services (collectively “broadband services”) marketed to residential and business customers. As
consumer demands for bandwidth continue to increase, our focus is on expanding our fiber broadband services and
upgrading data speeds in order to offer a highly competitive fiber product. Our investment in more competitive broadband
speeds is critical to our long-term success. Our strategic investment with Searchlight Capital Partners L.P. (“Searchlight”)
combined with the refinancing of our capital structure, as described below, has provided us with additional capital that has
enabled us to accelerate our fiber expansion plans and provided significant benefits to our consumer, commercial and
carrier customers. With this strategic investment, we intend to enhance our fiber infrastructure and accelerate our
investments in high-growth and competitive areas. By leveraging our existing dense core fiber network and an accelerated
build plan, we expect to be able to significantly increase data speeds, expand our multi-Gig coverage and strategically
extend our network across our strong existing commercial and carrier footprint to attract more on-net and near-net
opportunities. As part of our fiber expansion plan, we plan to upgrade approximately 1.6 million passings to fiber over
five years across select service areas to enable multi-Gig capable services to these homes and small businesses including
more than 1 million passings within our northern New England service areas.
During the year ended December 31, 2021, we upgraded approximately 330,000 passings and added approximately 15,500
consumer fiber Gig-capable subscribers. As of December 31, 2021, approximately 41% of the homes we serve on our
legacy Consolidated network had availability to broadband speeds of up to 1 Gbps compared to 17% at December 31,
2020. In our northern New England service areas, approximately 14% of the homes we serve were 1 Gig capable as of
December 31, 2021 compared to 4% at December 31, 2020. Our fiber build plan includes the upgrade of an additional
400,000 homes and small businesses in 2022. In November 2021, we launched Fidium Fiber, our new Gigabit consumer
fiber internet product available in select northern New England markets, reinforcing our broadband-first strategy. We
expect to launch Fidium Fiber in other regions in 2022.
As we continue to increase broadband speeds, we believe that we will also be able to simultaneously expand the array of
services and content offerings that our network provides. Commercial and carrier services represent the largest source of
our operating revenues and we are focused on expanding our broadband and commercial product suite and are continually
enhancing our commercial product offerings to meet the needs of our business customers. By leveraging our advanced
26
fiber network, we can tailor our services for business customers by developing solutions to fit their specific
needs. Additionally, we are continuously enhancing our suite of managed and cloud services by adding new functionality
and support, which increases efficiency and enables greater scalability and reliability for businesses. We anticipate future
momentum in commercial and carrier services as these products gain traction as well as from the demand from customers
for additional bandwidth and data-based services.
However, operating revenues continue to be impacted by the industry-wide trend of declines in voice services, access lines
and related network access revenue. Many customers are choosing to subscribe to alternative communication services,
and competition for these subscribers continues to increase. Total voice connections decreased 8% as of December 31,
2021 compared to 2020. We have been able to mitigate some of the access line losses through alternative product
offerings, such as our VoIP service.
Our competitive broadband speeds enable us to meet consumer demand for higher bandwidth for streaming programming
or on-demand content on any device. The consumers demand for streaming services, either to augment their current video
subscription plan or to entirely replace their linear video subscription may impact our future video subscriber base and,
accordingly, reduce our video revenue as well as our video programing costs. Total video connections decreased 17% as
of December 31, 2021 compared to 2020. We believe the trend in changing consumer viewing habits will continue to
impact our business results and complement our strategy of providing consumers with higher broadband speeds to facilitate
streaming content including services offered through our streaming partnerships.
Our operating revenues are impacted by legislative or regulatory changes at the federal and state levels, which could reduce
or eliminate the current subsidies revenue we receive. A number of proceedings and recent orders relate to universal
service reform, inter-carrier compensation (“ICC”) and network access charges. Recent orders adopted in 2020 will result
in a reduction in the federal subsidies we receive of approximately $42.2 million annually beginning January 1, 2022. See
the “Regulatory Matters” section below for a further discussion of the subsidies we receive.
Significant Recent Developments
Searchlight Investment
On September 13, 2020, we entered into an investment agreement (the “Investment Agreement”) with an affiliate of
Searchlight. In connection with the Investment Agreement, affiliates of Searchlight have invested an aggregate of $425.0
million in the Company. The investment commitment was structured in two stages. In the first stage of the transaction,
which was completed on October 2, 2020, Searchlight invested $350.0 million in the Company in exchange for 6,352,842
shares, or approximately 8%, of the Company’s common stock and a contingent payment right (“CPR”) that was
convertible, upon the receipt of certain regulatory and shareholder approvals, into an additional 17,870,012 shares, or
16.9% of the Company’s common stock. In addition, Searchlight received the right to an unsecured subordinated note
with an aggregate principal amount of approximately $395.5 million (the “Note”), which will be convertible into shares
of a new series of perpetual preferred stock of the Company with an aggregate liquidation preference equal to the principal
amount of the Note plus accrued interest as of the date of conversion.
On July 15, 2021, the Company received all required state public utility commission regulatory approvals necessary for
the conversion of the CPR into 16.9% additional shares of the Company’s common stock. As a result, the CPR was
converted into 17,870,012 shares of common stock, which were issued to Searchlight on July 16, 2021.
In the second stage of the Investment, which was completed on December 7, 2021 following the receipt of Federal
Communications Commission (“FCC”) and certain regulatory approvals and the satisfaction of certain other customary
closing conditions, Searchlight invested an additional $75.0 million and was issued the Note. The Note bore interest at
9.0% per annum from the date of the closing of the first stage of the transaction and was payable semi-annually in arrears.
The Note included a paid-in-kind (“PIK”) option for a five-year period beginning as of October 2, 2020. During the year
ended December 31, 2021, the Company elected the PIK option and accrued interest of $38.8 million was added to the
principal balance of the Note. On December 7, 2021, Searchlight elected to convert the Note into 434,266 shares of Series
A Perpetual Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”). In addition, on December 7, 2021,
the CPR converted into an additional 15,115,899 shares, or an additional 10.1%, of the Company’s common stock. As of
December 31, 2021, shares of common stock issued to Searchlight represent approximately 35% of the Company’s
outstanding common stock. The strategic investment with Searchlight provides us a valued partner with significant
27
experience in deploying broadband infrastructure as we continue to execute our fiber-focused strategy and grow broadband
services.
Refinancing of Long-term Debt
On October 2, 2020, the Company and certain of its wholly-owned subsidiaries completed a refinancing of our long-term
debt through the issuance of $2,250.0 million in new secured debt and retired all of our then existing outstanding debt
obligations. As described in the “Liquidity and Capital Resources” section, we entered into a new credit agreement which
consisted of term loans in the original aggregate amount of $1,250.0 million and a $250.0 million revolving credit facility.
On October 2, 2020, we also issued $750.0 million aggregate principal amount of 6.50% senior secured notes due 2028.
On January 15, 2021, the Company issued an additional $150.0 million aggregate principal amount of incremental term
loans under the credit agreement. On March 18, 2021, we issued $400.0 million aggregate principal amount 5.00% Senior
Notes and used the net proceeds from the issuance of notes to repay $397.0 million of the term loans outstanding under
the credit agreement. On April 5, 2021, we entered into an amendment to the credit agreement to refinance the outstanding
term loans, which reduced the combined interest rate margin and LIBOR floor by 1.5%. The refinancing extended the
maturities of our debt obligations and improved our liquidity, which, combined with the strategic investment with
Searchlight, provides us the immediate flexibility to support our planned expansion of our fiber network and revenue
growth plan.
Divestiture
On September 22, 2021, we entered into a definitive agreement to sell substantially all of the assets of our non-core, rural
ILEC business located in Ohio, Consolidated Communications of Ohio Company (“CCOC”), for approximately $26.0
million in cash, subject to a customary working capital adjustment. CCOC provides telecommunications and data services
to residential and business customers in 11 rural communities in Ohio and surrounding areas and includes approximately
4,000 access lines and 3,900 data connections. The asset sale aligns with our strategic asset review and focus on our core
broadband regions. As of December 31, 2021, the assets and liabilities to be disposed of were classified as held for sale in
the condensed consolidated balance sheet and consisted primarily of allocated goodwill of $16.3 million and property,
plant and equipment of $9.5 million. In connection with the classification as assets held for sale, we recognized an
impairment loss of $5.7 million during the year ended December 31, 2021. Subsequent to December 31, 2021, the parties
received all required regulatory approvals and the transaction closed on February 1, 2022.
Subsequent to December 31, 2021, we entered into a definitive agreement on March 2, 2022 to sell substantially all the
assets of our business located in the Kansas City market (the “Kansas City operations”). The Kansas City operations
provides data, voice and video services to customers within the Kansas City metropolitan area and surrounding counties
and includes approximately 19,000 consumer customers and 1,900 commercial customers. The transaction is expected to
close in the second half of 2022 and is subject to the receipt of all customary regulatory approvals and the satisfaction of
other closing conditions. We estimate that the pre-tax impairment loss to be recognized during the quarter ended March
31, 2022 will range from $125.0 million to $130.0 million, which includes approximately $90.0 million in allocated
goodwill.
COVID-19 Pandemic
We are closely monitoring the ongoing impact on our business of the coronavirus (“COVID-19”) pandemic. We are taking
precautions to ensure the safety of our employees, customers and business partners, while assuring business continuity and
reliable service and support to our customers. Health and safety measures implemented include transitioning to remote
work-from-home policies, providing our field technicians with personal protective equipment and additional safety
training, practicing social distancing and adding call aheads for work that must be performed inside customer premises.
While we have not seen a material adverse impact to our financial results from COVID-19 to date, the extent of the future
impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict. If the pandemic worsens
or new variants of the virus become more dominant and were to cause significant negative impacts to economic conditions,
our results of operations, financial condition and liquidity could be materially and adversely impacted. See Part I, Item
1A – “Risk Factors.”
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted by the U.S.
government as an emergency economic stimulus package that includes spending and tax breaks to strengthen the U.S.
economy and fund a nationwide effort to curtail the economic effects of COVID-19. The CARES Act included, among
28
other things, deferral of certain employer payroll tax payments and certain income tax law changes including modifications
to the net interest deduction limitations. In 2020, we deferred the payment of approximately $12.0 million for the employer
portion of Social Security taxes otherwise due in 2020 with 50% due by December 31, 2021 and the remaining 50% by
December 31, 2022. The portion of the taxes deferred until 2021 were paid during the third quarter of 2021. On March
11, 2021, the American Rescue Plan Act of 2021 (“ARPA”) was enacted and provides further economic relief to address
the continued economic impact of COVID-19. To date, these acts have not had a material impact on our consolidated
financial statements, although we will continue to monitor the impact of any effects from these acts and other future
legislation.
Results of Operations
The following tables reflect our financial results on a consolidated basis and key operating statistics as of and for the years
ended December 31, 2021, 2020 and 2019.
(In millions, except for percentages)
Operating Revenues
Commercial and carrier:
Data and transport services (includes VoIP)
Voice services
Other
Consumer:
Broadband (Data and VoIP)
Video services
Voice services
Subsidies
Network access
Other products and services
Total operating revenues
Operating Expenses
Cost of services and products (exclusive of
depreciation and amortization)
Selling, general and administrative costs
Acquisition and other transaction costs
Loss on impairment of assets held for sale
Depreciation and amortization
Total operating expenses
Income from operations
Interest expense, net
Gain (loss) on extinguishment of debt
Change in fair value of contingent payment rights
Other income, net
Income tax expense (benefit)
Net income (loss)
Dividends on Series A preferred stock
Net income attributable to noncontrolling interest
Net income (loss) attributable to common
shareholders
Adjusted EBITDA (1)
Financial Data
2021
2020
2019
$
$
362.3
171.8
41.6
575.7
$
362.1
181.7
45.1
588.9
269.3
65.1
160.7
495.1
69.8
120.5
21.1
1,282.2
569.6
271.1
—
5.7
300.6
1,147.0
135.2
(175.2)
(17.1)
(86.5)
43.2
6.3
(106.7)
2.7
0.4
263.1
74.3
170.5
507.9
72.0
125.3
9.9
1,304.0
560.6
275.4
7.6
—
324.9
1,168.5
135.5
(143.6)
(18.3)
23.8
50.8
10.9
37.3
—
0.3
355.3
188.3
52.9
596.5
257.1
81.4
180.8
519.3
72.4
138.1
10.2
1,336.5
574.9
299.1
—
—
381.2
1,255.2
81.3
(136.7)
4.5
—
27.2
(3.7)
(20.0)
—
0.4
% Change
2021 vs.
2020
2020 vs.
2019
0 %
(5)
(8)
(2)
2 %
(4)
(15)
(1)
2
(12)
(6)
(3)
(3)
(4)
113
(2)
2
(2)
(100)
100
(7)
(2)
(0)
22
(7)
(463)
(15)
(42)
(386)
100
33
2
(9)
(6)
(2)
(1)
(9)
(3)
(2)
(2)
(8)
100
—
(15)
(7)
67
5
(507)
100
87
395
287
—
(25)
$
(109.8)
$
506.9
$
$
37.0
529.2
$
$
(20.4)
(397)
281
523.5
(4)%
1 %
(1) A non-GAAP measure. See the “Non-GAAP Measures” section below for additional information and reconciliation
to the most directly comparable GAAP measure.
29
Key Operating Statistics
% Change
2021 vs. 2020 vs.
2021
516,949
384,564
328,849
63,447
2020
554,763
401,357
370,660
76,041
2019
582,818
417,410
404,943
84,171
2020
2019
(7)%
(4)
(11)
(17)
(5)%
(4)
(8)
(10)
Consumer customers
Consumer data connections
Consumer voice connections
Video connections
Operating Revenues
Commercial and Carrier
Data and Transport Services
We provide a variety of business communication services to business customers of all sizes, including voice and data
services over our advanced fiber network. The services we offer include scalable high-speed broadband Internet access
and VoIP phone services, which range from basic service plans to virtual hosted systems. In addition to Internet and VoIP
services, we also offer a variety of commercial data connectivity services in select markets including Ethernet services;
private line data services; software defined wide area network (“SD-WAN”) and multi-protocol label switching. Our
networking services include point-to-point and multi-point deployments from 2.5 Mbps to 10 Gbps to accommodate the
growth patterns of our business customers. We offer a suite of cloud-based services, which includes a hosted unified
communications solution that replaces the customer’s on-site phone systems and data networks, managed network security
services and data protection services. Data center and disaster recovery solutions provide a reliable and local colocation
option for commercial customers. We also offer wholesale services to regional and national interexchange and wireless
carriers, including cellular backhaul and other fiber transport solutions.
Data and transport services revenues increased $0.2 million during 2021 compared to 2020 due to continued growth in
Metro Ethernet and SD-WAN services, which was largely offset by a decline in carrier services and cellular backhaul in
2021 as a result of price compression and a reduction in pricing of recent contract renewals with our wireless backhaul
partners. Data and transport services revenues increased $6.8 million during 2020 compared to 2019 primarily due to
growth in Metro Ethernet and VoIP services. In recent years, the growth in data and transport services revenues has been
impacted by increased competition and price compression as customers are migrating from legacy data connection
products to more competitive Ethernet based products, which have a lower average revenue per user. In addition, recent
and ongoing contract renewals with our wireless backhaul partners have also resulted in a decline in pricing. Future
declines are expected to be partially offset with the increasing demand for bandwidth and other Ethernet services.
Voice Services
Voice services include basic local phone and long-distance service packages for business customers. The plans include
options for voicemail, conference calling, linking multiple office locations and other custom calling features such as caller
ID, call forwarding, speed dialing and call waiting. Services can be charged at a fixed monthly rate, a measured rate or
can be bundled with selected services at a discounted rate.
Voice services revenues decreased $9.9 million during 2021 compared to 2020 primarily due to a 9% decline in access
lines in 2021 compared to 2020. Voice services revenues decreased $6.6 million during 2020 compared to 2019 primarily
due to a 7% decline in access lines in 2020 compared to 2019. Commercial customers are increasingly choosing alternative
technologies, including our own VoIP product, and the broad range of features that Internet-based voice services can offer.
Other
Other services include business equipment sales and related hardware and maintenance support, video services and other
miscellaneous revenues, including 911 service revenues. We are a full service 911 provider and have installed and
maintained two turn-key, state of the art statewide next-generation emergency 911 systems. These systems, located in
Maine and Vermont, have processed several million calls relying on the caller's location information for routing. As of
October 29, 2020, we were no longer the 911 service provider in Vermont. Next-generation emergency 911 systems are
30
an improvement over traditional 911 and are expected to provide the foundation to handle future communication modes
such as texting and video.
Other services revenues decreased $3.5 million during 2021 compared to 2020 primarily due to the expiration of our 911
service contract in Vermont as well as decreases in pole attachment and custom construction revenues. Other services
revenues decreased $7.8 million during 2020 compared to 2019 primarily due to a decrease in business system sales in
2020.
Consumer
Broadband Services
Broadband services include revenues from residential customers for subscriptions to our VoIP and data products. We
offer high-speed Internet access at speeds of up to 1 Gbps, depending on the network facilities that are available, the level
of service selected and the location. Our VoIP digital phone service is also available in certain markets as an alternative
to the traditional telephone line. CCiTV, which is a customizable, cloud-enabled video service, supports a wide variety of
viewing habits and provides an app-based approach to video services. Content can be delivered in high-definition quality
to a big-screen TV, as well as to tablets and mobile devices.
Broadband services revenues increased $6.2 million during 2021 compared to 2020 and $6.0 million during 2020
compared to 2019 despite a 4% decrease in broadband connections in both 2021 and 2020 primarily due to an increase in
Internet services as a result of price increases as well as growth in CCiTV revenue. However, the increase in broadband
revenue was partially offset by a decline in VoIP revenue due to a 15% decline in connections in both 2021 and 2020.
Video Services
Depending on geographic market availability, our video services range from limited basic service to advanced digital
television, which includes several plans, each with hundreds of local, national and music channels including premium and
Pay-Per-View channels as well as video On-Demand service. Certain customers may also subscribe to our advanced video
services, which consist of high-definition television, digital video recorders (“DVR”) and/or a whole home DVR. Our
video subscribers can also watch their favorite shows, movies and livestreams on any device. In addition, we offer several
in-demand streaming TV services, which provide endless entertainment options.
Video services revenues decreased $9.2 million during 2021 compared to 2020 primarily due to a decrease in connections
of 18% in 2021 compared to 2020. Video services revenues decreased $7.1 million during 2020 compared to 2019
primarily due to a decrease in connections of 10% in 2020 compared to 2019. We expect to continue to experience a
decline in video connections as consumers are choosing to subscribe to alternative video services such as over-the-top
streaming services.
Voice Services
We offer several different basic local phone service packages and long-distance calling plans, including unlimited flat-rate
calling plans. The plans include options for voicemail and other custom calling features such as caller ID, call forwarding
and call waiting.
Voice services revenues decreased $9.8 million during 2021 compared to 2020 primarily due to a 11% decline in access
lines during 2021 compared to 2020. Voice services revenues decreased $10.3 million during 2020 compared to 2019
primarily due to an 8% decline in access lines during 2020 compared to 2019. The number of local access lines in service
directly affects the recurring revenue we generate from end users and continues to be impacted by the industry-wide decline
in access lines. We expect to continue to experience erosion in voice connections due to competition from alternative
technologies, including our own competing VoIP product.
Subsidies
Subsidies consist of both federal and state subsidies, which are designed to promote widely available, quality broadband
services at affordable prices with higher data speeds in rural areas. Subsidies revenues decreased $2.2 million during 2021
compared to 2020 and $0.4 million in 2020 compared to 2019 primarily due to a reduction in state subsidies support. We
31
anticipate future declines in federal subsidies support. In 2020, the FCC adopted an order establishing the Rural Digital
Opportunity Fund (“RDOF”), which will result in a reduction in our annual support of approximately $42.2 million
beginning January 1, 2022. See the “Regulatory Matters” section below for a further discussion of the subsidies we receive.
Network Access Services
Network access services include interstate and intrastate switched access, network special access and end user
access. Switched access revenues include access services to other communications carriers to terminate or originate long-
distance calls on our network. Special access circuits provide dedicated lines and trunks to business customers and
interexchange carriers. Network access services revenues decreased $4.8 million during 2021 compared to 2020 and $12.8
million in 2020 compared to 2019 primarily as a result of the continuing decline in interstate rates, minutes of use, voice
connections and carrier circuits; however, a portion of the decrease can be attributed to carriers shifting to our fiber Metro
Ethernet product, contributing to the growth in that area.
Other Products and Services
Other products and services include revenues from telephone directory publishing, video advertising, billing and support
services and other miscellaneous revenues. We have entered into numerous Public Private Partnership agreements with
several towns in New Hampshire to build new FTTP Internet networks. The new town networks provide broadband speeds
of up to 1 Gbps to residential and commercial customers. Public Private Partnerships are a key component of
Consolidated’s commitment to expand rural broadband access.
Other products and services revenues increased $11.2 million during 2021 compared to 2020 primarily due to revenue
recognition of Public Private Partnership construction projects during 2021. Other products and services revenues
decreased $0.3 million during 2020 compared to 2019 primarily due to a decline in telephone directory advertising
revenues.
Operating Expenses
Cost of Services and Products
Cost of services and products increased $9.0 million during 2021 compared to 2020 primarily due to an increase in access
expense related to fiber costs for the Public Private Partnership agreements, as described above. In addition, during 2021,
we incurred access charges of $3.4 million related to the early termination of a contract obligation for fixed wireless
services. Required contributions to the Federal Universal Service Fund (“USF”) also increased in 2021 as a result of an
increase in the annual funding rate. The increase in cost of services and products was also due to insurance recoveries
received in 2020. However, employee labor costs declined due to an increase in capitalized costs for the fiber network
expansion in 2021 as well as a reduction in headcount. Video programming costs decreased as a result of a decline in video
connections. Contract labor costs and repair and maintenance expense also decreased as a result of operating efficiencies
and a reduction in maintenance costs for utility poles.
In 2020, cost of services and products decreased $14.3 million compared to 2019 primarily due to a reduction in video
programming costs as a result of a 10% decline in video connections, which was offset in part by an increase in
programming costs per channel as costs continue to rise as a result of annual rate increases. Video programming costs are
impacted by license fees charged by cable networks, the amount and quality of the content we provide and the number of
video subscribers we serve. Cost of goods sold related to equipment sales also decreased from a decline in business system
sales in 2020. Employee salaries and benefits declined in 2020 as a result of a reduction in staff through continued cost
savings initiatives. Cost of services and products was also reduced by insurance recoveries received in 2020 for hurricane
damage incurred in prior years. However, access expense increased due to new fiber and co-location costs as a result of
an increase in commercial and carrier services.
Selling, General and Administrative Costs
Selling, general and administrative costs decreased $4.3 million during 2021 compared to 2020 primarily due to a reduction
in property and real estate taxes as a result of property tax refunds and settlements received in 2021. However, advertising
expense increased from additional radio and television advertising to promote our new Fidium brand and fiber broadband
speeds.
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Selling, general and administrative costs decreased $23.7 million during 2020 compared to 2019 primarily due a decline
in integration and severance costs in connection with cost savings initiatives. Employee salaries and benefits also declined
in 2020 as a result of a reduction in headcount. In addition, contract labor costs decreased as a result of operating efficiency
improvements. However, customer acquisition costs increased related to the amortization of sales commissions following
the adoption of ASC 606. Real estate taxes also increased due to property tax abatements received in 2019.
Acquisition and Other Transaction Costs
Acquisition and other transaction costs of $7.6 million includes costs incurred in 2020 in connection with the investment
agreement entered into with Searchlight in October 2020. Transaction costs consist primarily of legal, finance and other
professional fees incurred in connection with the CPRs issued as part of the transaction.
Depreciation and Amortization
Depreciation and amortization expense decreased $24.3 million during 2021 compared to 2020 primarily due to a decline
in amortization expense for customer relationships, which are amortized under the accelerated method. Depreciation
expense also declined due to the sale of utility poles located in the state of New Hampshire in 2020 and certain acquired
assets becoming fully depreciated or amortized. These declines in depreciation and amortization expense were offset in
part by ongoing capital expenditures related to the fiber network expansion and customer service improvements.
Depreciation and amortization expense decreased $56.3 million during 2020 compared to 2019 primarily due to acquired
assets becoming fully depreciated or amortized. Depreciation expense also declined due to the sale of utility poles located
in the state of Vermont in 2019. These declines in depreciation and amortization expense were offset in part by ongoing
capital expenditures related to CAF Phase II funding requirements and success-based capital projects for consumer,
commercial and carrier services as well as network enhancements and customer service improvements.
Regulatory Matters
Our revenues are subject to broad federal and/or state regulations, which include such telecommunications services as
local telephone service, network access service and toll service. The telecommunications industry is subject to extensive
federal, state and local regulation. Under the Telecommunications Act of 1996, federal and state regulators share
responsibility for implementing and enforcing statutes and regulations designed to encourage competition and to preserve
and advance widely available, quality telephone service at affordable prices.
At the federal level, the FCC generally exercises jurisdiction over facilities and services of local exchange carriers, such
as our rural telephone companies, to the extent they are used to provide, originate or terminate interstate or international
communications. The FCC has the authority to condition, modify, cancel, terminate or revoke our operating authority for
failure to comply with applicable federal laws or FCC rules, regulations and policies. Fines or penalties also may be
imposed for any of these violations.
State regulatory commissions generally exercise jurisdiction over carriers’ facilities and services to the extent they are
used to provide, originate or terminate intrastate communications. In particular, state regulatory agencies have substantial
oversight over interconnection and network access by competitors of our rural telephone companies. In addition,
municipalities and other local government agencies regulate the public rights-of-way necessary to install and operate
networks. State regulators can sanction our rural telephone companies or revoke our certifications if we violate relevant
laws or regulations.
FCC Matters
In general, telecommunications service in rural areas is costlier to provide than service in urban areas. The lower customer
density means that switching and other facilities serve fewer customers and loops are typically longer, requiring greater
expenditures per customer to build and maintain. By supporting the high-cost of operations in rural markets, USF subsidies
promote widely available, quality telephone service at affordable prices in rural areas.
Our annual support through the FCC’s Connect America Fund (“CAF”) Phase II funding was $48.1 million through
2021. The specific obligations associated with CAF Phase II funding included the obligation to serve approximately
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124,500 locations by December 31, 2020 (with interim milestones of 40%, 60% and 80% completion by December 2017,
2018 and 2019, respectively); to provide broadband service with speeds of 10 Mbps downstream and 1 Mbps upstream;
to achieve latency of less than 100 milliseconds; to provide data of at least 100 gigabytes per month; and to offer pricing
reasonably comparable to pricing in urban areas. The Company met the buildout milestones and performance metrics
requirements for 2017 through 2020 for all states where it received funding.
We accepted CAF Phase II support in all of our operating states except Colorado and Kansas, where we declined the
offered CAF Phase II support. We continued to receive annual frozen CAF Phase I support of $1.0 million in Colorado
and Kansas until April 2019, when the FCC CAF Phase II auction assigned support to another provider.
The annual FCC price cap filing was made on June 16, 2021 and became effective on July 1, 2021. The net impact is a
decrease of approximately $3.3 million in network access and CAF ICC support funding for the July 2021 through June
2022 tariff period.
In April 2019, the FCC announced plans for the RDOF, the next phase of the CAF program. The RDOF is a $20.4 billion
fund to bring speeds of 25 Mbps downstream and 3 Mbps upstream to unserved and underserved areas of America. The
FCC issued a Notice of Proposed Rulemaking at their August 2019 Open Commission Meeting. The order prioritizes
terrestrial broadband as a bridge to rural 5G networks by providing a significant weight advantage to traditional broadband
providers. Funding will occur in two phases with the first phase auctioning $16.0 billion and the second phase auctioning
$4.4 billion, each to be distributed over 10 years. The minimum speed required to receive funding is 25 Mbps downstream
and 3 Mbps upstream. CAF Phase II funding was extended through December 31, 2021 for price cap holding companies.
The FCC issued the final census block groups with locations and reserve price. We filed the RDOF short form application
on July 14, 2020 and were listed as a qualified bidder by the FCC on October 13, 2020 and participated in the auction. The
auction began on October 29, 2020 and ended on November 24, 2020. Consolidated won 246 census block groups serving
in seven states. The bids we won are at the 1 Gbps downstream and 500 Mbps upstream speed tier to approximately
27,000 locations at an annual funding level of $5.9 million, which will result in a reduction of approximately $42.2 million
in annual support beginning January 1, 2022 through December 31, 2031. Consolidated filed its long form application
with supporting documents on January 29, 2021 and received final FCC approval on December 14, 2021.
State Matters
Texas
The Texas Universal Service Fund (“TUSF”) is administered by the National Exchange Carrier Association
(“NECA”). The Texas Public Utilities Regulatory Act directs the Public Utilities Commission of Texas (“PUCT”) to
adopt and enforce rules requiring local exchange carriers to contribute to a state universal service fund that helps
telecommunications providers offer basic local telecommunications service at reasonable rates in high-cost rural
areas. The TUSF is also used to reimburse telecommunications providers for revenues lost by providing lifeline
service. Our Texas rural telephone companies receive disbursements from this fund.
Our Texas Incumbent Local Exchange Carriers (“ILECs”) have historically received support from two state funds, the
small and rural incumbent local exchange company plan High Cost Fund (“HCF”) and the High Cost Assistance Fund
(“HCAF”). In December 2020, the PUCT announced a TUSF funding shortfall and would be reducing all funded carriers
support by 64% beginning January 15, 2021. The Texas Telephone Association (“TTA”), which Consolidated is a
member, and the Texas Statewide Telephone Cooperative, Inc. (“TSTCI”), filed a lawsuit seeking to overturn the PUCT
decision as well as a temporary injunction on the funding reduction. On June 7, 2021, the court ruled in favor of the PUCT.
The TTA and TSTCI filed a notice to appeal on July 2, 2021. We filed our brief on September 18, 2021, along with a
Motion to Expedite. The defendant’s response was due October 21, 2021, unless the motion to expedite was granted. The
potential impact is a reduction in support of approximately $4.0 million annually.
Coronavirus Aid, Relief, and Economic Security Act Funding
States are reviewing opportunities to use federal Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
funding to assist in the deployment of broadband to unserved and underserved areas within their respective states. In 2020,
New Hampshire allocated $50.0 million of CARES Act funding to fund broadband expansion to unserved and underserved
locations throughout the state. Consolidated was granted up to $3.5 million to build high-speed Internet networks for
34
homes and businesses in New Hampshire for the towns of Danbury, Springfield and Mason. The state funded 10% upfront
with the remainder received upon completion of projects in December 2020.
American Rescue Plan Act Funding
President Biden signed the American Rescue Plan Act of 2021 (“ARPA”) on March 11, 2021. States have been allocated
federal funds to be utilized for capital infrastructure, including broadband deployment, and are in various stages of
implementation. We are working with the states and municipalities to participate in this broadband grant program.
COVID-19
On March 13, 2020, the FCC issued a pledge to Keep America Connected through May 13, 2020, which was later extended
to June 30, 2020. The pledge asked all communications providers to not terminate service to any residential or small
business customers because of their inability to pay their bills due to the disruptions caused by the coronavirus pandemic;
to waive any late fees that any residential or small business customers incur because of their economic circumstances
related to the coronavirus pandemic; and to open their Wi-Fi hotspots to any American who needs them. Consolidated
signed on to the pledge through June 30, 2020. Several states took the FCC pledge a step further by not allowing any
carrier to disconnect service within their state during the Governors’ declared state of emergency, which Consolidated also
supported. Most state moratoriums on disconnections have expired; however, certain states such as Washington and New
York were extended to July 31, 2021 and December 31, 2021, respectively.
In February 2021, the FCC created the Emergency Broadband Benefit Program (“EBB”), a temporary program to help
low income households stay connected during the COVID-19 pandemic by providing broadband service discounts for
eligible households. Consolidated is a participant in this program. The EBB ended December 31, 2021. EBB recipients
fully enrolled as of December 31, 2021 will automatically continue to receive their current monthly benefit until March 1,
2022 when the Affordable Connectivity Program takes its place.
Affordable Connectivity Program
The Affordable Connectivity Program (“ACP”) is a permanent broadband affordability program set up to replace the EBB.
The ACP program helps ensure that households can afford the broadband access they need for work, school, healthcare
and more. The benefit provides a discount of up to $30 per month toward internet service for eligible households and up
to $75 per month for households on qualifying Tribal lands. Eligible households can also receive a one-time discount of
up to $100 to purchase a laptop, desktop computer, or tablet from participating providers if they contribute more than $10
and less than $50 toward the purchase price. The ACP is limited to one monthly service discount and one device discount
per household. The program begins funding March 1, 2022. Consolidated will be participating in this program.
Infrastructure Investment and Jobs Act
The Infrastructure Investment and Jobs Act (the “Infrastucture Act”) passed on March 31, 2021 included $65.0 billion
toward broadband. The broadband internet portion of the Infrastructure Act is aimed at increasing internet coverage for
more universal access, including for rural, low-income, and tribal communities. 65% of this funding is set aside
specifically for underserved communities. Additionally, this measure is designed to help make internet access more
affordable and increase digital literacy.
The Infrastructure Act set aside $42.5 billion for Broadband Equity, Access and Deployment grants. The National
Telecommunications and Information Administration administers the grant program and is in the process of soliciting
comments before issuing final rules.
Other Regulatory Matters
We are also subject to a number of regulatory proceedings occurring at the federal and state levels that may have a material
impact on our operations. The FCC and state commissions have authority to issue rules and regulations related to our
business. A number of proceedings are pending or anticipated that are related to such telecommunications issues as
competition, interconnection, access charges, ICC, broadband deployment, consumer protection and universal service
reform. Some proceedings may authorize new services to compete with our existing services. Proceedings that relate to
our cable television operations include rulemakings on set top boxes, carriage of programming, industry consolidation and
35
ways to promote additional competition. There are various on-going legal challenges to the scope or validity of FCC
orders that have been issued. As a result, it is not yet possible to fully determine the impact of the related FCC rules and
regulations on our operations.
Non-Operating Items
Interest Expense, Net
Interest expense, net of interest income, increased $31.6 million during 2021 compared to 2020. Interest expense, including
amortized costs, on the Note issued to Searchlight as part of the investment agreement entered into in October 2020
increased $29.2 million in 2021.
Interest expense, net of interest income, increased $6.9 million during 2020 compared to 2019 primarily due to additional
interest of $7.9 million recognized on the Note issued to Searchlight as part of the investment agreement entered into in
October 2020. Interest on our outstanding senior notes also increased in 2020 due to the issuance of $750.0 million in
6.50% Senior Notes due 2028, which were used in part, to redeem the then-remaining amount of our outstanding 6.50%
Senior Notes due 2022 as part of the refinancing of our long-term debt in October 2020 as described in the “Liquidity and
Capital Resources” section below. However, interest expense was reduced in part by a reduction in outstanding debt under
our revolving credit facility and a decline in variable interest rates in 2020.
Loss on Extinguishment of Debt
As described in the “Liquidity and Capital Resources” section below, we incurred a loss on the extinguishment of debt of
$17.1 million in connection with the repayment of $397.0 million of outstanding term loans under our credit agreement
and the refinancing of our credit agreement during the year ended December 31, 2021.
In 2020, we incurred a loss on the extinguishment of debt of $18.3 million in connection with the refinancing of our credit
agreement and the redemption of our 6.50% Senior Notes due 2022 during the year ended December 31, 2020.
Change in Fair Value of Contingent Payment Obligations
Our contingent payment obligations were measured at fair value until they were converted into shares of the Company’s
common stock. During the years ended December 31, 2021 and 2020, we recognized a loss of $86.5 million and a gain
of $23.8 million, respectively, on the change in the fair value of the contingent payment rights issued to Searchlight.
Other Income
Other income decreased $7.6 million during 2021 compared to 2020. In 2021, we recognized a loss of $3.6 million on the
disposition of wireless spectrum licenses. In 2020, we recognized a gain of $3.7 million on the sale of our 39 GHz wireless
spectrum licenses as part of the FCC’s efforts to reclaim broadcast TV spectrum for wireless use. Pension and post-
retirement benefit expense increased $0.5 million as the reduction in annual expense was offset by a pension settlement
charge of $5.9 million recognized during the year ended December 31, 2021 as a result of the transfer of the pension
liability for a select group of retirees to an annuity provider. See Note 13 to the consolidated financial statements for a
more detailed discussion regarding our pension and other post-retirement plans. Investment income increased $1.2 million
during 2021 from our wireless partnership interests.
Other income increased $23.6 million during 2020 compared to 2019 primarily due to a decrease in pension and post-
retirement benefit expense of $15.5 million. During the year ended December 31, 2019, we recognized a pension
settlement charge of $6.7 million as a result of the transfer of the pension liability for a select group of retirees to an annuity
provider. Investment income increased $3.0 million during 2020 from our wireless partnership interests. In addition,
during 2020, we recognized a gain of $3.7 million on the sale of our 39 GHz wireless spectrum licenses as part of the
FCC’s efforts to reclaim broadcast TV spectrum for wireless use.
Income Taxes
Income taxes decreased $4.6 million in 2021 compared to 2020. Our effective tax rate was (6.3)% for 2021 compared to
22.7% for 2020. In 2021 and 2020, we placed additional valuation allowances on deferred tax assets related to state NOL
and state tax credit carryforwards of $1.7 million and $1.3 million, respectively. On September 22, 2021, we entered into
a definitive agreement to sell substantially all of the assets of our non-core, rural ILEC business located in Ohio (the “Ohio
36
transaction”). As a result, we recorded an increase to our current tax expense of $1.5 million related to the $5.7 million
impairment loss of noncash goodwill that is not deductible for tax purposes. We also recognized approximately $2.6
million of tax benefit in the fourth quarter of 2021 to adjust our 2020 provision to match our 2020 returns compared to
$0.5 million of tax benefit in the fourth quarter of 2020 to adjust our 2019 provision to match our 2019 returns. In addition,
the investment made by Searchlight in 2020 is treated as a contribution of equity for federal tax purposes. Accordingly,
the impact of the non-cash PIK interest expense, discount and issuance costs, and fair value adjustments on the CPR are
not recognized for federal income tax purposes, resulting in an increase of $33.1 million and a decrease of $1.6 million to
our current tax expense for 2021 and 2020, respectively. In addition, for 2021 and 2020, the effective tax rate differed
from the federal and state statutory rates due to various permanent income tax differences and differences in allocable
income for the Company’s state tax filings. Exclusive of these discrete adjustments, our effective tax rate for 2021 would
have been approximately 26.8% compared to 24.8% for 2020.
Income taxes increased $14.6 million in 2020 compared to 2019. The increase was primarily related to the change in
pretax income. Our effective tax rate was 22.7% for 2020 compared to 15.7% for 2019. In 2020 and 2019, we placed
additional valuation allowances on deferred tax assets related to state NOL and state tax credit carryforwards of $1.3
million and $1.1 million, respectively. The investment transaction with Searchlight on October 2, 2020 resulted in a net
decrease to our tax provision of $1.6 million due to various permanent income taxes differences. In addition, for 2020 and
2019, the effective tax rate differed from the federal and state statutory rates due to various permanent income tax
differences and differences in allocable income for the Company’s state tax filings. Exclusive of discrete adjustments, our
effective tax rate for 2020 would have been approximately 24.8% compared to 27.1% for 2019.
Non-GAAP Measures
In addition to the results reported in accordance with US GAAP, we also use certain non-GAAP measures such as EBITDA
and Adjusted EBITDA to evaluate operating performance and to facilitate the comparison of our historical results and
trends. These financial measures are not a measure of financial performance under US GAAP and should not be considered
in isolation or as a substitute for net income as a measure of performance and net cash provided by operating activities as
a measure of liquidity. They are not, on their own, necessarily indicative of cash available to fund cash needs as determined
in accordance with GAAP. The calculation of these non-GAAP measures may not be comparable to similarly titled
measures used by other companies. Reconciliations of these non-GAAP measures to the most directly comparable financial
measures presented in accordance with GAAP are provided below.
EBITDA is defined as net earnings before interest expense, income taxes, and depreciation and amortization. Adjusted
EBITDA is comprised of EBITDA, adjusted for certain items as permitted or required under our credit facility as described
in the reconciliations below. These measures are a common measure of operating performance in the telecommunications
industry and are useful, with other data, as a means to evaluate our ability to fund our estimated uses of cash.
37
The following tables are a reconciliation of net income (loss) to Adjusted EBITDA for the years ended December 31,
2021, 2020 and 2019:
(In thousands, unaudited)
Net income (loss)
Add (subtract):
Interest expense, net of interest income
Income tax expense (benefit)
Depreciation and amortization
EBITDA
Adjustments to EBITDA:
Other, net (1)
Investment distributions (2)
Loss (gain) on extinguishment of debt
Loss on impairment
Change in fair value of contingent payment rights
Non-cash, stock-based compensation
Adjusted EBITDA
Year Ended December 31,
2021
$ (106,693)
2020
37,302
2019
(19,931)
$
$
175,195
6,279
300,597
375,378
143,591
10,936
324,864
516,693
136,660
(3,714)
381,237
494,252
(30,934)
43,040
17,101
5,704
86,476
10,097
506,862
(30,993)
41,529
18,264
—
(23,802)
7,533
$ 529,224
(8,847)
35,809
(4,510)
—
—
6,836
$ 523,540
$
(1) Other, net includes the equity earnings from our investments, dividend income, income attributable to noncontrolling
interests in subsidiaries, acquisition and transaction related costs including integration and severance, non-cash
pension and post-retirement benefits and certain other miscellaneous items.
(2) Includes all cash dividends and other cash distributions received from our investments.
Liquidity and Capital Resources
Outlook and Overview
Our operating requirements have historically been funded from cash flows generated from our business and borrowings
under our credit facilities. We expect that our future operating requirements will continue to be funded from cash flows
from operating activities, existing cash and cash equivalents, and, if needed, from borrowings under our revolving credit
facility and our ability to obtain future external financing. We anticipate that we will continue to use a substantial portion
of our cash flow to fund capital expenditures for our accelerated fiber network expansion and growth plan and to invest in
future business opportunities.
The following table summarizes our cash flows:
(In thousands)
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
$
Increase (decrease) in cash and cash equivalents
$
Cash Flows Provided by Operating Activities
Years Ended December 31,
2020
2019
2021
318,867 $
(586,443)
211,650
(55,926) $
364,980 $
(210,066)
(11,748)
143,166 $
339,096
(217,819)
(118,481)
2,796
Net cash provided by operating activities was $318.9 million in 2021, a decrease of $46.1 million compared to the same
period in 2020. Cash flows provided by operating activities decreased in part due to a decline in earnings as a result of a
decrease in operating revenue. In addition, in response to the potential impacts of the COVID-19 pandemic in 2020, we
deferred approximately $12.0 million of certain employer payroll tax payments under the CARES Act. The portion of the
taxes deferred until 2021 of approximately $6.0 million were paid during the year ended December 31, 2021. These
38
reductions in cash provided by operating activities were offset in part by a decrease in cash paid for interest and cash
contributions to our defined benefit pension plan of $6.1 million and $3.8 million, respectively, in 2021 compared to 2020.
In 2020, net cash provided by operating activities was $365.0 million, an increase of $25.9 million compared to the same
period in 2019 primarily as a result of an increase in earnings primarily from a reduction in operating expenses through
cost management initiatives and improved operating efficiencies. Cash distributions received from our wireless
partnerships also increased $5.7 million in 2020 compared to 2019. Interest payments decreased approximately $8.6
million from prior year due a decrease in variable interest rates in 2020. In response to the potential impacts of the COVID-
19 pandemic, we elected the deferral of certain employer payroll tax payments under the CARES Act of approximately
$12.0 million during 2020. In addition, cash contributions to our defined benefit pension plans decreased $3.5 million in
2020 compared to 2019. However, income tax refunds decreased approximately $7.8 million from 2019.
Cash Flows Used In Investing Activities
Net cash used in investing activities was $586.4 million in 2021 and consisted primarily of cash used for capital
expenditures and the purchase of short-term investments. Capital expenditures continue to be our primary recurring
investing activity and were $480.3 million, $217.6 million and $232.2 million in 2021, 2020 and 2019, respectively. Our
fiber expansion plan contributed to the increase in capital expenditures in 2021, which included the upgrade of more than
330,000 passings with multi-Gig data speeds. Capital expenditures for 2022 are expected to be $475.0 million to $495.0
million, which will be used to support success-based capital projects for commercial, carrier and consumer initiatives and
for our planned fiber projects and broadband network expansion, which will include the upgrade in 2022 of approximately
400,000 fiber passings. We expect to continue to invest in the enhancement and expansion of our fiber network in order
to retain and acquire more customers through a broader set of products and an expanded network footprint.
In 2021, we purchased $175.8 million in short-term investments consisting primarily of held-to-maturity debt securities
with original maturities of three to twelve months, offset by the maturity of investments of $66.2 million.
Cash proceeds from the sale of assets decreased $3.6 million in 2021 compared to 2020. In 2020, we received cash
proceeds of $3.7 million on the sale of our 39 GHz wireless spectrum licenses as part of the FCC’s spectrum recovery
efforts.
Cash Flows Provided by (Used In) Financing Activities
Net cash used in financing activities consists primarily of our proceeds from and principal payments on long-term
borrowings and repurchases of debt.
Long-term Debt
The following table summarizes our indebtedness as of December 31, 2021:
(In thousands)
6.50% Senior Notes
5.00% Senior Notes
Term loans, net of discount
Finance leases
Balance
750,000
400,000
989,567
24,990
2,164,557
$
$
Maturity Date
October 1, 2028
October 1, 2028
October 2, 2027
Rate(1)
6.50 %
5.00 %
LIBOR plus 3.50 %
5.55 % (2)
(1) At December 31, 2021, the 1-month LIBOR applicable to our borrowings was 0.10%. The term loans are subject to
a 0.75% LIBOR floor.
(2) Weighted-average rate.
Credit Agreement
On October 2, 2020, the Company, through certain of its wholly-owned subsidiaries, entered into a Credit Agreement with
various financial institutions (the “Credit Agreement”) to replace the Company’s previous credit agreement in its entirety.
The Credit Agreement consisted of term loans in the aggregate amount of $1,250.0 million (the “Initial Term Loans”) and
39
a revolving loan facility of $250.0 million. The Credit Agreement also includes an incremental loan facility which provides
the ability to borrow, subject to certain terms and conditions, incremental loans in an aggregate amount of up to the greater
of (a) $300.0 million plus (b) an amount which would not cause its senior secured leverage ratio not to exceed 3.70:1.00
(the “Incremental Facility”). Borrowings under the Credit Agreement are secured by substantially all of the assets of the
Company and its subsidiaries, subject to certain exceptions.
The Term Loans were issued in an original aggregate principal amount of $1,250.0 million with a maturity date of October
2, 2027 and contained an original issuance discount of 1.5% or $18.8 million, which is being amortized over the term of
the loan. Prior to amendments to the Credit Agreement, as described below, the Initial Term Loans required quarterly
principal payments of $3.1 million, which commenced December 31, 2020, and bore interest at a rate 4.75% plus the
London Interbank Offered Rate (“LIBOR”) subject to a 1.00% LIBOR floor.
On January 15, 2021, the Company entered into Amendment No. 1 to the Credit Agreement in which we borrowed an
additional $150.0 million aggregate principal amount of incremental term loans (the “Incremental Term Loans”). The
Incremental Term Loans have terms and conditions identical to the Initial Term Loans including the same maturity date
and interest rate. The Initial Term Loans and Incremental Term Loans, collectively (the “Term Loans”) will comprise a
single class of term loans under the Credit Agreement.
On March 18, 2021, the Company repaid $397.0 million of the outstanding Term Loans with the net proceeds received
from the issuance of $400.0 million aggregate principal amount of 5.00% senior secured notes due 2028 (the “5.00%
Senior Notes”), as described below. The repayment of the Term Loans was applied to the remaining principal payments
in direct order of maturity, thereby eliminating the required quarterly principal payments through the remaining term of
the loan. In connection with the repayment of the Term Loans, we recognized a loss on extinguishment of debt of $12.0
million during the year ended December 31, 2021.
On April 5, 2021, the Company, entered into a second amendment to the Credit Agreement (the “Second Amendment”)
to refinance the outstanding Term Loans of $999.9 million. The terms and conditions of the Credit Agreement remain
substantially similar and unchanged except with respect to the interest rate applicable to the Term Loans and certain other
provisions. As a result of the Second Amendment, the interest rate of the Term Loans was reduced to 3.50% plus LIBOR
subject to a 0.75% LIBOR floor. The maturity date of the Term Loans of October 2, 2027 remains unchanged. In
connection with entering into the Second Amendment, we recognized a loss of $5.1 million on the extinguishment of debt
during the year ended December 31, 2021.
The revolving credit facility has a maturity date of October 2, 2025 and an applicable margin (at our election) of 4.00%
for LIBOR-based borrowings or 3.00% for alternate base rate borrowings, with a 0.25% reduction in each case if the
consolidated first lien leverage ratio, as defined in the Credit Agreement, does not exceed 3.20 to 1.00. As of December
31, 2021 and 2020, there were no borrowings outstanding under the revolving credit facility. Stand-by letters of credit of
$25.1 million were outstanding under our revolving credit facility as of December 31, 2021. The stand-by letters of credit
are renewable annually and reduce the borrowing availability under the revolving credit facility. As of December 31,
2021, $224.9 million was available for borrowing under the revolving credit facility.
The weighted-average interest rate on outstanding borrowings under our credit facilities was 4.25% and 5.75% at
December 31, 2021 and 2020, respectively. Interest is payable at least quarterly.
Financing Costs
In connection with entering into the Credit Agreement in October 2020, fees of $29.1 million were capitalized as deferred
debt issuance costs. These capitalized costs are amortized over the term of the debt and are included as a component of
interest expense in the consolidated statements of operations. We also incurred a loss on the extinguishment of debt of
$12.3 million during the year ended December 31, 2020 related to the repayment of the outstanding term loan under the
previous credit agreement.
Credit Agreement Covenant Compliance
The Credit Agreement contains various provisions and covenants, including, among other items, restrictions on the ability
to pay dividends, incur additional indebtedness, and issue certain capital stock. We have agreed to maintain certain
financial ratios, including a maximum consolidated first lien leverage ratio, as defined in the Credit Agreement. Among
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other things, it will be an event of default, with respect to the revolving credit facility only, if our consolidated first lien
leverage ratio as of the end of any fiscal quarter is greater than 5.85:1.00. As of December 31, 2021, our consolidated first
lien leverage ratio under the Credit Agreement was 4.14:1.00. As of December 31, 2021, we were in compliance with the
Credit Agreement covenants.
Senior Notes
6.50% Senior Notes due 2028
On October 2, 2020, we completed an offering of $750.0 million aggregate principal amount of 6.50% unsubordinated
secured notes due 2028 (the “6.50% Senior Notes”). The 6.50% Senior Notes were priced at par and bear interest at a rate
of 6.50%, payable semi-annually on April 1 and October 1 of each year, beginning on April 1, 2021. The 6.50% Senior
Notes mature on October 1, 2028. Deferred debt issuance costs of $17.0 million incurred in connection with the issuance
of the 6.50% Senior Notes in 2020 are being amortized using the effective interest method over the term of the Senior
Notes. The net proceeds from the issuance of the 6.50% Senior Notes were used to redeem our then outstanding $440.5
million aggregate principal amount of 6.50% Senior Notes due in October 2022 at a price equal to 100% of the aggregate
principal amount plus accrued and unpaid interest through the redemption date, to repay a portion of the outstanding
borrowings under the previous credit agreement as part of the refinancing in October 2020 and to pay related fees and
expenses.
On March 18, 2021, we issued $400.0 million aggregate principal amount 5.00% Senior Notes, together with the 6.50%
Senior Notes (the “Senior Notes”). The 5.00% Senior Notes were priced at par and bear interest at a rate of 5.00% per
year, payable semi-annually on April 1 and October 1 of each year, beginning on October 1, 2021. The 5.00% Senior
Notes will mature on October 1, 2028. Deferred debt issuance costs of $3.8 million incurred in connection with the
issuance of the 5.00% Senior Notes are being amortized using the effective interest method over the term of the Senior
Notes. The net proceeds from the issuance of the 5.00% Senior Notes were used to repay $397.0 million of the Term
Loans outstanding under the Credit Agreement.
Senior Notes Covenant Compliance
Subject to certain exceptions and qualifications, the indenture governing the Senior Notes contains customary covenants
that, among other things, limits the Company and its restricted subsidiaries’ ability to: incur additional debt or issue certain
preferred stock; pay dividends or make other distributions on capital stock or prepay subordinated indebtedness; purchase
or redeem any equity interests; make investments; create liens; sell assets; enter into agreements that restrict dividends or
other payments by restricted subsidiaries; consolidate, merge or transfer all or substantially all of its assets; engage in
transactions with its affiliates; or enter into any sale and leaseback transactions. The indenture also contains customary
events of default. At December 31, 2021, the Company was in compliance with all terms, conditions and covenants under
the indenture governing the Senior Notes.
Redemption of 6.50% Senior Notes due 2022
On October 2, 2020, a notice of redemption was issued to holders of our then outstanding $440.5 million aggregate
principal amount of 6.50% Senior Notes due in October 2022 (the “2022 Notes”) to redeem all outstanding 2022 Notes at
a price equal to 100% of the aggregate principal amount plus accrued and unpaid interest through the redemption date. A
portion of the proceeds from the issuance of the Senior Notes was deposited with the trustee to pay and discharge the entire
indebtedness under the 2022 Notes. The 2022 Notes were redeemed on November 2, 2020, in accordance with the notice
of redemption.
In connection with the redemption of the 2022 Notes, we recognized a loss on extinguishment of debt of $5.9 million
during the year ended December 31, 2020. During the year ended December 31, 2019, we repurchased $55.0 million of
the aggregate principal amount of the 2022 Notes for $49.8 million and recognized a gain on extinguishment of debt of
$4.5 million.
Finance Leases
We lease certain facilities and equipment under various finance leases which expire between 2022 and 2040. As of
December 31, 2021, the present value of the minimum remaining lease commitments was approximately $25.0 million, of
41
which $8.0 million was due and payable within the next twelve months. The leases require total remaining rental payments
of $27.9 million as of December 31, 2021.
Searchlight Investment
In connection with the Investment Agreement entered into in September 2020, Searchlight invested a total of $425.0
million in Consolidated and holds a combination of perpetual Series A preferred stock and approximately 35% of the
Company’s outstanding common stock. On October 2, 2020, we closed on the first stage of the strategic investment of
$350.0 million with Searchlight. The second stage of the investment was completed on December 7, 2021 and we received
the additional investment of $75.0 million from Searchlight.
On December 7, 2021, we issued 434,266 shares of Series A Preferred Stock to Searchlight. Dividends on each share of
Series A Preferred Stock accrue daily on the liquidation preference at a rate of 9.0% per annum and will be payable semi-
annually in arrears on January 1 and July 1 of each year. Dividends are payable until October 2, 2025 at our election, either
in cash or in-kind through an accrual of unpaid dividends, which are automatically added to the liquidation preference;
and after October 2, 2025, solely in cash. The liquidation preference at any given time is $1,000 per share. As of December
31, 2021, the liquidation preference of the Series A Preferred Stock was $436.9 million, which includes accrued and unpaid
dividends of $2.7 million. The Company intends to exercise the PIK dividend option on the Series A Preferred Stock
through at least 2022.
Dividends
We paid $55.4 million in dividend payments to shareholders during 2019. On April 25, 2019, we announced the
elimination of the payment of quarterly dividends on our stock beginning in the second quarter of 2019 in order to focus
on deleveraging, fiber network investments and create long-term value for our stockholders. Future dividend payments,
if any, are at the discretion of our Board of Directors. Changes in our dividend program will depend on our earnings,
capital requirements, financial condition, debt covenant compliance, expected cash needs and other factors considered
relevant by our Board of Directors.
Sufficiency of Cash Resources
The following table sets forth selected information regarding our financial condition:
(In thousands, except for ratio)
Cash and cash equivalents and short-term investments
Working capital
Current ratio
$
2021
210,436
142,270
1.50
$
2020
155,561
70,191
1.26
December 31,
Our net working capital position improved $72.1 million as of December 31, 2021 compared to December 31, 2020
primarily as a result of an increase in cash, cash equivalents and short-term investments of $54.9 million. At December
31, 2021, working capital also included assets classified as held for sale of $25.9 million related to the sale of substantially
all of the assets of our ILEC business located in Ohio. Prepaid expenses and other current assets increased $10.4 million.
Working capital also improved from a decline in the current portion of long-term debt and finance lease obligations of
$9.6 million as a result of the prepayment in March 2021 of $397.0 million of the outstanding Term Loans, which
eliminated the required quarterly principal payments through the remaining term of the loan. However, working capital
was reduced by an increase in accounts payable of $15.7 million and accrued expense of $15.5 million at December 31,
2021 related to the timing of capital expenditures for the fiber build plan.
Our most significant use of funds in 2022 is expected to be for: (i) interest payments on our indebtedness of between
$123.0 million and $127.0 million; and (ii) capital expenditures of between $475.0 million and $495.0 million. The recent
refinancing of our capital structure combined with the Searchlight investment provides us the capital and financial
flexibility to fund our accelerated fiber network expansion and growth plans. In the future, our ability to use cash may be
limited by our other expected uses of cash and our ability to incur additional debt will be limited by our existing and future
debt agreements.
We believe that cash flows from operating activities, together with our existing cash and borrowings available under our
revolving credit facility, will be sufficient for at least the next twelve months to fund our current anticipated uses of cash.
42
After that, our ability to fund these expected uses of cash and to comply with the financial covenants under our debt
agreements will depend on the results of future operations, performance and cash flow. Our ability to fund these expected
uses from the results of future operations will be subject to prevailing economic conditions and to financial, business,
regulatory, legislative and other factors, many of which are beyond our control. Due to the uncertainty and unpredictability
related to the potential impacts of the COVID-19 pandemic on our business, we will continue to closely manage our cash
and liquidity.
To the extent that our business plans or projections change or prove to be inaccurate, we may require additional financing
or require financing sooner than we currently anticipate. Sources of additional financing may include commercial bank
borrowings, other strategic debt financing, sales of nonstrategic assets, vendor financing or the private or public sales of
equity and debt securities. There can be no assurance that we will be able to generate sufficient cash flows from operations
in the future, that anticipated revenue growth will be realized, or that future borrowings or equity issuances will be available
in amounts sufficient to provide adequate sources of cash to fund our expected uses of cash. Failure to obtain adequate
financing, if necessary, could require us to significantly reduce our operations or level of capital expenditures, which could
have a material adverse effect on our financial condition and the results of operations.
We may be unable to access the cash flows of our subsidiaries since certain of our subsidiaries are parties to credit or other
borrowing agreements, or subject to statutory or regulatory restrictions, that restrict the payment of dividends or making
intercompany loans and investments, and those subsidiaries are likely to continue to be subject to such restrictions and
prohibitions for the foreseeable future. In addition, future agreements that our subsidiaries may enter into governing the
terms of indebtedness may restrict our subsidiaries’ ability to pay dividends or advance cash in any other manner to us.
Surety Bonds
In the ordinary course of business, we enter into surety, performance and similar bonds as required by certain jurisdictions
in which we provide services. As of December 31, 2021, we had approximately $6.4 million of these bonds outstanding.
Contractual Obligations
As of December 31, 2021, our most significant contractual obligations include the following:
(In thousands)
Long-term debt
Interest on long-term debt obligations
Finance leases
Operating leases
Purchase obligations
Total
Short-Term Long-Term
$
— $ 2,149,875 $ 2,149,875
748,887
27,910
32,128
117,398
626,364
18,890
24,402
24,276
122,523
9,020
7,726
93,122
Our long-term debt obligations represent our most significant contractual obligations. The partial repayment of the Term
Loans in March 2021, eliminated all future required quarterly principal payments for the remaining term of the loan. The
long-term debt obligation represents the maturity of the Term Loans in 2027 and the Senior Notes in 2028. Interest on
long-term debt includes amounts due on fixed and variable rate debt. As the rates on our variable debt are subject to
change, the rates in effect at December 31, 2021 were used in determining our future interest obligations.
Other contractual obligations consist primarily of purchase obligations and finance and operating leases for facilities, land,
underground conduit, colocations, and equipment used in our operations. Unrecorded purchase obligations include binding
commitments for future capital expenditures and service and maintenance agreements to support various computer
hardware and software applications and certain equipment. If we terminate any of the contracts prior to their expiration
date, we would be liable for minimum commitment payments as defined by the terms of the contracts. For additional
information, see Note 10 and Note 15 to the consolidated financial statements.
Defined Benefit Pension Plans
As required, we contribute to qualified defined pension plans and non-qualified supplemental retirement plans (collectively
the “Pension Plans”) and other post-retirement benefit plans, which provide retirement benefits to certain eligible
employees. Contributions are intended to provide for benefits attributed to service to date. Our funding policy is to
contribute annually an actuarially determined amount consistent with applicable federal income tax regulations.
43
The cost to maintain our Pension Plans and future funding requirements are affected by several factors including the
expected return on investment of the assets held by the Pension Plans, changes in the discount rate used to calculate pension
expense and the amortization of unrecognized gains and losses. Returns generated on the Pension Plans assets have
historically funded a significant portion of the benefits paid under the Pension Plans. We used a weighted-average
expected long-term rate of return of 6.00% and 6.25% in 2021 and 2020, respectively. As of January 1, 2022, we estimate
the long-term rate of return of Plan assets will be 6.00%. The Pension Plans invest in marketable equity securities which
are exposed to changes in the financial markets. If the financial markets experience a downturn and returns fall below our
estimate, we could be required to make material contributions to the Pension Plans, which could adversely affect our cash
flows from operations.
Net pension and post-retirement (benefit)/costs were $(3.8) million, $(4.1) million and $11.5 million for the years ended
December 31, 2021, 2020 and 2019, respectively. We contributed $20.8 million, $24.0 million and $27.5 million in 2021,
2020 and 2019, respectively to our Pension Plans. For our other post-retirement plans, we contributed $8.6 million, $9.2
million and $8.5 million in 2021, 2020 and 2019, respectively. In 2022, we expect to make contributions totaling
approximately $20.5 million to our Pension Plans and $8.2 million to our other post-retirement benefit plans. Our
contribution amounts meet the minimum funding requirements as set forth in employee benefit and tax laws. ARPA, which
was signed into law in March 2021, included changes to the employer funding requirements and is designed to reduce the
amounts of required contributions as a relief. For 2021 and 2022, we have elected not to reduce our required pension
contributions to the minimum funding requirements under ARPA and our expected contributions for 2022 are based on
historical minimum funding requirements of approximately $20.5 million in order to increase the Pension Plan’s funded
status. See Note 13 to the consolidated financial statements for a more detailed discussion regarding our pension and other
post-retirement plans.
Income Taxes
The timing of cash payments for income taxes, which is governed by the Internal Revenue Service and other taxing
jurisdictions, will differ from the timing of recording tax expense and deferred income taxes, which are reported in
accordance with GAAP. For example, tax laws in effect regarding accelerated or “bonus” depreciation for tax reporting
resulted in less cash payments than the GAAP tax expense. Acceleration of tax deductions could eventually result in
situations where cash payments will exceed GAAP tax expense.
Regulatory Matters
In 2020, the FCC adopted an order establishing the RDOF, the next phase of the CAF program, which will result in a
reduction of approximately $42.2 million in the annual support we receive beginning January 1, 2022 through December
31, 2031.
Critical Accounting Estimates
Our significant accounting policies and estimates are discussed in the Notes to our consolidated financial statements. We
prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United
States. The preparation of financial statements requires management to make estimates and assumptions that affect
reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by
management’s application of our accounting policies. Our judgments are based on historical experience and various other
assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making
estimates about the carrying values of assets and liabilities that are not readily apparent from other sources. However,
because future events and the related effects cannot be determined with certainty, actual results may differ from our
estimates and assumptions and such differences could be material. Management believes that the following accounting
estimates are the most critical to understanding and evaluating our reported financial results.
Indefinite-Lived Intangible Assets
Our indefinite-lived intangible assets are not subject to amortization and are tested for impairment annually or more
frequently when events or changes in circumstances indicate that the asset might be impaired. We evaluate the carrying
value of our indefinite-lived assets as of November 30 of each year.
44
Goodwill
As discussed more fully in Note 1 to the consolidated financial statements, goodwill is not amortized but instead evaluated
for impairment annually, or more frequently if an event occurs or circumstances change that would indicate potential
impairment. At December 31, 2021 and 2020, the carrying value of our goodwill was $1,013.2 million and $1,035.3
million, respectively. Goodwill decreased $22.1 million during 2021 as a result of allocated goodwill for a divestiture
classified as held for sale at December 31, 2021, as described in Note 5 to the consolidated financial statements. The
evaluation of goodwill may first include a qualitative assessment to determine whether it is more likely than not that the
fair value of the reporting unit is less than its carrying amount. Events and circumstances integrated into the qualitative
assessment process include a combination of macroeconomic conditions affecting equity and credit markets, significant
changes to the cost structure, overall financial performance and other relevant events affecting the reporting unit.
Functional management within the organization evaluates the operations of our single reporting unit on a consolidated
basis rather than at a geographic level or on any other component basis. In general, product managers and cost managers
are responsible for managing costs and services across territories rather than treating the territories as separate business
units. All of the properties are managed at a functional level. As a result, we evaluate the operations for all our service
territories as a single reporting unit.
For the 2021 assessment, we evaluated the fair value of the goodwill compared to the carrying value using the qualitative
approach. The results of the qualitative approach concluded that it was more likely than not that the fair value was greater
than the carrying value, and therefore, we did not perform the calculation of fair value for our single reporting unit as
described below.
When we use the quantitative approach to assess the goodwill carrying value and the fair value of our single reporting unit,
the fair value of our reporting unit is compared to its carrying amount, including goodwill. We would expect to use the
quantitative approach at least every third year or more frequently if an event or if circumstances change that may indicate
a potential impairment of goodwill has occurred. The estimated fair value of the reporting unit is determined using a
combination of market-based approaches and a discounted cash flow (“DCF”) model and reconciled to our market
capitalization plus an estimated control premium. The assumptions used in the estimate of fair value are based upon a
combination of historical results and trends, new industry developments and future cash flow projections, as well as
relevant comparable company earnings multiples for the market-based approaches. Such assumptions are subject to change
as a result of changing economic and competitive conditions. Based on our assessment at November 30, 2020, using the
quantitative approach, we concluded that the fair value of the reporting unit exceeded the carrying value at November 30,
2020 by approximately 120% and that there was no impairment of goodwill.
Trade Name
As discussed more fully in Note 1 to the consolidated financial statements, trade names are generally not amortized, but
instead evaluated annually, or more frequently if an event occurs or circumstances change that would indicate potential
impairment using a preliminary qualitative assessment and a quantitative process, if deemed necessary. The carrying value
of our trade name, excluding any finite lived trade names, $10.6 million at December 31, 2021 and 2020.
When we use the quantitative approach to estimate the fair value of our trade name, we use DCFs based on a relief from
royalty method. If the fair value of our trade name was less than the carrying amount, we would recognize an impairment
charge for the difference between the estimated fair value and the carrying value of the asset. We perform our impairment
testing of our trade name as a single unit of accounting based on its use in our single reporting unit.
For the 2021 assessment, we used the qualitative approach to evaluate the fair value compared to the carrying value of the
trade name. Based on our assessment, we concluded that the fair value of the trade name continued to exceed the carrying
value.
Income Taxes
Our current and deferred income taxes and associated valuation allowances are impacted by events and transactions arising
in the normal course of business as well as in connection with the adoption of new accounting standards, acquisitions of
businesses and non-recurring items. Assessment of the appropriate amount and classification of income taxes is dependent
on several factors, including estimates of the timing and realization of deferred income tax assets and the timing of income
45
tax payments. Actual amounts may materially differ from these estimates as a result of changes in tax laws as well as
unanticipated future transactions impacting related income tax balances. We account for tax benefits taken or expected to
be taken in our tax returns in accordance with the accounting guidance applicable for uncertainty in income taxes, which
requires the use of a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax
return.
Pension and Post-Retirement Benefits
The amounts recognized in our financial statements for pension and post-retirement benefits are determined on an actuarial
basis utilizing several critical assumptions. We make significant assumptions in regards to our pension and post-retirement
plans, including the expected long-term rate of return on plan assets, the discount rate used to value the periodic pension
expense and liabilities, future salary increases and actuarial assumptions relating to mortality rates and healthcare trend
rates. Changes in these estimates and other factors could significantly impact our benefit cost and obligations to maintain
pension and post-retirement plans.
Our pension investment strategy is to maximize long-term returns on invested plan assets while minimizing the risk of
volatility. Accordingly, we target our allocation percentage at approximately 70 - 90% in return seeking assets consisting
primarily of equity and fixed income funds with the remainder in hedge funds. Our assumed rate considers this investment
mix as well as past trends. We used a weighted-average expected long-term rate of return of 6.00% and 6.25% in 2021
and 2020, respectively. As of January 1, 2022, we estimate that the expected long-term rate of return of pension plan assets
will be 6.00%.
In determining the appropriate discount rate, we consider the current yields on high-quality corporate fixed-income
investments with maturities that correspond to the expected duration of our pension and post-retirement benefit plan
obligations. For our 2021 and 2020 projected benefit obligations, we used a weighted-average discount rate of 3.05% and
2.81%, respectively, for our pension plans and 2.93% and 2.56%, respectively, for our other post-retirement plans.
Our Pension Plans are sensitive to changes in the discount rate and the expected long-term rate of return on plan assets. A
one percentage-point increase or decrease in the discount rate and expected long-term rate of return would have the
following effects on net periodic pension cost of the Pension Plans:
(In thousands)
1-Percentage-
Point Increase
1-Percentage-
Point Decrease
Discount rate
Expected long-term rate of return on plan assets
$
$
1,841
(6,166)
$
$
(1,075)
6,166
Our post-retirement benefit plans are sensitive to the healthcare cost trend rate assumption. For purposes of determining
the cost and obligation for post-retirement medical benefits, a 6.25% healthcare cost trend rate was assumed for 2021,
declining to the ultimate trend rate of 5.00% in 2027. A 1.00% increase in the assumed healthcare cost trend rate would
result in increases of approximately $3.0 million and $0.2 million in the post-retirement benefit obligation and total service
and interest cost, respectively. A 1.00% decrease in the assumed healthcare cost trend would result in decreases of
approximately $3.1 million and $0.2 million in the post-retirement benefit obligation and in the total service and interest
cost, respectively.
Recent Accounting Pronouncements
For information regarding the impact of certain recent accounting pronouncements, see Note 1 “Business Description &
Summary of Significant Accounting Policies” to the consolidated financial statements included in this report in Part II -
Item 8 “Financial Statements and Supplementary Data”.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Our exposure to market risk is primarily related to the impact of interest rate fluctuations on our debt obligations. Market
risk is the potential loss arising from adverse changes in market interest rates on our variable rate obligations. In order to
manage the volatility relating to changes in interest rates, we utilize derivative financial instruments such as interest rate
swaps to maintain a mix of fixed and variable rate debt. We do not use derivatives for trading or speculative purposes.
Our interest rate swap agreements effectively convert a portion of our floating-rate debt to a fixed-rate basis, thereby
46
reducing the impact of interest rate changes on future cash interest payments. We calculate the potential change in interest
expense caused by changes in market interest rates by determining the effect of the hypothetical rate increase on the portion
of our variable rate debt that is not subject to a variable rate floor or hedged through the interest rate swap agreements.
At December 31, 2021, the majority of our variable rate debt was subject to a 0.75% London Interbank Offered Rate
(“LIBOR”) floor. Based on our variable rate debt outstanding as of December 31, 2021, a 1.00% increase in market
interest rates would increase annual interest expense by approximately $1.8 million. A 1.00% decrease in current interest
rates would not impact annual interest expense on our variable rate debt due to the 0.75% LIBOR floor.
As of December 31, 2021, the fair value of our interest rate swap agreements amounted to a liability of $12.8 million.
Total pre-tax deferred losses related to our interest rate swap agreements included in accumulated other comprehensive
loss was $10.1 million at December 31, 2021.
Item 8. Financial Statements and Supplementary Data
For information pertaining to our Financial Statements and Supplementary Data, refer to pages F-1 to F-43 of this report,
which are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (“Exchange Act”) that are designed to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. In
connection with the filing of this Form 10-K, management evaluated, under the supervision and with the participation of
our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design to provide reasonable assurance
of achieving their objectives and operation of our disclosure controls and procedures as of December 31, 2021. Based
upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures are effective as of December 31, 2021.
Inherent Limitation of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that
the objectives of the internal control system are met. Because of the inherent limitations of any internal control system,
no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been
detected.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such
term is defined in Exchange Act Rule 13a–15(f). Management, with the participation of our Chief Executive Officer and
Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31,
2021. In making this assessment, management used the framework set forth in Internal Control-Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this assessment,
our management concluded that, as of December 31, 2021, our internal control over financial reporting was effective to
provide reasonable assurance that the desired control objectives were achieved.
47
The effectiveness of internal control over financial reporting has been audited by Ernst & Young LLP, independent
registered public accounting firm, as stated in their report which is included elsewhere in this Annual Report on Form 10-
K.
Changes in Internal Control over Financial Reporting
Based upon the evaluation performed by our management, which was conducted with the participation of our Chief
Executive Officer and Chief Financial Officer, there has been no change in our internal control over financial reporting
during the quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Consolidated Communications Holdings, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Consolidated Communications Holdings, Inc. and subsidiaries’ internal control over financial reporting
as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our
opinion, Consolidated Communications Holdings, Inc. and subsidiaries (the Company) maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related
consolidated statements of operations, comprehensive income (loss), changes in mezzanine equity and shareholders’
equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our
report dated March 4, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 4, 2022
49
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Our Board of Directors adopted a Code of Business Conduct and Ethics (“the code”) that applies to all of our employees,
officers and directors, including our principal executive officer, principal financial officer and principal accounting officer.
A copy of the code is posted on our investor relations website at www.consolidated.com. Information contained on the
website is not incorporated by reference in, or considered to be a part of, this document.
Additional information required by this Item is incorporated herein by reference to our proxy statement for the annual
meeting of our shareholders to be filed pursuant to Regulation 14A within 120 days after our fiscal year-end of
December 31, 2021.
Item 11. Executive Compensation
Incorporated herein by reference to our proxy statement for the annual meeting of our shareholders to be filed pursuant to
Regulation 14A within 120 days after our fiscal year-end of December 31, 2021.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated herein by reference to our proxy statement for the annual meeting of our shareholders to be filed pursuant to
Regulation 14A within 120 days after our fiscal year-end of December 31, 2021.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Incorporated herein by reference to our proxy statement for the annual meeting of our shareholders to be filed pursuant to
Regulation 14A within 120 days after our fiscal year-end of December 31, 2021.
Item 14. Principal Accountant Fees and Services
Incorporated herein by reference to our proxy statement for the annual meeting of our shareholders to be filed pursuant to
Regulation 14A within 120 days after our fiscal year-end of December 31, 2021.
50
Item 15. Exhibits and Financial Statement Schedules
PART IV
(1) All Financial Statements
Location
The following consolidating financial statements and independent auditors’ report are filed as part of
this report on Form 10-K in Item 8–“Financial Statements and Supplementary Data”:
Report of Independent Registered Public Accounting Firm (PCAOB ID 42)
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2021
Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period
ended December 31, 2021
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Changes in Mezzanine Equity and Shareholders’ Equity for each of the
three years in the period ended December 31, 2021
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2021
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
F-1
F-3
F-4
F-5
F-6
F-7
F-8
No financial statement schedules have been included because they are not required, not applicable, or the
information is otherwise included in the notes to the financial statements.
(3) Exhibits
The exhibits listed below on the accompanying Index to Exhibits are filed or furnished as part of
this report.
Exhibit
No.
Description
3.1
3.2
3.3
4.1
4.2
4.3
4.4
Form of Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to
Amendment No. 7 to Form S-1 dated July 19, 2005)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Consolidated
Communications Holdings, Inc., as filed with the Secretary of State of the State of Delaware on May 3,
2011 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated May 4, 2011)
Amended and Restated Bylaws of Consolidated Communications Holdings Inc., as amended as of June 29,
2014 (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K dated June 29, 2014)
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 7 to
Form S-1 dated July 19, 2005)
Indenture, dated as of October 2, 2020, by and among Consolidated Communications, Inc., Consolidated
Communications Holdings, Inc., the other Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated
October 2, 2020)
Form of 6.500% Senior Secured Note due 2028 (incorporated by reference to Exhibit A to Exhibit 4.1 to
our Current Report on Form 8-K dated October 2, 2020)
Joinder Agreement to Guaranty Agreement, dated as of February 1, 2021, by and among Consolidated
Communications, Inc., the subsidiaries of Consolidated Communications Holdings, Inc. party thereto and
Wells Fargo Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 4.1
to our Current Report on Form 8-K dated February 1, 2021)
51
4.5*
4.6*
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
Supplement No. 1 to Security Agreement, dated as of February 1, 2021, among the subsidiaries of
Consolidated Communications Holdings, Inc. party thereto and Wells Fargo Bank, National Association,
as Collateral Agent (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K dated
February 1, 2021)
Supplement No. 1 to Pledge Agreement, dated as of February 1, 2021, among Consolidated
Communications, Inc., the subsidiaries of Consolidated Communications Holdings, Inc. party thereto and
Wells Fargo Bank, National Association, as Collateral Agent (incorporated by reference to Exhibit 4.3 to
our Current Report on Form 8-K dated February 1, 2021)
First Supplemental Indenture, dated as of February 1, 2021, among Consolidated Communications, Inc.,
the subsidiaries of Consolidated Communications Holdings, Inc. party thereto and Wells Fargo Bank,
National Association, as Trustee and Notes Collateral Agent (incorporated by reference to Exhibit 4.4 to
our Current Report on Form 8-K dated February 1, 2021)
Joinder Agreement to Guaranty Agreement, dated as of April 12, 2021, by and among Consolidated
Communications, Inc., Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo
Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 4.1 to our
Current Report on Form 8-K dated April 12, 2021)
Supplement No. 2 to Security Agreement, dated as of April 12, 2021, between Consolidated
Communications of Pennsylvania Company, LLC and Wells Fargo Bank, National Association, as
Collateral Agent (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K dated April
12, 2021)
Supplement No. 2 to Pledge Agreement, dated as of April 12, 2021, between Consolidated Communications
of Pennsylvania Company, LLC and Wells Fargo Bank, National Association, as Collateral Agent
(incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K dated April 12, 2021)
Second Supplement to 2020 Indenture, dated as of April 12, 2021, among Consolidated Communications,
Inc., Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo Bank, National
Association, as Trustee and Notes Collateral Agent (incorporated by reference to Exhibit 4.4 to our Current
Report on Form 8-K dated April 12, 2021)
Supplement No. 2 to Security Agreement, dated as of April 12, 2021, among the Consolidated
Communications, Inc., Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo
Bank, National Association, as Notes Collateral Agent (incorporated by reference to Exhibit 4.5 to our
Current Report on Form 8-K dated April 12, 2021)
Supplement No. 2 to Pledge Agreement, dated as of April 12, 2021, between Consolidated Communications
of Pennsylvania Company, LLC and Wells Fargo Bank, National Association, as Notes Collateral Agent
(incorporated by reference to Exhibit 4.6 to our Current Report on Form 8-K dated April 12, 2021)
First Supplement to 2021 Indenture, dated as of April 12, 2021, among Consolidated Communications,
Inc., Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo Bank, National
Association, as Trustee and Notes Collateral Agent (incorporated by reference to Exhibit 4.7 to our Current
Report on Form 8-K dated April 12, 2021)
Supplement No. 2 to Security Agreement, dated as of April 12, 2021, among Consolidated
Communications, Inc., Consolidated Communications of Pennsylvania Company, LLC and Wells Fargo
Bank, National Association, as Notes Collateral Agent (incorporated by reference to Exhibit 4.8 to our
Current Report on Form 8-K dated April 12, 2021)
Supplement No. 2 to Pledge Agreement, dated as of April 12, 2021, between Consolidated Communications
of Pennsylvania Company, LLC and Wells Fargo Bank, National Association, as Notes Collateral Agent
(incorporated by reference to Exhibit 4.9 to Form 8-K dated April 12, 2021)
52
4.17
10.1*
10.2
10.3*
10.4
10.5*
10.6
10.7**
10.8**
10.9**
10.10**
10.11*
10.12**
10.13**
10.14**
Description of the Company’s securities registered pursuant to Section 12(b) of the Securities Exchange
Act Form of Employment Security Agreement with the Company’s and its subsidiaries vice president and
director level employees (incorporated by reference to Exhibit 4.14 to our Annual Report on Form 10-K
for the period ended December 31, 2019)
Investment Agreement, dated as of September 13, 2020, by and between Consolidated Communications
Holdings, Inc. and Searchlight III CVL, L.P. (incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K dated September 13, 2020)
Governance Agreement, dated as of September 13, 2020, by and between Consolidated Communications
Holdings, Inc. and Searchlight III CVL, L.P. (incorporated by reference to Exhibit 10.2 to our Current
Report on Form 8-K dated September 13, 2020)
Contingent Payment Right Agreement, dated as of October 2, 2020, by and between Consolidated
Communications Holdings, Inc. and Searchlight III CVL, L.P. (incorporated by reference to Exhibit 10.1
to our Current Report on Form 8-K dated October 2, 2020)
Registration Rights Agreement, dated as of October 2, 2020, by and between Consolidated
Communications Holdings, Inc. and Searchlight III CVL, L.P. (incorporated by reference to Exhibit 10.2
to our Current Report on Form 8-K dated October 2, 2020)
Credit Agreement, dated as of October 2, 2020, among Consolidated Communications Holdings, Inc.,
Consolidated Communications, Inc., the Lenders and other parties referred to therein, Wells Fargo Bank,
National Association, as Administrative Agent, Issuing Bank and Swingline Lender (incorporated by
reference to Exhibit 10.3 to our Current Report on Form 8-K dated October 2, 2020)
Amendment No. 1, dated as of January 15, 2021, to the Credit Agreement among Consolidated
Communications Holdings, Inc., Consolidated Communications, Inc., JPMorgan Chase Bank, N.A., as
incremental term loan lender, and Wells Fargo Bank, National Association, as administrative agent
(incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated January 15, 2021)
Amended and Restated Consolidated Communications Holdings, Inc. Restricted Share Plan (incorporated
by reference to Exhibit 10.11 to Amendment No. 7 to Form S-1 dated July 19, 2005)
Consolidated Communications Holdings, Inc. 2005 Long-Term Incentive Plan (as amended and restated
effective May 5, 2009, as amended by amendments effective as of May 4, 2015 and amendments effective
as of April 30, 2018) (incorporated by reference to Exhibit A to our definitive proxy statement on Schedule
14A filed with the SEC on March 16, 2018)
Fifth Amendment to the Consolidated Communications Holdings, Inc. 2005 Long-Term Incentive Plan,
dated October 29, 2018 (incorporated by reference to Exhibit 10.9 to our Annual Report on Form 10-K for
the period ended December 31, 2018)
Form of Employment Security Agreement with the CEO of the Company (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K dated October 25, 2020)
Form of Employment Security Agreement with the CFO of the Company (incorporated by reference to
Exhibit 10.2 to our Current Report on Form 8-K dated October 25, 2020)
Form of Employment Security Agreement with certain of the Company’s employees (incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012)
Form of Employment Security Agreement with certain of the Company’s other executive officers
(incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated December 4, 2009)
Form of Employment Security Agreement with the Company’s and its subsidiaries vice president and
director level employees (incorporated by reference to Exhibit 10.12 to our Annual Report on Form 10-K
for the period ended December 31, 2007)
10.15**
Executive Long-Term Incentive Program, as revised March 12, 2007 (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K dated March 12, 2007)
53
10.16**
10.17**
10.18**
10.19**
10.20**
10.21**
10.22
21
23.1
31.1
31.2
32.1
101
Form of 2005 Long-Term Incentive Plan Performance Stock Grant Certificate (incorporated by reference
to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017)
Form of 2005 Long-Term Incentive Plan Restricted Stock Grant Certificate (incorporated by reference to
Exhibit 10.2 to our Quarterly Report on Form 10-K for the quarter ended March 31, 2017)
Form of 2005 Long-Term Incentive Plan Restricted Stock Grant Certificate (Executive) (incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019)
Form of 2005 Long-Term Incentive Plan Performance Stock Grant Certificate (Executive) (incorporated
by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019)
Form of 2005 Long-Term Incentive Plan Restricted Stock Grant Certificate for Directors (incorporated by
reference to Exhibit 10.4 to our Current Report on Form 8-K dated March 12, 2007)
Description of the Consolidated Communications Holdings, Inc. Bonus Plan (incorporated by reference to
Exhibit 10.5 to our Current Report on Form 8-K dated March 12, 2007)
Form of Indemnification Agreement with Directors and Executive Officers (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K dated May 7, 2013)
List of subsidiaries of the Registrant
Consent of Ernst & Young LLP (St. Louis)
Certificate of Chief Executive Officer of Consolidated Communications Holdings, Inc. pursuant to
Rule 13(a)-14(a) under the Securities Exchange Act of 1934
Certificate of Chief Financial Officer of Consolidated Communications Holdings, Inc. pursuant to
Rule 13(a)-14(a) under the Securities Exchange Act of 1934
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following financial information from Consolidated Communications Holdings, Inc. Annual Report on
Form 10-K for the year ended December 31, 2021, formatted in XBRL (eXtensible Business Reporting
Language): (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive
Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Changes in Mezzanine Equity
and Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated
Financial Statements
104
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit
101)
*Schedules and other attachments are omitted. The Company agrees to furnish, as a supplement, a copy of any schedule
or other attachment to the Securities and Exchange Commission upon request.
**Compensatory plan or arrangement.
Item 16. Form 10-K Summary
Not Applicable.
54
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Mattoon, Illinois on March
4, 2022.
SIGNATURES
CONSOLIDATED COMMUNICATIONS
HOLDINGS, INC.
By: /s/ C. ROBERT UDELL JR.
C. Robert Udell Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
By: /s/ C. ROBERT UDELL JR.
President and
C. Robert Udell Jr.
Chief Executive Officer, Director
(Principal Executive Officer)
Date
March 4, 2022
By: /s/ STEVEN L. CHILDERS
Steven L. Childers
Chief Financial Officer (Principal
Financial and Accounting Officer)
March 4, 2022
By: /s/ ROBERT J. CURREY
Chairman of the Board
March 4, 2022
Robert J. Currey
By: /s/ ANDREW S. FREY
Director
Andrew J. Frey
By: /s/ DAVID G. FULLER
Director
David G. Fuller
By: /s/ THOMAS A. GERKE
Thomas A. Gerke
By: /s/ ROGER H. MOORE
Roger H. Moore
Director
Director
By: /s/ MARIBETH S. RAHE
Director
Maribeth S. Rahe
By: /s/ MARISSA M. SOLIS
Director
Marissa M. Solis
March 4, 2022
March 4, 2022
March 4, 2022
March 4, 2022
March 4, 2022
March 4, 2022
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Consolidated Communications Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Consolidated Communications Holdings, Inc. and subsidiaries (the
Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), changes in
mezzanine equity and shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021 and the related
notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated
March 4, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit
matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Defined Benefit Pension and Other Post-Retirement Benefit Obligations
Description of the Matter The Company sponsors several pension plans and other postretirement benefit plans.
At December 31, 2021, the Company's aggregate defined benefit pension obligation
was $744 million and exceeded the fair value of pension plan assets of $617 million,
resulting in an unfunded defined benefit pension obligation of $127 million. Also, at
December 31, 2021, the other postretirement benefits obligation was approximately
$96 million. As explained in Note 13 of the consolidated financial statements, the
Company updates the assumptions used to measure the defined benefit pension and
postretirement benefit obligations, including discount rates, at December 31 or upon a
remeasurement event to reflect updated actuarial assumptions. The Company
determines the discount rates used to measure the obligations based upon an analysis
of a hypothetical portfolio of bonds that match the expected cash flow of its pension
F-1
How we addressed the
Matter in our audit
and other postretirement benefit plans. Auditing the post-retirement benefit obligations
is complex and required the involvement of specialists due to the highly judgmental
nature of assumptions used in the measurement process, primarily the discount rate
assumptions, which had a significant effect on the projected benefit obligations.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls over the post-retirement benefits obligation valuation process.
For example, we tested controls over management's review of the benefit obligation
calculations and the significant actuarial assumptions, including the discount rates. To
test the determination of the discount rate used in the calculation of the pension and
post-retirement benefit obligations, we performed audit procedures that focused on
evaluating, with the assistance of our actuarial specialists, the determination of the
discount rates, among other procedures. For example, we assessed the appropriateness
of the bonds included in the analysis used by management by evaluating the criteria
used to select bonds, and by testing the characteristics and investment grade of the
bonds selected, and we tested the mathematical accuracy of the analysis used by
management through recalculation of the present value of cash flows and compared to
the disclosed obligation.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
St. Louis, Missouri
March 4, 2022
F-2
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
Net revenues
Operating expense:
Cost of services and products (exclusive of depreciation and amortization)
Selling, general and administrative expenses
Acquisition and other transaction costs
Loss on impairment of assets held for sale
Depreciation and amortization
Income from operations
Other income (expense):
Interest expense, net of interest income
Gain (loss) on extinguishment of debt
Investment income
Change in fair value of contingent payment rights
Other, net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Less: dividends on Series A preferred stock
Less: net income attributable to noncontrolling interest
Net income (loss) attributable to common shareholders
Year Ended December 31,
2020
$ 1,282,233 $ 1,304,028 $ 1,336,542
2019
2021
569,629
271,125
—
5,704
300,597
135,178
560,644
275,361
7,646
—
324,864
135,513
574,936
299,088
—
—
381,237
81,281
(175,195)
(17,101)
42,307
(86,476)
873
(100,414)
(143,591)
(18,264)
41,062
23,802
9,716
48,238
(136,660)
4,510
38,088
—
(10,864)
(23,645)
6,279
10,936
(3,714)
(106,693)
2,677
392
$ (109,762) $
37,302
—
325
36,977 $
(19,931)
—
452
(20,383)
Net income (loss) per basic and diluted common shares attributable to common shareholders
$
(1.26) $
0.47 $
(0.29)
Dividends declared per common share
$
— $
— $
0.39
See accompanying notes.
F-3
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands)
Net income (loss)
Pension and post-retirement obligations:
Year Ended December 31,
2020
2021
2019
$ (106,693) $
37,302 $ (19,931)
33,344
(27,007)
(16,738)
5,444
436
7,936
868
—
10,191
(56,846)
392
(57,238) $
(13,601)
—
11,622
8,752
325
(19,237)
(576)
959
(47,587)
452
8,427 $ (48,039)
Change in net actuarial loss and prior service cost, net of tax of $11,903, $(9,710) and
$(5,875)
Amortization of actuarial loss (gain) and prior service cost (credit) to earnings, net of
tax of $1,950, $140 and $2,842
Derivative instruments designated as cash flow hedges:
Change in fair value of derivatives, net of tax of $306, $(4,797) and $(6,776)
Cumulative adjustment upon adoption of ASU 2017-12, net of tax of $(203)
Reclassification of realized loss to earnings, net of tax of $3,773, $4,061 and $149
Comprehensive income (loss)
Less: comprehensive income attributable to noncontrolling interest
Total comprehensive income (loss) attributable to common shareholders
$
See accompanying notes.
F-4
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for credit losses
Income tax receivable
Prepaid expenses and other current assets
Assets held for sale
Total current assets
Property, plant and equipment, net
Investments
Goodwill
Customer relationships, net
Other intangible assets
Other assets
Total assets
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Advance billings and customer deposits
Accrued compensation
Accrued interest
Accrued expense
Current portion of long-term debt and finance lease obligations
Liabilities held for sale
Total current liabilities
Long-term debt and finance lease obligations
Deferred income taxes
Pension and other post-retirement obligations
Convertible security interest
Contingent payment rights
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 15)
December 31,
2021
2020
$
$
$
99,635
110,801
133,362
1,134
56,831
26,052
427,815
2,019,444
109,578
1,013,243
73,939
10,557
58,116
3,712,692
40,953
53,028
68,272
17,819
97,417
7,959
97
285,545
2,118,853
194,458
214,671
—
—
62,789
2,876,316
$
$
$
155,561
—
137,646
1,072
46,382
—
340,661
1,760,152
111,665
1,035,274
113,418
10,557
135,573
3,507,300
25,283
49,544
74,957
21,194
81,931
17,561
—
270,470
1,932,666
171,021
300,373
238,701
123,241
81,600
3,118,072
Series A preferred stock, par value $0.01 per share; 10,000,000 shares authorized, 434,266 shares outstanding
as of December 31, 2021; liquidation preference of $436,943 as of December 31, 2021
288,576
—
Shareholders’ equity:
Common stock, par value $0.01 per share; 150,000,000 and 100,000,000 shares authorized as of December 31,
2021 and December 31, 2020, respectively, 113,647,364 and 79,227,607 shares outstanding as of December 31,
2021 and December 31, 2020, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss, net
Noncontrolling interest
Total shareholders’ equity
Total liabilities, mezzanine equity and shareholders’ equity
$
1,137
740,746
(141,599)
(59,571)
7,087
547,800
3,712,692 $
792
525,673
(34,514)
(109,418)
6,695
389,228
3,507,300
See accompanying notes.
F-5
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY
(amounts in thousands)
Mezzanine Equity
Shareholders' Equity
Additional Retained
Earnings
Paid-in
(Deficit)
Shares Amount Shares Amount Capital
Common Stock
Preferred Stock
Accumulated
Other
Non-
Comprehensive controlling
Loss, net
Interest
Total
Balance at December 31, 2018
Cash dividends on common stock
Shares issued under employee plan, net of
forfeitures
Non-cash, share-based compensation
Purchase and retirement of common stock
Other comprehensive income (loss)
Cumulative adjustment upon adoption of
ASU 2017-12
Net income (loss)
Balance at December 31, 2019
Shares issued under employee plan, net of
forfeitures
Shares issued to Searchlight
Non-cash, share-based compensation
Purchase and retirement of common stock
Other comprehensive income (loss)
Cumulative adjustment: adoption of ASU
2016-13
Net income (loss)
Balance at December 31, 2020
Shares issued under employee plan, net of
forfeitures
Shares issued to Searchlight
Series A preferred stock issued
Dividends on Series A preferred stock
accrued
Non-cash, share-based compensation
Purchase and retirement of common stock
Other comprehensive income (loss)
Net income (loss)
Balance at December 31, 2021
— $
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
— $
—
—
71,187 $ 712 $ 513,070 $ (50,834) $
(576)
— (27,289)
—
(53,212) $
—
5,918 $ 415,654
(27,865)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
870
—
(96)
—
9
—
(1)
—
(9)
6,836
(362)
—
—
—
—
—
—
—
—
(27,656)
—
—
—
—
—
6,836
(363)
(27,656)
—
—
576
(20,383)
71,961 $ 720 $ 492,246 $ (71,217) $
—
—
—
—
—
—
(80,868) $
—
452
576
(19,931)
6,370 $ 347,251
1,061
6,353
—
(147)
—
11
63
—
(2)
—
(11)
26,716
7,533
(811)
—
—
—
—
—
—
—
—
—
(28,550)
—
—
—
—
—
—
26,779
7,533
(813)
(28,550)
—
—
(274)
36,977
79,228 $ 792 $ 525,673 $ (34,514) $
—
—
—
—
—
—
(109,418) $
—
325
(274)
37,302
6,695 $ 389,228
—
—
—
—
434 285,899
1,652
32,986
—
17
(17)
330 209,387
—
—
—
—
—
—
—
—
—
—
— 209,717
—
—
—
—
—
—
—
—
—
—
—
— (107,085)
434 $ 288,576 113,647 $ 1,137 $ 740,746 $ (141,599) $
—
—
(219)
—
—
2,677
—
—
—
—
—
—
(2)
—
—
(2,677)
10,097
(1,717)
—
—
—
49,847
—
(59,571) $
—
—
—
—
(2,677)
10,097
(1,719)
49,847
392 (106,693)
7,087 $ 547,800
See accompanying notes.
F-6
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
2021
Year Ended December 31,
2020
2019
$
(106,693) $
37,302 $
(19,931)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
Deferred income taxes
Cash distributions from wireless partnerships in excess of (less than) current
earnings
Pension and post-retirement contributions in excess of expense
Stock-based compensation expense
Amortization of deferred financing costs and discounts
Noncash interest expense on convertible security interest
Loss (gain) on extinguishment of debt
Loss (gain) on change in fair value of contingent payment rights
Loss on impairment of assets held for sale
Other, net
Changes in operating assets and liabilities:
Accounts receivable, net
Income tax receivable
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment, net
Purchase of investments
Proceeds from sale of assets
Proceeds from sale and maturity of investments
Other
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from bond offering
Proceeds from issuance of long-term debt
Proceeds from issuance of common stock
Payment of finance lease obligations
Payment on long-term debt
Retirement of senior notes
Payment of financing costs
Share repurchases for minimum tax withholding
Dividends on common stock
Other
Net cash provided by (used in) financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
See accompanying notes.
F-7
300,597
5,504
1,195
(33,208)
10,097
15,622
30,927
17,101
86,476
5,704
3,226
4,103
(62)
(12,863)
(189)
(8,670)
318,867
(480,346)
(175,764)
3,469
66,198
—
(586,443)
324,864
8,386
844
(37,301)
7,533
7,871
7,875
10,629
(23,802)
—
(2,501)
(4,993)
3,103
(7,457)
(5,653)
38,280
364,980
(217,563)
—
7,071
426
—
(210,066)
400,000
150,000
75,000
(6,365)
(397,000)
—
(8,266)
(1,719)
—
—
211,650
(55,926)
155,561
99,635 $
750,000
1,271,250
350,000
(9,020)
(1,867,838)
(444,717)
(59,139)
(812)
—
(1,472)
(11,748)
143,166
12,395
155,561 $
381,237
(5,249)
(1,901)
(24,507)
6,836
4,932
—
(4,510)
—
—
1,487
13,120
9,908
(1,546)
(1,566)
(19,214)
339,096
(232,203)
—
14,718
329
(663)
(217,819)
—
195,000
—
(12,519)
(195,350)
(49,804)
—
(363)
(55,445)
—
(118,481)
2,796
9,599
12,395
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019
1. BUSINESS DESCRIPTION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Accounting
Consolidated Communications Holdings, Inc. (the “Company,” “we,” “our” or “us”) is a holding company with operating
subsidiaries (collectively “Consolidated”) that provide communication solutions to consumer, commercial and carrier
customers across a service area in over 20 states.
Leveraging our advanced fiber network spanning approximately 52,400 fiber route miles, we offer residential high-speed
Internet, video, phone and home security services as well as a comprehensive business product suite including: data and
Internet solutions, voice, data center services, security services, managed and IT services, and an expanded suite of cloud
services.
Use of Estimates
Preparation of the financial statements in conformity with accounting principles generally accepted in the United States
and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) requires management
to make estimates and assumptions that effect the reported amounts of assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ
materially from those estimates. Our critical accounting estimates include (i) impairment evaluations associated with
indefinite-lived intangible assets (Note 1), (ii) the determination of deferred tax asset and liability balances (Notes 1 and
14) and (iii) pension plan and other post-retirement costs and obligations (Notes 1 and 13).
Principles of Consolidation
Our consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries and
subsidiaries in which we have a controlling financial interest. All significant intercompany transactions have been
eliminated.
Recent Business Developments
Searchlight Investment
On December 7, 2021, we closed on the final stage of the investment agreement (the “Investment Agreement”) entered
into on September 13, 2020 with an affiliate of Searchlight Capital Partners, L.P. (“Searchlight”). In connection with the
Investment Agreement, affiliates of Searchlight have invested an aggregate of $425.0 million in the Company and hold a
combination of Series A perpetual preferred stock and approximately 35% of the Company’s outstanding common stock.
For a more complete discussion of the transaction, refer to Note 4. With the strategic investment from Searchlight, we
intend to enhance our fiber infrastructure and accelerate the investment in our network, which will include the upgrade
over five years of approximately 1.6 million passings across select service areas to enable multi-Gig capable services to
these homes and small businesses. Our fiber build plan included the upgrade of approximately 330,000 homes and small
businesses in 2021.
Refinancing of Long-term Debt
On October 2, 2020, the Company and certain of its wholly-owned subsidiaries completed a refinancing of our long-term
debt through the issuance of $2,250.0 million in new secured debt and retired all of our existing then outstanding debt
obligations. As described in Note 8, we entered into a new credit agreement and issued $750.0 million aggregate principal
amount of 6.50% senior secured notes due 2028. On January 15, 2021, the Company issued an additional $150.0 million
aggregate principal amount of incremental term loans under the credit agreement. On March 18, 2021, we issued $400.0
million aggregate principal amount 5.00% Senior Notes and used the net proceeds from the issuance of notes to repay
$397.0 million of the term loans outstanding under the credit agreement. On April 5, 2021, we entered into an amendment
F-8
to the credit agreement to refinance the outstanding term loans. For a more complete discussion of the refinancing, refer
to Note 8.
COVID-19
We are closely monitoring the ongoing impact on our business of the novel strain of coronavirus (“COVID-19”) and its
variants. We are taking precautions to ensure the safety of our employees, customers and business partners, while assuring
business continuity and reliable service and support to our customers. While we have not seen a material adverse impact
to our financial results from COVID-19 to date, if the pandemic worsens or new variants of the virus become more
dominant and were to cause significant negative impacts to economic conditions, our results of operations, financial
condition and liquidity could be materially and adversely impacted.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted by the U.S.
government as an emergency economic stimulus package that includes spending and tax breaks to strengthen the US
economy and fund a nationwide effort to curtail the economic effects of COVID-19. The CARES Act included, among
other things, deferral of certain employer payroll tax payments and certain income tax law changes including modifications
to the net interest deduction limitations. In 2020, we deferred the payment of approximately $12.0 million for the employer
portion of Social Security taxes otherwise due in 2020 with 50% due by December 31, 2021 and the remaining 50% by
December 31, 2022. The portion of the taxes deferred until 2021 were paid during the third quarter of 2021. On March 11,
2021, the American Rescue Plan Act of 2021 (“ARPA”) was enacted and provides further economic relief to address the
continued economic impact of COVID-19. To date, these acts have not had a material impact on our consolidated financial
statements, although we will continue to monitor the impact of any effects from these acts and other future legislation.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Our
cash equivalents consist primarily of money market funds and commercial paper. The carrying amounts of our cash
equivalents approximate their fair values.
Accounts Receivable and Allowance for Credit Losses
Effective January 1, 2020, we adopted Accounting Standards Update (“ASU”) No. 2016-13 (“ASU 2016-13”),
Measurement of Credit Losses on Financial Instruments, using the modified retrospective method. The adoption of the
new standard did not result in a material impact to the Company. As part of the adoption, we recorded a cumulative effect
adjustment of $0.3 million, net of tax, which decreased retained earnings during the year ended December 31, 2020. Of
this amount, $0.2 million was related to the decrease in the value of our partnership interests as a result of the adoption of
ASU 2016-13 by our equity method partnerships. The following disclosures have been made in accordance with ASU
2016-13.
Accounts receivable (“AR”) consists primarily of amounts due to the Company from normal business activities. We
maintain an allowance for credit losses (“ACL”) based on our historical loss experience, current conditions and forecasted
changes including but not limited to changes related to the economy, our industry and business. Uncollectible accounts
are written-off (removed from AR and charged against the ACL) when internal collection efforts have been unsuccessful.
Subsequently, if payment is received from the customer, the recovery is credited to the ACL.
The following table summarizes the activity in the ACL for the years ended December 31, 2021, 2020 and 2019:
2019
2021
2020
$ 9,136 $ 4,549 $ 4,421
—
9,347
(9,219)
$ 9,961 $ 9,136 $ 4,549
—
7,752
(6,927)
144
11,573
(7,130)
(In thousands)
Balance at beginning of year
Cumulative adjustment upon adoption of ASU 2016-13
Provision charged to expense
Write-offs, less recoveries
Balance at end of year
F-9
Investments
Investments in debt securities that we have the positive intent and ability to hold until maturity are classified as held-to-
maturity. We consider all highly liquid investments with original maturities of three months or less to be cash equivalents.
Investments with original maturities of more than three months and less than one year are classified as short-term
investments. Held-to maturity debt securities are recorded at amortized cost, which approximates fair value, and realized
gains or losses are recognized in earnings.
Our long-term investments are primarily accounted for under either the equity method or at cost. If we have the ability to
exercise significant influence over the operations and financial policies of an affiliated company, the investment in the
affiliated company is accounted for using the equity method. If we do not have control and also cannot exercise significant
influence, we account for these investments at our initial cost less impairment because fair value is not readily available
for these investments.
We review our investment portfolio periodically to determine whether there are identified events or circumstances that
would indicate there is a decline in the fair value that is considered to be other than temporary. If we believe the decline
is other than temporary, we evaluate the financial performance of the business and compare the carrying value of the
investment to quoted market prices (if available) or the fair value of similar investments. If an investment is deemed to
have experienced an impairment that is considered other-than temporary, the carrying amount of the investment is reduced
to its quoted or estimated fair value, as applicable, and an impairment loss is recognized in other income (expense).
Fair Value of Financial Instruments
We account for certain assets and liabilities at fair value. Fair value is an exit price, representing the amount that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such,
fair value is a market-based measurement that should be determined based on assumptions that market participants would
use in pricing an asset or a liability. A financial asset or liability’s classification within a three-tiered value hierarchy is
determined based on the lowest level input that is significant to the fair value measurement. The hierarchy prioritizes the
inputs to valuation techniques into three broad levels in order to maximize the use of observable inputs and minimize the
use of unobservable inputs. The levels of the fair value hierarchy are as follows:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active
markets.
Level 2 – Inputs that reflect quoted prices in active markets for similar assets or liabilities, quoted prices for
identical or similar assets or liabilities in inactive markets and inputs other than quoted prices that are
directly or indirectly observable in the marketplace.
Level 3 – Unobservable inputs which are supported by little or no market activity.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. We capitalize additions and substantial improvements and expense
repairs and maintenance costs as incurred.
We capitalize the cost of internal-use network and non-network software which has a useful life in excess of one year.
Subsequent additions, modifications or upgrades to internal-use network and non-network software are capitalized only to
the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training
costs are expensed in the period in which they are incurred. Also, we capitalize interest associated with the development
of internal-use network and non-network software.
F-10
Property, plant and equipment consisted of the following as of December 31, 2021 and 2020:
December 31, December 31, Estimated
(In thousands)
Land and buildings
Central office switching and transmission
Outside plant cable, wire and fiber facilities
Furniture, fixtures and equipment
Assets under finance leases
Total plant in service
Less: accumulated depreciation and amortization
Plant in service
Construction in progress
Construction inventory
Totals
2021
Useful Lives
2020
$ 276,027 $ 274,535 18 - 40 years
1,475,590 3 - 25 years
2,036,312 3 - 50 years
303,680 3 - 15 years
40,407 2 - 20 years
1,590,510
2,152,253
324,562
44,495
4,387,847
(2,698,421)
1,689,426
265,054
64,964
4,130,524
(2,466,407)
1,664,117
64,056
31,979
$ 2,019,444 $ 1,760,152
Construction inventory, which is stated at weighted average cost, consists primarily of network construction materials and
supplies that when issued are predominately capitalized as part of new customer installations and the construction of the
network.
We record depreciation using the straight-line method over estimated useful lives using either the group or unit method.
The useful lives are estimated at the time the assets are acquired and are based on historical experience with similar assets,
anticipated technological changes and the expected impact of our strategic operating plan on our network infrastructure.
In addition, the ranges of estimated useful lives presented above are impacted by the accounting for business combinations
as the lives assigned to these acquired assets are generally much shorter than that of a newly acquired asset. The group
method is used for depreciable assets dedicated to providing regulated telecommunication services, including the majority
of the network, outside plant facilities and certain support assets. A depreciation rate for each asset group is developed
based on the average useful life of the group. The group method requires periodic revision of depreciation rates. When
an individual asset is sold or retired, the difference between the proceeds, if any, and the cost of the asset is charged or
credited to accumulated depreciation, without recognition of a gain or loss.
The unit method is primarily used for buildings, furniture, fixtures and other support assets. Each asset is depreciated on
the straight-line basis over its estimated useful life. When an individual asset is sold or retired, the cost basis of the asset
and related accumulated depreciation are removed from the accounts and any associated gain or loss is recognized.
Depreciation and amortization expense related to property, plant and equipment was $261.1 million, $274.2 million and
$315.0 million in 2021, 2020 and 2019, respectively. Amortization of assets under capital leases is included in the
depreciation and amortization expense in the consolidated statements of operations.
We evaluate the recoverability of our property, plant and equipment whenever events or substantive changes in
circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability is measured by
a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be
generated by the asset group. If the total of the expected future undiscounted cash flows were less than the carrying amount
of the asset group, we would recognize an impairment charge for the difference between the estimated fair value and the
carrying value of the asset group.
Intangible Assets
Indefinite-Lived Intangibles
Goodwill and tradenames are evaluated for impairment annually or more frequently when events or changes in
circumstances indicate that the asset might be impaired. We evaluate the carrying value of goodwill and tradenames as of
November 30 of each year.
Goodwill
Goodwill is the excess of the acquisition cost of a business over the fair value of the identifiable net assets acquired.
Goodwill is not amortized but instead evaluated annually for impairment. The evaluation of goodwill may first include a
F-11
qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than
its carrying amount. Events and circumstances integrated into the qualitative assessment process include a combination
of macroeconomic conditions affecting equity and credit markets, significant changes to the cost structure, overall financial
performance and other relevant events affecting the reporting unit.
When we use the quantitative approach to assess the goodwill carrying value and the fair value of our single reporting unit,
the fair value of our reporting unit is compared to its carrying amount, including goodwill. The estimated fair value of the
reporting unit is determined using a combination of market-based approaches and a discounted cash flow (“DCF”) model
and reconciled to our market capitalization plus an estimated control premium. The assumptions used in the estimate of
fair value are based upon a combination of historical results and trends, new industry developments and future cash flow
projections, as well as relevant comparable company earnings multiples for the market-based approaches. Such
assumptions are subject to change as a result of changing economic and competitive conditions. We use a weighting of
the results derived from the valuation approaches to estimate the fair value of the reporting unit. For the 2020 assessment,
using the quantitative approach, we concluded that the fair value of the reporting unit exceeded the carrying value at
November 30, 2020 and that there was no impairment of goodwill.
In measuring the fair value of our single reporting unit as described, we consider the fair value of our reporting unit in
relation to our overall enterprise value, measured as the publicly traded stock price multiplied by the fully diluted shares
outstanding plus the fair value of outstanding debt. Our reporting unit fair value models are consistent with a range in
value indicated by both the preceding three-month average stock price and the stock price on the valuation date, plus an
estimated acquisition premium which is based on observable transactions of comparable companies, if applicable.
For the 2021 assessment, we evaluated the fair value of goodwill compared to the carrying value using the qualitative
approach. The results of the qualitative approach concluded that it was more likely than not that the fair value of goodwill
was greater than the carrying value as of November 30, 2021.
If the carrying value of the reporting unit exceeds its fair value, a goodwill impairment is recorded for the difference in the
carrying value and fair value. We did not recognize any goodwill impairment in 2021, 2020 or 2019 as a result of the
impairment tests.
At December 31, 2021 and 2020, the carrying value of goodwill was $1,013.2 million and $1,035.3 million, respectively.
Goodwill decreased $22.1 million during 2021 as a result of allocated goodwill for a divestiture classified as held for sale
at December 31, 2021, as described in Note 5.
Trade Name
Our trade name is the federally registered mark CONSOLIDATED, a design of interlocking circles, which is used in
association with our communication services. The Company’s corporate branding strategy
the
CONSOLIDATED name and brand identity. All of the Company’s business units and several of our products and services
incorporate the CONSOLIDATED name. Trade names with indefinite useful lives are not amortized but are tested for
impairment at least annually. If facts and circumstances change relating to a trade name’s continued use in the branding
of our products and services, it may be treated as a finite-lived asset and begin to be amortized over its estimated remaining
life.
leverages
When we use the quantitative approach to estimate the fair value of our trade names, we use DCFs based on a relief from
royalty method. If the fair value of our trade names was less than the carrying amount, we would recognize an impairment
charge for the difference between the estimated fair value and the carrying value of the assets. We perform our impairment
testing of our trade names as single units of accounting based on their use in our single reporting unit.
For the 2021 assessment, we used the qualitative approach to evaluate the fair value compared to the carrying value of the
trade name. Based on our assessment, we concluded that the fair value of the trade names continued to exceed the carrying
value. The carrying value of our trade names, excluding any finite lived trade names, was $10.6 million at December 31,
2021 and 2020.
F-12
Finite-Lived Intangible Assets
Finite-lived intangible assets subject to amortization consist primarily of our customer lists of an established base of
customers that subscribe to our services, trade names of acquired companies and other intangible assets. Finite-lived
intangible assets are amortized using an accelerated amortization method or on a straight-line basis over their estimated
useful lives. We evaluate the potential impairment of finite-lived intangible assets when impairment indicators exist. If
the carrying value is no longer recoverable based upon the undiscounted future cash flows of the asset, an impairment
equal to the difference between the carrying amount and the fair value of the asset is recognized. We did not recognize
any intangible impairment charges in the years ended December 31, 2021, 2020 or 2019.
The components of finite-lived intangible assets are as follows:
December 31, 2021
December 31, 2020
(In thousands)
Useful Lives
Gross Carrying Accumulated Gross Carrying Accumulated
Amortization
Amortization
Amount
Amount
Customer relationships
5 - 11 years
$
318,498 $
(244,559) $
318,921 $
(205,503)
Amortization expense related to the finite-lived intangible assets for the years ended December 31, 2021, 2020 and 2019
was $39.5 million, $50.7 million and $66.2 million, respectively. Expected future amortization expense of finite-lived
intangible assets is as follows:
(In thousands)
2022
2023
2024
2025
2026
Thereafter
Total
$ 30,850
23,963
10,617
3,180
2,529
2,800
$ 73,939
Derivative Financial Instruments
We use derivative financial instruments to manage our exposure to the risks associated with fluctuations in interest rates.
Our interest rate swap agreements effectively convert a portion of our floating-rate debt to a fixed-rate basis, thereby
reducing the impact of interest rate changes on future cash interest payments. At the inception of a hedge transaction, we
formally document the relationship between the hedging instruments including our objective and strategy for establishing
the hedge. In addition, the effectiveness of the derivative instrument is assessed at inception and on an ongoing basis
throughout the hedging period. Counterparties to derivative instruments expose us to credit-related losses in the event of
nonperformance. We execute agreements only with financial institutions we believe to be creditworthy and regularly
assess the credit worthiness of each of the counterparties. We do not use derivative instruments for trading or speculative
purposes.
Derivative financial instruments are recorded at fair value in our consolidated balance sheets. Fair value is determined
based on projected interest rate yield curves and an estimate of our nonperformance risk or our counterparty’s
nonperformance credit risk, as applicable. We do not anticipate any nonperformance by any counterparty.
For derivative instruments designated as a cash flow hedge, the change in the fair value is recognized as a component of
accumulated other comprehensive income (loss) (“AOCI”) and is recognized as an adjustment to earnings over the period
in which the hedged item impacts earnings. When an interest rate swap agreement terminates, any resulting gain or loss
is recognized over the shorter of the remaining original term of the hedging instrument or the remaining life of the
underlying debt obligation. If a derivative instrument is de-designated, the remaining gain or loss in AOCI on the date of
de-designation is amortized to earnings over the remaining term of the hedging instrument. For derivative financial
instruments that are not designated as a hedge, including those that have been de-designated, changes in fair value are
recognized on a current basis in earnings. Cash flows from hedging activities are classified under the same category as
the cash flows from the hedged items in our consolidated statement of cash flows. See Note 9 for further discussion of
our derivative financial instruments.
F-13
Series A Preferred Stock
Our Series A Preferred Stock is classified as mezzanine equity in the consolidated balance sheets due to a deemed
liquidation feature, which gives holders the right to require the Company to redeem all or any part of the holders’ Series
A Preferred Stock for cash in the event of a fundamental change or change in control. We have not adjusted the carrying
value of the Series A Preferred Stock to its liquidation value since the securities are not currently redeemable nor is it
probable that they will become redeemable. Subsequent adjustments to increase the carrying value to the liquidation value
will be made only if and when it becomes probable that such a deemed liquidation event will occur.
Share-based Compensation
We recognize share-based compensation expense for all restricted stock awards (“RSAs”) and performance share awards
(“PSAs”) (collectively, “stock awards”) based on the estimated fair value of the stock awards on the date of grant. We
recognize the expense associated with RSAs and PSAs on a straight-line basis over the requisite service period, which
generally ranges from immediate vesting to a four-year vesting period, and account for forfeitures as they occur. See Note
12 for additional information regarding share-based compensation.
Pension Plan and Other Post-Retirement Benefits
We maintain noncontributory defined benefit pension plans and provide certain post-retirement health care and life
insurance benefits to certain eligible employees. We also maintain two unfunded supplemental retirement plans to provide
incremental pension payments to certain former employees. See Note 13 for a more detailed discussion regarding our
pension and other post-retirement benefits.
We recognize pension and post-retirement benefits expense during the current period in the consolidated statement of
operations using certain assumptions, including the expected long-term rate of return on plan assets, interest cost implied
by the discount rate, expected health care cost trend rate and the amortization of unrecognized gains and losses. We
determine expected long-term rate of return on plan assets by considering historical investment performance, plan asset
allocation strategies and return forecasts for each asset class and input from its advisors. Projected returns by such advisors
were based on broad equity and fixed income indices. The expected long-term rate of return is reviewed annually in
conjunction with other plan assumptions and revised, if considered necessary, to reflect changes in the financial markets
and the investment strategy. Our plan assets are valued at fair value as of the measurement date.
Our discount rate assumption is determined annually to reflect the rate at which the benefits could be effectively settled
and approximate the timing of expected future payments based on current market determined interest rates for similar
obligations. We use bond matching model BOND:Link comprising of high quality corporate bonds to match cash flows
to the expected benefit payments.
We recognize the overfunded or underfunded status of our defined benefit pension and post-retirement plans as either an
asset or liability in the consolidated balance sheet. Actuarial gains and losses that arise during the year are recognized as
a component of comprehensive income (loss), net of applicable income taxes, and included in accumulated other
comprehensive income (loss). These gains and losses are amortized over future years as a component of the net periodic
benefit cost when the net gains and losses exceed 10% of the greater of the market-related value of the plan assets or the
projected benefit obligation at the beginning of the year. The amount in excess of the corridor is amortized over the
average remaining service period of participating employees expected to receive benefits under the plans.
Income Taxes
Our estimates of income taxes and the significant items resulting in the recognition of deferred tax assets and liabilities
are disclosed in Note 14 and reflect our assessment of future tax consequences of transactions that have been reflected in
our financial statements or tax returns for each taxing jurisdiction in which we operate. We base our provision for income
taxes on our current period income, changes in our deferred income tax assets and liabilities, income tax rates, changes in
estimates of our uncertain tax positions and tax planning opportunities available in the jurisdictions in which we operate.
We recognize deferred tax assets and liabilities when there are temporary differences between the financial reporting basis
and tax basis of our assets and liabilities and for the expected benefits of using net operating loss and tax credit loss
carryforwards. We establish valuation allowances when necessary to reduce the carrying amount of deferred income tax
assets to the amounts that we believe are more likely than not to be realized. We evaluate the need to retain all or a portion
F-14
of the valuation allowance on our deferred tax assets. When a change in the tax rate or tax law has an impact on deferred
taxes, we apply the change when the tax law change is enacted, based on the years in which the temporary differences are
expected to reverse. As we operate in more than one state, changes in our state apportionment factors, based on operating
results, may affect our future effective tax rates and the value of our deferred tax assets and liabilities. We record a change
in tax rates in our consolidated financial statements in the period of enactment.
Income tax consequences that arise in connection with a business combination include identifying the tax basis of assets
and liabilities acquired and any contingencies associated with uncertain tax positions assumed or resulting from the
business combination. Deferred tax assets and liabilities related to temporary differences of an acquired entity are recorded
as of the date of the business combination and are based on our estimate of the appropriate tax basis that will be accepted
by the various taxing authorities.
We record unrecognized tax benefits as liabilities in accordance with Accounting Standard Codification (“ASC”) 740,
Income Taxes, and adjust these liabilities in the appropriate period when our judgment changes as a result of the evaluation
of new information. In certain instances, the ultimate resolution may result in a payment that is materially different from
our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases
to income tax expense in the period in which new information is available. We classify interest and penalties, if any,
associated with our uncertain tax positions as a component of interest expense and general and administrative expense,
respectively. See Note 14 for further discussion on income taxes.
Revenue Recognition
Revenue is recognized when or as performance obligations are satisfied by transferring control of the good or service to
the customer.
Services
Services revenues, with the exception of usage-based revenues, are generally billed in advance and recognized in
subsequent periods when or as services are transferred to the customer.
We offer bundled service packages that consists of high-speed Internet, video and voice services including local and long
distance calling, voicemail and calling features. Each service is considered distinct and therefore accounted for as a
separate performance obligation. Service revenue is recognized over time, consistent with the transfer of service, as the
customer simultaneously receives and consumes the benefits provided by the Company’s performance as the Company
performs.
Usage-based services, such as per-minute long-distance service and access charges billed to other telephone carriers for
originating and terminating long-distance calls in our network, are billed in arrears. We recognize revenue from these
services when or as services are transferred to the customer.
Revenue related to nonrefundable upfront fees, such as service activation and set-up fees are deferred and amortized over
the expected customer life.
Equipment
Equipment revenue is generated from the sale of voice and data communications equipment as well as design,
configuration, installation and professional support services related to such equipment. Equipment revenue generated
from telecommunications systems and structured cabling projects is recognized when or as the project is completed and
control is transferred to the customer. Maintenance services are provided on both a contract and time and material basis
and are recognized when or as services are transferred.
Subsidies and Surcharges
Subsidies consist of both federal and state subsidies, which are designed to promote widely available, quality telephone
service at affordable prices in rural areas. These revenues are calculated by the administering government agency based
on information we provide. There is a reasonable possibility that out-of-period subsidy adjustments may be recorded in
the future, but they are expected to be immaterial to our results of operations, financial position and cash flows.
F-15
We recognize Federal Universal Service contributions on a gross basis. We account for all other taxes collected from
customers and remitted to the respective government agencies on a net basis.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was $18.8 million, $11.1 million and $11.5 million in
2021, 2020 and 2019, respectively.
Statement of Cash Flows Information
During 2021, 2020 and 2019, we made payments for interest and income taxes as follows:
(In thousands)
Interest, net of amounts capitalized ($5,590, $1,660 and $3,737 in 2021, 2020 and
2019, respectively)
Income taxes paid (received), net
2021
2020
2019
$ 123,031 $ 120,897 $ 129,508
(553) $ (8,374)
$
836 $
In 2021, 2020 and 2019, we acquired equipment of $13.9 million, $2.5 million and $6.2 million, respectively, through
finance lease agreements.
In 2021 and 2020, we acquired property and equipment of $52.9 million and $17.4 million, respectively, which were
accrued but not yet paid.
Noncontrolling Interest
We have a majority-owned subsidiary, East Texas Fiber Line Incorporated (“ETFL”), which is a joint venture owned 63%
by the Company and 37% by Eastex Telecom Investments, LLC. ETFL provides connectivity over a fiber optic transport
network to certain customers residing in Texas.
Recent Accounting Pronouncements
Effective January 1, 2021, we adopted ASU No. 2020-06 (“ASU 2020-06”), Accounting for Convertible Instruments and
Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies guidance on accounting for convertible instruments and
contracts in an entity’s own equity including calculating diluted earnings per share. The adoption of this guidance did not
have an impact on our consolidated financial statements and related disclosures.
Effective January 1, 2021, we adopted ASU No. 2019-12 (“ASU 2019-12”), Income Taxes. ASU 2019-12 simplifies the
accounting for income taxes by eliminating certain exceptions and adding certain requirements to the general framework
in Accounting Standards Codification (“ASC”) 740, Income Taxes. The new guidance will be applied prospectively. The
adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.
In November 2021, the Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Update No.
2021-10 (“ASU 2021-10”), Disclosures by Business Entities about Government Assistance. ASU 2021-10 requires
disclosure by business entities of the types of government assistance received, the method of accounting for such assistance
and the effects of the assistance on its financial statements. The new guidance is effective for financial statements issued
for annual periods beginning after December 15, 2021, with early adoption permitted. We are currently evaluating the
impact this update will have on our related disclosures.
In March 2020, the FASB issued ASU No. 2020-04 (“ASU 2020-04”), Facilitation of the Effects of Reference Rate Reform
on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts,
hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In January 2021,
the FASB issued ASU No. 2021-01 (“ASU 2021-01”), Reference Rate Reform (Topic 848): Scope. ASU 2021-01 clarifies
that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to
derivatives that are affected by the discounting transition. ASU 2020-04 and ASU 2021-01 are both elective and are
effective upon issuance through December 31, 2022. We are currently evaluating the impact these updates will have on
our consolidated financial statements and related disclosures.
F-16
2. REVENUE
Nature of Contracts with Customers
Our revenue contracts with customers may include a promise or promises to deliver goods such as equipment and/or
services such as broadband, video or voice services. Promised goods and services are considered distinct as the customer
can benefit from the goods or services either on their own or together with other resources that are readily available to the
customer and the Company’s promise to transfer a good or service to the customer is separately identifiable from other
promises in the contract. The Company accounts for goods and services as separate performance obligations. Each service
is considered a single performance obligation as it is providing a series of distinct services that are substantially the same
and have the same pattern of transfer.
The transaction price is determined at contract inception and reflects the amount of consideration to which we expect to
be entitled in exchange for transferring a good or service to the customer. This amount is generally equal to the market
price of the goods and/or services promised in the contract and may include promotional discounts. The transaction price
excludes amounts collected on behalf of third parties such as sales taxes and regulatory fees. Conversely, nonrefundable
upfront fees, such as service activation and set-up fees, are included in the transaction price. In determining the transaction
price, we consider our enforceable rights and obligations within the contract. We do not consider the possibility of a
contract being cancelled, renewed or modified.
The transaction price is allocated to each performance obligation based on the standalone selling price of the good or
service, net of the related discount, as applicable.
Revenue is recognized when or as performance obligations are satisfied by transferring control of the good or service to
the customer.
Disaggregation of Revenue
The following table summarizes revenue from contracts with customers for the years ended December 31, 2021, 2020 and
2019:
(In thousands)
Operating Revenues
Commercial and carrier:
Data and transport services (includes VoIP)
Voice services
Other
2021
2020
2019
$
362,365 $
171,750
41,624
575,739
362,078 $
181,700
45,155
588,933
355,325
188,322
52,894
596,541
269,323
65,114
160,698
495,135
69,739
120,487
21,133
257,083
81,378
180,839
519,300
72,440
138,056
10,205
1,282,233 $ 1,304,028 $ 1,336,542
263,059
74,343
170,503
507,905
71,989
125,261
9,940
Consumer:
Broadband (VoIP and Data)
Video services
Voice services
Subsidies
Network access
Other products and services
Total operating revenues
$
F-17
Contract Assets and Liabilities
The following table provides information about receivables, contract assets and contract liabilities from our revenue
contracts with customers:
(In thousands)
Accounts receivable, net
Contract assets
Contract liabilities
Year Ended
December 31,
2021
2020
$ 133,362 $ 137,646
21,004
55,942
23,893
60,503
Contract assets include costs that are incremental to the acquisition of a contract. Incremental costs are those that result
directly from obtaining a contract or costs that would not have been incurred if the contract had not been obtained, which
primarily relate to sales commissions. These costs are deferred and amortized over the expected customer life. We
determined that the expected customer life is the expected period of benefit as the commission on the renewal contract is
not commensurate with the commission on the initial contract. During the years ended December 31, 2021, 2020 and
2019, the Company recognized expense of $11.1 million, $9.0 million and $6.3 million, respectively, related to deferred
contract acquisition costs.
Contract liabilities include deferred revenues related to advanced payments for services and nonrefundable, upfront service
activation and set-up fees, which are generally deferred and amortized over the expected customer life as the option to
renew without paying an upfront fee provides the customer with a material right. During the years ended December 31,
2021, 2020 and 2019, the Company recognized previously deferred revenues of $471.7 million, $443.0 million and $397.5
million, respectively.
A receivable is recognized in the period the Company provides goods or services when the Company’s right to
consideration is unconditional. Payment terms on invoiced amounts are generally 30 to 60 days.
Performance Obligations
ASC 606, Revenue from Contracts with Customers (“ASC 606”), requires that the Company disclose the aggregate amount
of the transaction price that is allocated to remaining performance obligations that are unsatisfied as of December 31,
2021. The guidance provides certain practical expedients that limit this requirement. The service revenue contracts of the
Company meet the following practical expedients provided by ASC 606:
1. The performance obligation is part of a contract that has an original expected duration of one year or less.
2. Revenue is recognized from the satisfaction of the performance obligations in the amount billable to the
customer in accordance with ASC 606-10-55-18.
The Company has elected these practical expedients. Performance obligations related to our service revenue contracts are
generally satisfied over time. For services transferred over time, revenue is recognized based on amounts invoiced to the
customer as the Company has concluded that the invoice amount directly corresponds with the value of services provided
to the customer. Management considers this a faithful depiction of the transfer of control as services are substantially the
same and have the same pattern of transfer over the life of the contract. As such, revenue related to unsatisfied performance
obligations that will be billed in future periods has not been disclosed.
3. EARNINGS PER SHARE
Basic and diluted earnings (loss) per common share (“EPS”) are computed using the two-class method, which is an
earnings allocation method that determines EPS for each class of common stock and participating securities considering
dividends declared and participation rights in undistributed earnings. Common stock related to certain of the Company’s
restricted stock awards are considered participating securities because holders are entitled to receive non-forfeitable
dividends, if declared, during the vesting term.
The potentially dilutive impact of the Company’s restricted stock awards is determined using the treasury stock method.
Under the treasury stock method, if the average market price during the period exceeds the exercise price, these instruments
F-18
are treated as if they had been exercised with the proceeds of exercise used to repurchase common stock at the average
market price during the period. Any incremental difference between the assumed number of shares issued and repurchased
is included in the diluted share computation.
Diluted EPS includes securities that could potentially dilute basic EPS during a reporting period. Dilutive securities are
not included in the computation of loss per share when a company reports a net loss from continuing operations as the
impact would be anti-dilutive.
The computation of basic and diluted EPS attributable to common shareholders computed using the two-class method is
as follows:
(In thousands, except per share amounts)
Net income (loss)
Less: dividends on Series A preferred stock
Less: net income attributable to noncontrolling interest
Income (loss) attributable to common shareholders before allocation of earnings
to participating securities
Less: earnings allocated to participating securities
Net income (loss) attributable to common shareholders, after earnings allocated
to participating securities
2021
2020
$ (106,693) $ 37,302 $ (19,931)
—
452
2,677
392
—
325
2019
(109,762)
—
36,977
2,844
(20,383)
462
$ (109,762) $ 34,133 $ (20,845)
Weighted-average number of common shares outstanding
87,293
72,752
70,837
Net income (loss) per common share attributable to common shareholders - basic
and diluted
$
(1.26) $
0.47 $
(0.29)
Diluted EPS attributable to common shareholders for the year ended December 31, 2021 excludes 3.2 million potential
common shares related to our share-based compensation plan. Diluted EPS attributable to common shareholders for the
year ended December 31, 2020 excludes 6.1 million potential common shares related to our share-based compensation
plan and the contingent payment right (“CPR”) issued to Searchlight on October 2, 2020, as described in Note 4, because
the inclusion of the potential common shares would have an antidilutive effect. Diluted EPS attributable to common
shareholders for the year ended December 31, 2019 excludes 1.1 million potential common shares that could be issued
under our share-based compensation plan.
F-19
4. SEARCHLIGHT INVESTMENT
In connection with the Investment Agreement entered into on September 13, 2020, affiliates of Searchlight committed to
invest up to an aggregate of $425.0 million in the Company. The investment commitment was structured in two stages.
In the first stage of the transaction, which was completed on October 2, 2020, Searchlight invested $350.0 million in the
Company in exchange for 6,352,842 shares, or approximately 8%, of the Company’s common stock and was issued a CPR
that was convertible, upon the receipt of certain regulatory and shareholder approvals, into an additional 17,870,012 shares,
or 16.9% of the Company’s common stock. In addition, Searchlight received the right to an unsecured subordinated note
with an aggregate principal amount of approximately $395.5 million (the “Note”), which will be convertible into shares
of a new series of perpetual preferred stock of the Company with an aggregate liquidation preference equal to the principal
amount of the Note plus accrued interest as of the date of conversion.
On July 15, 2021, the Company received all required state public utility commission regulatory approvals necessary for
the conversion of the CPR into 16.9% additional shares of the Company’s common stock. As a result, the CPR was
converted into 17,870,012 shares of common stock, which were issued to Searchlight on July 16, 2021.
In the second stage of the transaction, which was completed on December 7, 2021 following the receipt of Federal
Communications Commission (“FCC”) and certain regulatory approvals and the satisfaction of certain other customary
closing conditions, Searchlight invested an additional $75.0 million and was issued the Note. On December 7, 2021,
Searchlight elected to convert the Note into 434,266 shares of Series A Perpetual Preferred Stock, par value $0.01 per
share (the “Series A Preferred Stock”). In addition, the CPR converted into an additional 15,115,899 shares, or an
additional 10.1%, of the Company’s common stock. As of December 31, 2021, the total shares of common stock issued
to Searchlight represent approximately 35% of the Company’s outstanding common stock.
The total expected proceeds from the Investment Agreement were allocated among each of the individual components of
the investment and recorded at their estimated fair values as of October 2, 2020. The proceeds were first allocated to the
CPR at its full estimated fair value including a discount for lack of marketability and then allocated to the issuance of the
common stock with the remaining proceeds allocated to the Note. The estimated fair value of the components of the
Investment Agreement at October 2, 2020 were as follows:
(In thousands)
Assets Received:
Cash proceeds
Receivable from Searchlight, net of discount of $612
Less: Issuance costs
Total consideration
Assets Exchanged:
6,352,842 shares of common stock, par value $0.01 per share, net of
issuance costs of $1,473
CPR for 16.9% additional shares of common stock
CPR for 10.1% additional shares of common stock
Convertible security interest issued as unsecured subordinated note
right, net of discount of $146,018 and issuance costs of $13,001
$
$
$
350,000
74,388
(14,474)
409,914
26,779
79,469
67,221
236,445
409,914
$
At December 31, 2020, the net present value of the receivable for the additional investment of $75.0 million expected to
be received from Searchlight upon the closing of the second stage of the transaction was $74.7 million, net of unamortized
discount of $0.3 million, and was included within other assets in the consolidated balance sheet.
Prior to conversion, the CPR was reported at its estimated fair value within long-term liabilities in the consolidated balance
sheet. Subsequent changes in fair value were reflected in earnings within other income and expense in the consolidated
statements of operations. As of December 31, 2020, the estimated fair value of the CPR was $123.2 million and during
the years ended December 31, 2021 and 2020, we recognized a loss of $86.5 million and a gain of $23.5 million,
respectively, on the change in the fair value of the CPR. Issuance costs allocated to the CPR of $7.6 million were expensed
as incurred during the year ended December 31, 2020, which were included in acquisition and other transaction costs in
the consolidated statements of operations.
F-20
The Note bore interest at 9.0% per annum from the date of the closing of the first stage of the transaction and was payable
semi-annually in arrears on April 1 and October 1 of each year. The term of the Note was 10 years and was due on October
1, 2029. The Note included a paid-in-kind (“PIK”) option for a five-year period beginning as of October 2, 2020. During
the year ended December 31, 2021, the Company elected the PIK option and accrued interest of $38.8 million was added
to the principal balance of the Note. At December 31, 2020, the net carrying value of the Note was $238.7 million, net of
unamortized discount and issuance costs of $144.8 million and $12.0 million, respectively. The unamortized discount and
issuance costs were being amortized over the contractual term of the Note using the effective interest method. On
December 7, 2021, Searchlight exercised its option to convert the Note and the net carrying value of the Note of $285.9
million, net of unamortized discount and issuance costs of $139.7 million and $8.7 million, respectively, was converted
into 434,266 shares of Series A Preferred Stock at a liquidation preference of $1,000 per share. Dividends on the Series
A Preferred Stock will accrue daily on the liquidation preference at a rate of 9.0% per annum, payable semi-annually in
arrears. See Note 11 for more information on the terms of the Series A Preferred Stock.
5. DIVESTITURES
On September 22, 2021, we entered into a definitive agreement to sell substantially all of the assets of our non-core, rural
ILEC business located in Ohio, Consolidated Communications of Ohio Company (“CCOC”), for approximately $26.0
million in cash, subject to a customary working capital adjustment. CCOC provides telecommunications and data services
to residential and business customers in 11 rural communities in Ohio and surrounding areas and includes approximately
4,000 access lines and 3,900 data connections. Subsequent to December 31, 2021, the parties received all required
regulatory approvals and the transaction closed on February 1, 2022. The asset sale aligns with our strategic asset review
and focus on our core broadband regions.
At December 31, 2021, the major classes of assets and liabilities to be sold were classified as held for sale in the
consolidated balance sheet and consisted of the following:
(In thousands)
Current assets
Property, plant and equipment
Goodwill
Total assets
Current liabilities
Other long-term liabilities
Total liabilities
$
$
$
$
196
9,529
16,327
26,052
91
6
97
In connection with the classification as assets held for sale, the carrying value of the net assets were reduced to their
estimated fair value of approximately $25.9 million, which was determined based on the estimated selling price less costs
to sell and were classified as Level 2 within the fair value hierarchy. As a result, we recognized an impairment loss of
$5.7 million during the year ended December 31, 2021.
Subsequent to December 31, 2021, we entered into a definitive agreement on March 2, 2022 to sell substantially all the
assets of our business located in the Kansas City market (the “Kansas City operations”). The Kansas City operations
provides data, voice and video services to customers within the Kansas City metropolitan area and surrounding counties
and includes approximately 19,000 consumer customers and 1,900 commercial customers. The transaction is expected to
close in the second half of 2022 and is subject to the receipt of all customary regulatory approvals and the satisfaction of
other closing conditions. We estimate that the pre-tax impairment loss to be recognized during the quarter ended March
31, 2022 will range from $125.0 million to $130.0 million, which includes approximately $90.0 million in allocated
goodwill.
F-21
6.
INVESTMENTS
Our investments are as follows:
(In thousands)
Short-term investments:
Held-to-maturity debt securities
Long-term investments:
Cash surrender value of life insurance policies
Investments at cost:
GTE Mobilnet of South Texas Limited Partnership (2.34% interest)
Pittsburgh SMSA Limited Partnership (3.60% interest)
CoBank, ACB Stock
Other
Equity method investments:
GTE Mobilnet of Texas RSA #17 Limited Partnership (20.51% interest)
Pennsylvania RSA 6(I) Limited Partnership (16.67% interest)
Pennsylvania RSA 6(II) Limited Partnership (23.67% interest)
Totals
Held-to-Maturity Debt Securities
2021
2020
$
110,801
$
—
$
2,659
$
2,536
21,450
22,950
7,867
273
19,648
7,303
27,428
109,578
$
21,450
22,950
8,882
273
20,299
7,482
27,793
111,665
$
Our held-to-maturity debt securities consist of investments in commercial paper and certificate of deposits. At December
31, 2021, we had $20.0 million of investments in commercial paper included in cash and cash equivalents and $40.0
million of investments in commercial paper and $70.8 million of investments in certificate of deposits included in short-
term investments. The investments have original maturities of less than one year. As of December 31, 2021, the amortized
cost of the investments approximated their fair value and the gross unrecognized gains and losses were not material.
Investments at Cost
We own 2.34% of GTE Mobilnet of South Texas Limited Partnership (the “Mobilnet South Partnership”). The principal
activity of the Mobilnet South Partnership is providing cellular service in the Houston, Galveston, and Beaumont, Texas
metropolitan areas. We also own 3.60% of Pittsburgh SMSA Limited Partnership (“Pittsburgh SMSA”), which provides
cellular service in and around the Pittsburgh metropolitan area. Because of our limited influence over these partnerships,
we account for these investments at our initial cost less any impairment because fair value is not readily available for these
investments. We did not evaluate any of the investments for impairment as no factors indicating impairment existed during
the year. For these investments, we adjust the carrying value for any purchases or sales of our ownership interests, if any
(there were none during the periods presented). We record distributions received from these investments as investment
income in non-operating income (expense). In 2021, 2020 and 2019, we received cash distributions from these
partnerships totaling $20.7 million, $19.1 million and $16.8 million, respectively.
CoBank, ACB (“CoBank”) is a cooperative bank owned by its customers. Annually, CoBank distributes patronage in the
form of cash and stock in the cooperative based on the Company’s outstanding loan balance with CoBank, which has
traditionally been a significant lender in the Company’s credit facility. The investment in CoBank represents the
accumulation of the equity patronage paid by CoBank to the Company.
Equity Method
We own 20.51% of GTE Mobilnet of Texas RSA #17 Limited Partnership (“RSA #17”), 16.67% of Pennsylvania RSA
6(I) Limited Partnership (“RSA 6(I)”) and 23.67% of Pennsylvania RSA 6(II) Limited Partnership (“RSA 6(II)”). RSA
#17 provides cellular service to a limited rural area in Texas. RSA 6(I) and RSA 6(II) provide cellular service in and
around our Pennsylvania service territory. Because we have significant influence over the operating and financial policies
of these three entities, we account for the investments using the equity method. In connection with the adoption of ASC
606 by our equity method partnerships, the value of our combined partnership interests increased $1.8 million, which is
reflected in the cumulative effect adjustment to retained earnings during the year ended December 31, 2019. In 2021,
2020 and 2019, we received cash distributions from these partnerships totaling $22.3 million, $22.4 million and $19.0
F-22
million, respectively. The carrying value of the investments exceeds the underlying equity in net assets of the partnerships
by $32.8 million as of December 31, 2021 and 2020.
7. FAIR VALUE MEASUREMENTS
Financial Instruments
Interest Rate Swap Agreements
Our derivative instruments related to interest rate swap agreements are required to be measured at fair value on a recurring
basis. The fair values of the interest rate swaps are determined using valuation models and are categorized within Level 2
of the fair value hierarchy as the valuation inputs are based on quoted prices and observable market data of similar
instruments. See Note 9 for further discussion regarding our interest rate swap agreements.
Our interest rate swap agreements measured at fair value on a recurring basis at December 31, 2021 and 2020 were as
follows:
As of December 31, 2021
Quoted Prices Significant
(In thousands)
Long-term interest rate swap liabilities
(In thousands)
Current interest rate swap liabilities
Long-term interest rate swap liabilities
Total
Contingent Payment Obligation
In Active
Markets for
Identical Assets
(Level 1)
Other
Significant
Observable Unobservable
Inputs
(Level 2)
— $ (12,813) $
Inputs
(Level 3)
—
Total
$ (12,813) $
As of December 31, 2020
Quoted Prices Significant
In Active
Markets for
Identical Assets
(Level 1)
Other
Significant
Observable Unobservable
Inputs
(Level 2)
— $ (6,297) $
—
— $ (29,255) $
(22,958)
Inputs
(Level 3)
—
—
—
Total
$ (6,297) $
(22,958)
$ (29,255) $
The contingent payment obligation represented the CPR issued to Searchlight in connection with the Investment
Agreement. The CPR was measured at its estimated fair value on a recurring basis based on a market approach utilizing
observable market values and a marketability discount. As of December 31, 2020, the estimated fair value of the CPR
was $123.2 million and was classified as Level 2 within the fair value hierarchy.
We have not elected the fair value option for any of our other assets or liabilities. The carrying value of other financial
instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable and
accrued liabilities approximate fair value due to their short maturities. The following table presents the other financial
instruments that are not carried at fair value but which require fair value disclosure as of December 31, 2021 and 2020.
(In thousands)
Long-term debt, excluding finance leases
Carrying Value
$
2,139,567 $
Fair Value
Carrying Value
Fair Value
2,186,508 $
1,978,694 $
2,039,790
As of December 31, 2021
As of December 31, 2020
Cost & Equity Method Investments
Our investments at December 31, 2021 and 2020 accounted for at cost and under the equity method consisted primarily of
minority positions in various cellular telephone limited partnerships and our investment in CoBank. It is impracticable to
determine fair value of these investments.
F-23
Long-term Debt
The fair value of our senior notes was based on quoted market prices, and the fair value of borrowings under our credit
facility was determined using current market rates for similar types of borrowing arrangements. We have categorized the
long-term debt as Level 2 within the fair value hierarchy.
8. LONG-TERM DEBT
Long-term debt outstanding, presented net of unamortized discounts, consisted of the following as of December 31, 2021
and 2020:
(In thousands)
Senior secured credit facility:
Term loans, net of discounts of $10,308 and $18,181 at December 31, 2021
and 2020, respectively
6.50% Senior notes due 2028
5.00% Senior notes due 2028
Finance leases
Less: current portion of long-term debt and finance leases
Less: deferred debt issuance costs
Total long-term debt
Credit Agreement
2021
2020
$
$
989,567
750,000
400,000
24,990
2,164,557
(7,959)
(37,745)
2,118,853
$
$
1,228,694
750,000
—
17,467
1,996,161
(17,561)
(45,934)
1,932,666
On October 2, 2020, the Company, through certain of its wholly-owned subsidiaries, entered into a Credit Agreement with
various financial institutions (the “Credit Agreement”) to replace the Company’s previous credit agreement in its entirety.
The Credit Agreement consisted of term loans in the aggregate amount of $1,250.0 million (the “Initial Term Loans”) and
a revolving loan facility of $250.0 million. The Credit Agreement also includes an incremental loan facility which provides
the ability to borrow, subject to certain terms and conditions, incremental loans in an aggregate amount of up to the greater
of (a) $300.0 million plus (b) an amount which would not cause its senior secured leverage ratio not to exceed 3.70:1.00
(the “Incremental Facility”). Borrowings under the Credit Agreement are secured by substantially all of the assets of the
Company and its subsidiaries, subject to certain exceptions.
The Term Loans were issued in an original aggregate principal amount of $1,250.0 million with a maturity date of October
2, 2027 and contained an original issuance discount of 1.5% or $18.8 million, which is being amortized over the term of
the loan. Prior to amendments to the Credit Agreement, as described below, the Initial Term Loans required quarterly
principal payments of $3.1 million, which commenced December 31, 2020, and bore interest at a rate 4.75% plus the
London Interbank Offered Rate (“LIBOR”) subject to a 1.00% LIBOR floor.
On January 15, 2021, the Company entered into Amendment No. 1 to the Credit Agreement in which we borrowed an
additional $150.0 million aggregate principal amount of incremental term loans (the “Incremental Term Loans”). The
Incremental Term Loans have terms and conditions identical to the Initial Term Loans including the same maturity date
and interest rate. The Initial Term Loans and Incremental Term Loans, collectively (the “Term Loans”) will comprise a
single class of term loans under the Credit Agreement.
On March 18, 2021, the Company repaid $397.0 million of the outstanding Term Loans with the net proceeds received
from the issuance of $400.0 million aggregate principal amount of 5.00% senior secured notes due 2028 (the “5.00%
Senior Notes”), as described below. The repayment of the Term Loans was applied to the remaining principal payments
in direct order of maturity, thereby eliminating the required quarterly principal payments through the remaining term of
the loan. In connection with the repayment of the Term Loans, we recognized a loss on extinguishment of debt of $12.0
million during the year ended December 31, 2021.
On April 5, 2021, the Company, entered into a second amendment to the Credit Agreement (the “Second Amendment”)
to refinance the outstanding Term Loans of $999.9 million. The terms and conditions of the Credit Agreement remain
substantially similar and unchanged except with respect to the interest rate applicable to the Term Loans and certain other
provisions. As a result of the Second Amendment, the interest rate of the Term Loans was reduced to 3.50% plus LIBOR
F-24
subject to a 0.75% LIBOR floor. The maturity date of the Term Loans of October 2, 2027 remains unchanged. In
connection with entering into the Second Amendment, we recognized a loss of $5.1 million on the extinguishment of debt
during the year ended December 31, 2021.
The revolving credit facility has a maturity date of October 2, 2025 and an applicable margin (at our election) of 4.00%
for LIBOR-based borrowings or 3.00% for alternate base rate borrowings, with a 0.25% reduction in each case if the
consolidated first lien leverage ratio, as defined in the Credit Agreement, does not exceed 3.20 to 1.00. As of December
31, 2021 and 2020, there were no borrowings outstanding under the revolving credit facility. Stand-by letters of credit of
$25.1 million were outstanding under our revolving credit facility as of December 31, 2021. The stand-by letters of credit
are renewable annually and reduce the borrowing availability under the revolving credit facility. As of December 31,
2021, $224.9 million was available for borrowing under the revolving credit facility.
The weighted-average interest rate on outstanding borrowings under our credit facilities was 4.25% and 5.75% at
December 31, 2021 and 2020, respectively. Interest is payable at least quarterly.
Financing Costs
In connection with entering into the Credit Agreement in October 2020, fees of $29.1 million were capitalized as deferred
debt issuance costs. These capitalized costs are amortized over the term of the debt and are included as a component of
interest expense in the consolidated statements of operations. We also incurred a loss on the extinguishment of debt of
$12.3 million during the year ended December 31, 2020 related to the repayment of the outstanding term loan under the
previous credit agreement.
Credit Agreement Covenant Compliance
The Credit Agreement contains various provisions and covenants, including, among other items, restrictions on the ability
to pay dividends, incur additional indebtedness, and issue certain capital stock. We have agreed to maintain certain
financial ratios, including a maximum consolidated first lien leverage ratio, as defined in the Credit Agreement. Among
other things, it will be an event of default, with respect to the revolving credit facility only, if our consolidated first lien
leverage ratio as of the end of any fiscal quarter is greater than 5.85:1.00. As of December 31, 2021, our consolidated first
lien leverage ratio under the Credit Agreement was 4.14:1.00. As of December 31, 2021, we were in compliance with the
Credit Agreement covenants.
Senior Notes
6.50% Senior Notes due 2028
On October 2, 2020, we completed an offering of $750.0 million aggregate principal amount of 6.50% unsubordinated
secured notes due 2028 (the “6.50% Senior Notes”). The 6.50% Senior Notes were priced at par and bear interest at a rate
of 6.50%, payable semi-annually on April 1 and October 1 of each year, beginning on April 1, 2021. The 6.50% Senior
Notes mature on October 1, 2028. Deferred debt issuance costs of $17.0 million incurred in connection with the issuance
of the 6.50% Senior Notes in 2020 are being amortized using the effective interest method over the term of the Senior
Notes. The net proceeds from the issuance of the 6.50% Senior Notes were used to redeem our then outstanding $440.5
million aggregate principal amount of 6.50% Senior Notes due in October 2022 at a price equal to 100% of the aggregate
principal amount plus accrued and unpaid interest through the redemption date, to repay a portion of the outstanding
borrowings under the previous credit agreement as part of the refinancing in October 2020 and to pay related fees and
expenses.
On March 18, 2021, we issued $400.0 million aggregate principal amount 5.00% Senior Notes, together with the 6.50%
Senior Notes (the “Senior Notes”). The 5.00% Senior Notes were priced at par and bear interest at a rate of 5.00% per
year, payable semi-annually on April 1 and October 1 of each year, beginning on October 1, 2021. The 5.00% Senior
Notes will mature on October 1, 2028. Deferred debt issuance costs of $3.8 million incurred in connection with the
issuance of the 5.00% Senior Notes are being amortized using the effective interest method over the term of the Senior
Notes. The net proceeds from the issuance of the 5.00% Senior Notes were used to repay $397.0 million of the Term
Loans outstanding under the Credit Agreement.
F-25
The Senior Notes are unsubordinated secured obligations of the Company, secured by a first priority lien on the collateral
that secures the Company’s obligations under the Credit Agreement. The Senior Notes are fully and unconditionally
guaranteed on a first priority secured basis by the Company and the majority of our wholly-owned subsidiaries. The
offering of the Senior Notes has not been registered under the Securities Act of 1933, as amended or any state securities
laws.
Senior Notes Covenant Compliance
Subject to certain exceptions and qualifications, the indenture governing the Senior Notes contains customary covenants
that, among other things, limits the Company and its restricted subsidiaries’ ability to: incur additional debt or issue certain
preferred stock; pay dividends or make other distributions on capital stock or prepay subordinated indebtedness; purchase
or redeem any equity interests; make investments; create liens; sell assets; enter into agreements that restrict dividends or
other payments by restricted subsidiaries; consolidate, merge or transfer all or substantially all of its assets; engage in
transactions with its affiliates; or enter into any sale and leaseback transactions. The indenture also contains customary
events of default. At December 31, 2021, the Company was in compliance with all terms, conditions and covenants under
the indenture governing the Senior Notes.
Redemption of 6.50% Senior Notes due 2022
On October 2, 2020, a notice of redemption was issued to holders of our then outstanding $440.5 million aggregate
principal amount of 6.50% Senior Notes due in October 2022 (the “2022 Notes”) to redeem all outstanding 2022 Notes at
a price equal to 100% of the aggregate principal amount plus accrued and unpaid interest through the redemption date. A
portion of the proceeds from the issuance of the Senior Notes was deposited with the trustee to pay and discharge the entire
indebtedness under the 2022 Notes. The 2022 Notes were redeemed on November 2, 2020, in accordance with the notice
of redemption.
In connection with the redemption of the 2022 Notes, we recognized a loss on extinguishment of debt of $5.9 million
during the year ended December 31, 2020. During the year ended December 31, 2019, we repurchased $55.0 million of
the aggregate principal amount of the 2022 Notes for $49.8 million and recognized a gain on extinguishment of debt of
$4.5 million.
Future Maturities of Debt
At December 31, 2021, the aggregate maturities of our long-term debt excluding finance leases were as follows:
(In thousands)
2022
2023
2024
2025
2026
Thereafter
Total maturities
Less: Unamortized discount
$
$
—
—
—
—
—
2,149,875
2,149,875
(10,308)
2,139,567
See Note 10 regarding the future maturities of our obligations for finance leases.
9. DERIVATIVE FINANCIAL INSTRUMENTS
We may utilize interest rate swap agreements to mitigate risk associated with fluctuations in interest rates related to our
variable rate debt obligations under the Credit Agreement. Derivative financial instruments are recorded at fair value in
our consolidated balance sheets.
F-26
The following interest rate swaps were outstanding at December 31, 2021:
(In thousands)
Cash Flow Hedges:
Notional
Amount
2021 Balance Sheet Location
Fair Value
Fixed to 1-month floating LIBOR (with floor)
$ 500,000 Other long-term liabilities
$
(12,813)
Our interest rate swap agreements mature on July 31, 2023.
The following interest rate swaps were outstanding at December 31, 2020:
(In thousands)
Cash Flow Hedges:
Notional
Amount
2020 Balance Sheet Location
Fair Value
Fixed to 1-month floating LIBOR (with floor)
Fixed to 1-month floating LIBOR (with floor)
$ 705,000 Accrued expense
$ 500,000 Other long-term liabilities
Total Fair Values
$
$
(6,297)
(22,958)
(29,255)
The counterparties to our various swaps are highly rated financial institutions. None of the swap agreements provide for
either us or the counterparties to post collateral nor do the agreements include any covenants related to the financial
condition of Consolidated or the counterparties. The swaps of any counterparty that is a lender, as defined in our credit
facility, are secured along with the other creditors under the credit facility. Each of the swap agreements provides that in
the event of a bankruptcy filing by either Consolidated or the counterparty, any amounts owed between the two parties
would be offset in order to determine the net amount due between parties.
At December 31, 2021 and 2020, the total pre-tax unrealized loss related to our interest rate swap agreements included in
AOCI was $(10.1) million and $(25.2) million, respectively. From the balance in AOCI as of December 31, 2021, we
expect to recognize a loss of approximately $7.1 million in earnings as interest expense in the next twelve months.
Information regarding our cash flow hedge transactions is as follows:
(In thousands)
Unrealized gain (loss) recognized in AOCI, pretax
Deferred loss reclassified from AOCI to interest expense
10. LEASES
2021
$
1,174
$ (13,964)
Year Ended December 31,
2020
(18,398)
(15,683)
$
$
2019
$ (26,013)
(1,108)
$
We have entered into various leases for certain facilities, land, underground conduit, colocations, and equipment used in
our operations. For leases with a term greater than 12 months, we recognize a right-to-use asset and a lease liability based
on the present value of lease payments over the lease term. The leases have remaining lease terms of one year to 87 years
and may include one or more options to renew, which can extend the lease term from one to five years or more. Operating
lease expense is recognized on a straight-line basis over the lease term.
As most of our leases do not provide a readily determinable implicit rate, we use our incremental borrowing rate based on
the information available at lease commencement date in determining the present value of lease payments. We use the
implicit rate when a rate is readily determinable. Our leases may also include scheduled rent increases and options to
extend or terminate the lease which is included in the determination of lease payments when it is reasonably certain that
we will exercise that option. For all asset classes, we do not separate lease and nonlease components, as such we account
for the components as a single lease component.
Leases with an initial term of 12 months or less are not recognized on the balance sheet and the expense for these short-
term leases is recognized on a straight-line basis over the lease term. Short-term lease expense, which is recognized in cost
of services and products, was not material to the consolidated statements of operations for the years ended December 31,
2021, 2020 and 2019. Variable lease payments are expensed as incurred.
F-27
The following table summarizes the components of our lease right-of use assets and liabilities at December 31, 2021 and
2020:
(In thousands)
Operating leases
Balance Sheet Classification
2021
2020
Operating lease right-of-use assets
Current lease liabilities
Noncurrent lease liabilities
Other assets
Accrued expense
Other long-term liabilities
$
$
$
25,072
(6,383)
(19,072)
Property, plant and equipment, net
Current portion of long-term debt and
finance lease obligations
Long-term debt and finance lease
obligations
$
28,240
$
$
(7,959)
(17,031)
Finance leases
Finance lease right-of-use assets, net
of accumulated depreciation of
$16,255 and $23,034
Current lease liabilities
Noncurrent lease liabilities
Weighted-average remaining lease
term
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
$
$
$
$
$
$
25,808
(5,824)
(20,192)
17,373
(5,061)
(12,406)
7.1 years
4.6 years
7.2 years
6.2 years
6.27 %
5.55 %
6.43 %
6.99 %
The components of lease expense for the years ended December 31, 2021, 2020 and 2019 consisted of the following:
(In thousands)
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Operating lease cost
Variable lease cost
Total lease cost
2021
Year Ended December 31,
2020
2019
$
$
4,152 $
1,106
8,359
2,054
15,671 $
7,442 $
1,356
8,421
2,205
19,424 $
12,031
1,993
8,902
2,392
25,318
The following table presents supplemental cash flow information related to leases for the years ended December 31, 2021,
2020 and 2019:
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
Operating cash flows for finance leases
Financing cash flows for finance leases
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases
Finance leases
Year Ended December 31,
2020
2021
2019
$
8,111 $
1,106
6,365
8,325 $
1,356
9,020
8,701
1,993
12,519
5,673
13,888
6,842
2,534
2,269
6,227
F-28
At December 31, 2021, the aggregate maturities of our lease liabilities were as follows:
(In thousands)
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: Interest
Lessor
Operating Leases
Finance Leases
7,726 $
5,646
4,030
3,357
1,909
9,460
32,128
(6,673)
25,455 $
9,020
7,150
5,150
1,869
1,727
2,994
27,910
(2,920)
24,990
$
$
We have various arrangements for use of our network assets for which we are the lessor, including tower space, certain
colocation, conduit and dark fiber arrangements. These leases meet the criteria for operating lease classification. Lease
income associated with these types of leases is not material. Occasionally, we enter into arrangements where the term
may be for a major part of the asset’s remaining economic life such as in indefeasible right of use (“IRU”) arrangements
for dark fiber or conduit, which meet the criteria for sales-type lease classification. During the years ended December 31,
2021, 2020 and 2019, we entered into IRU arrangements for exclusive access to and unrestricted use of specific assets.
These arrangements were recognized as sales-type leases as the term of the arrangements were for a major part of the
asset’s remaining economic life. The arrangements did not have a material impact on our financial statements for the
respective years.
We elected the practical expedient to combine lease and non-lease components in our lessor arrangements. We have
arrangements where the non-lease component associated with the lease component is the predominant component in the
contract, such as in revenue contracts that involve the customer leasing equipment from us. In such cases, we account for
the combined component in accordance with ASC 606 as the service component is the predominant component in the
contract.
11. MEZZANINE EQUITY
Series A Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of Series A Perpetual Preferred Stock with a par value of
$0.01 per share. The Series A Preferred Stock ranks senior to the Company’s common stock with respect to dividend
rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company and redemption rights. The following is a summary of certain provisions of the Series A Preferred
Stock.
Dividends
Dividends on each share of Series A Preferred Stock accrue daily on the liquidation preference at a rate of 9.0% per annum
and will be payable semi-annually in arrears on January 1 and July 1 of each year. Dividends are payable until October 2,
2025 at our election, either in cash or in-kind through an accrual of unpaid dividends, which are automatically added to
the liquidation preference; and after October 2, 2025, solely in cash. The liquidation preference at any given time is $1,000
per share. In the event that the Company’s Board of Directors fails to declare and pay dividends in cash after October 2,
2025, among other conditions, the dividend rate applicable to each subsequent dividend period will increase to 11.0%.
F-29
Redemption
Upon a fundamental change such as a change of control, liquidation, dissolution or winding up event, holders of the Series
A Preferred Stock will have the right to require the Company to repurchase all or any part of the outstanding Series A
Preferred Stock for cash at a price equal the liquidation preference and accrued and unpaid dividends through and including
the fundamental change date.
The Company may, at its option redeem all or any part of the outstanding shares of Series A Preferred Stock at a purchase
price per share in cash equal to the sum of the liquidation preference and accrued and unpaid dividends. A premium may
also be payable in connection with any such redemption.
Voting Rights
Holders of Series A Preferred Stock are entitled to one vote per share on matters specifically related to the Series A
Preferred Stock. The holders do not otherwise have any voting rights. If preferred dividends have not been paid in cash
in full for two dividend periods after October 2, 2025, whether or not consecutive, then the holders of the Series A Preferred
Stock, voting together as a single class, will be entitled to elect two additional directors to the board of directors.
On December 7, 2021, upon the completion of the Searchlight investment as described in Note 4, we issued 434,266 shares
of Series A Preferred Stock with a carrying value of $285.9 million. In accordance with ASC 480, Distinguishing
Liabilities from Equity, the Series A Preferred Stock is classified as mezzanine equity in the consolidated balance sheets.
As of December 31, 2021, the liquidation preference of the Series A Preferred Stock was $436.9 million, which includes
accrued and unpaid dividends of $2.7 million. The Company intends to exercise the PIK dividend option on the Series A
Preferred Stock through at least 2022.
12. SHAREHOLDERS’ EQUITY
Common Stock Dividends
Our Board of Directors declared quarterly dividends of approximately $0.38738 per share during 2018. On February 18,
2019, the Board of Directors declared a dividend of approximately $0.38738 per share, paid on May 1, 2019 to stockholders
of record on April 15, 2019.
On April 25, 2019, we announced the elimination of the payment of quarterly dividends on our stock beginning in the
second quarter of 2019. Future dividend payments, if any, are at the discretion of our Board of Directors. Changes in our
dividend program will depend on our earnings, capital requirements, financial condition, debt covenant compliance,
expected cash needs and other factors considered relevant by our Board of Directors.
Share-based Compensation
Our Board of Directors may grant share-based awards from our shareholder approved Amended and Restated Consolidated
Communications Holdings, Inc. 2005 Long-Term Incentive Plan (the “Plan”). The Plan permits the issuance of awards in
the form of stock options, stock appreciation rights, stock grants, stock unit grants and other equity-based awards to eligible
directors and employees at the discretion of the Compensation Committee of the Board of Directors. On April 26, 2021,
the shareholders approved an amendment to the Plan to increase by 5,400,000 shares the number of shares of our common
stock authorized for issuance under the Plan and extend the term of the Plan through April 30, 2028. With the amendment,
approximately 10,050,000 shares of our common stock are authorized for issuance under the Plan, provided that no more
than 300,000 shares may be granted in the form of stock options or stock appreciation rights to any eligible employee or
director in any calendar year. Unless terminated sooner, the Plan will continue in effect until April 30, 2028.
We measure the fair value of RSAs based on the market price of the underlying common stock on the date of grant. We
recognize the expense associated with RSAs on a straight-line basis over the requisite service period, which generally
ranges from immediate vesting to a four-year vesting period.
We implemented an ongoing performance-based incentive program under the Plan. The performance-based incentive
program provides for annual grants of PSAs. PSAs are restricted stock that are issued, to the extent earned, at the end of
F-30
each performance cycle. Under the performance-based incentive program, each participant is given a target award
expressed as a number of shares, with a payout opportunity ranging from 0% to 120% of the target, depending on
performance relative to predetermined goals. An estimate of the number of PSAs that are expected to vest is made, and
the fair value of the PSAs is expensed utilizing the fair value on the date of grant over the requisite service period.
The following table summarizes grants of RSAs and PSAs under the Plan during the years ended December 31, 2021,
2020 and 2019:
Year Ended December 31,
RSAs Granted
PSAs Granted
Total
2021
941,748 $
788,054 $
Grant Date
Fair Value
7.51
6.31
2020
863,710 $
240,669 $
Grant Date
Fair Value
6.30
9.86
1,729,802
1,104,379
Grant Date
Fair Value
9.87
12.45
2019
551,214 $
371,672 $
922,886
The following table summarizes the RSA and PSA activity during the year ended December 31, 2021:
Non-vested shares outstanding - December 31, 2020
Shares granted
Shares vested
Shares forfeited, cancelled or retired
Non-vested shares outstanding - December 31, 2021
RSAs
Weighted
PSAs
Weighted
Shares
833,973 $
941,748 $
(670,476) $
(35,428) $
1,069,817 $
Average Grant
Date Fair Value
7.81
7.51
8.12
8.14
7.34
Shares
365,040 $
788,054 $
(191,623) $
(41,461) $
920,010 $
Average Grant
Date Fair Value
11.06
6.31
9.60
8.50
7.40
The total fair value of the RSAs and PSAs that vested during the years ended December 31, 2021, 2020 and 2019 was $7.3
million, $6.4 million and $5.6 million, respectively.
Share-based Compensation Expense
The following table summarizes total compensation costs recognized for share-based payments during the years ended
December 31, 2021, 2020 and 2019:
(In thousands)
Restricted stock
Performance shares
Total
Year Ended December 31,
2020
4,597 $
2,936
7,533 $
2021
5,478 $
4,619
10,097 $
2019
4,013
2,823
6,836
$
$
Income tax benefits related to share-based compensation of approximately $2.6 million, $2.0 million and $1.8 million
were recorded for the years ended December 31, 2021, 2020 and 2019, respectively. Share-based compensation expense
is included in “selling, general and administrative expenses” in the accompanying consolidated statements of operations.
As of December 31, 2021, total unrecognized compensation cost related to non-vested RSAs and PSAs was $15.4 million
and will be recognized over a weighted-average period of approximately 1.6 years.
F-31
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss), net of tax, by component
during 2021 and 2020:
(In thousands)
Balance at December 31, 2019
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive income (loss)
Balance at December 31, 2020
$
Other comprehensive gain before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive income
Balance at December 31, 2021
$
Pension and
Post-Retirement
Obligations
Derivative
Instruments
$
(64,316) $
(27,007)
436
(26,571)
(90,887) $
33,344
5,444
38,788
(52,099) $
(16,552) $
(13,601)
11,622
(1,979)
(18,531) $
868
10,191
11,059
(7,472) $
Total
(80,868)
(40,608)
12,058
(28,550)
(109,418)
34,212
15,635
49,847
(59,571)
The following table summarizes reclassifications from accumulated other comprehensive loss during 2021 and 2020:
(In thousands)
Amortization of pension and post-retirement
items:
Prior service credit (cost)
Actuarial gain (loss)
Settlement loss
Gain (Loss) on cash flow hedges:
Interest rate derivatives
Year Ended December 31,
2020
2021
Affected Line Item in the
Statement of Income
$
$
$
$
779
(2,309)
(5,864)
(7,394)
1,950
(5,444)
(13,964)
3,773
(10,191)
$
$
$
$
(1,270)
694
—
(a)
(a)
(a)
(576) Total before tax
140 Tax benefit
(436) Net of tax
(15,683)
Interest expense
4,061 Tax benefit
(11,622) Net of tax
(a) These items are included in the components of net periodic benefit cost for our pension and post-retirement
benefit plans. See Note 13 for additional details.
13. PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS
Defined Benefit Plans
We sponsor three qualified defined benefit pension plans that are non-contributory covering substantially all of our hourly
employees under collective bargaining agreements who fulfill minimum age and service requirements and certain salaried
employees. The defined benefit pension plans are closed to all new entrants. All of our defined benefit pension plans are
now frozen to all current employees and no additional monthly pension benefits will accrue under those plans.
We also have two non-qualified supplemental retirement plans (the “Supplemental Plans” and, together with the defined
benefit pension plans, the “Pension Plans”). The Supplemental Plans provide supplemental retirement benefits to certain
former employees by providing for incremental pension payments to partially offset the reduction of the amount that would
have been payable under the qualified defined benefit pension plans if it were not for limitations imposed by federal income
tax regulations. The Supplemental Plans are frozen so that no person is eligible to become a new participant. These plans
are unfunded and have no assets. The benefits paid under the Supplemental Plans are paid from the general operating
funds of the Company.
F-32
The following tables summarize the change in benefit obligation, plan assets and funded status of the Pension Plans as of
December 31, 2021 and 2020:
(In thousands)
Change in benefit obligation
Benefit obligation at the beginning of the year
Interest cost
Actuarial loss (gain)
Benefits paid
Plan settlement
Benefit obligation at the end of the year
(In thousands)
Change in plan assets
Fair value of plan assets at the beginning of the year
Employer contributions
Actual return on plan assets
Benefits paid
Plan settlement
Fair value of plan assets at the end of the year
Funded status at year end
2021
2020
826,120 $
22,758
(19,218)
(36,381)
(48,816)
744,463 $
759,821
25,971
75,131
(34,803)
—
826,120
2021
2020
623,826
20,755
58,156
(36,381)
(48,816)
617,540
(126,923)
$
$
$
556,967
24,039
77,623
(34,803)
—
623,826
(202,294)
$
$
$
$
$
In the year ended December 31, 2021, the actuarial gain on the benefit obligation was primarily due to an increase in the
discount rate. In the year ended December 31, 2020, the actuarial loss on the benefit obligation was primarily due to a
decrease in the discount rate.
Amounts recognized in the consolidated balance sheets at December 31, 2021 and 2020 consisted of:
(In thousands)
Current liabilities
Long-term liabilities
2021
2020
(242) $
$
(244)
$(126,681) $(202,050)
Amounts recognized in accumulated other comprehensive loss for the years ended December 31, 2021 and 2020 consisted
of:
(In thousands)
Unamortized prior service cost
Unamortized net actuarial loss
2021
2020
$
808 $
930
138,868
$ 91,126 $ 139,798
90,318
The following table summarizes the components of net periodic pension cost recognized in the consolidated statements of
operations for the plans for the years ended December 31, 2021, 2020 and 2019:
(In thousands)
Service cost
Interest cost
Expected return on plan assets
Amortization of:
Net actuarial loss
Prior service cost
Plan settlement
Net periodic pension cost (benefit)
$
$
2021
2020
2019
— $
— $
22,758
(36,997)
25,971
(34,544)
2,309
122
5,864
(5,944) $
1,165
123
—
(7,285) $
50
30,327
(34,627)
2,890
123
6,726
5,489
The components of net periodic pension cost other than the service cost component are included in other, net within other
income (expense) in the consolidated statements of operations.
F-33
In 2021 and 2019, we purchased a group annuity contract to transfer the pension benefit obligations and annuity
administration for a select group of retirees or their beneficiaries to an annuity provider. Upon issuance of the group
annuity contract, in 2021 the pension benefit obligation of $47.1 million for approximately 400 participants was
irrevocably transferred to the annuity provider and in 2019 the pension benefit obligation of $24.4 million for
approximately 500 participants was irrevocably transferred to the annuity provider. The purchase of the group annuity
contracts was funded directly by the assets of the Pension Plans. During the years ended December 31, 2021 and 2019,
we recognized a pension settlement charge of $5.9 million and $6.7 million, respectively, as a result of the transfer of the
pension liability to the annuity provider and other lump sum payments made during the years.
The following table summarizes other changes in plan assets and benefit obligations recognized in other comprehensive
loss, before tax effects, during 2021 and 2020:
(In thousands)
Actuarial loss (gain), net
Recognized actuarial loss
Recognized prior service cost
Plan settlement
Total amount recognized in other comprehensive loss, before tax effects
2021
$ (40,377)
(2,309)
(122)
(5,864)
$ (48,672)
2020
$ 32,052
(1,165)
(123)
—
30,764
$
The weighted-average assumptions used to determine the projected benefit obligations and net periodic benefit cost for
the years ended December 31, 2021, 2020 and 2019 were as follows:
Discount rate - net periodic benefit cost
Discount rate - benefit obligation
Expected long-term rate of return on plan assets
Rate of compensation/salary increase
Interest crediting rate for cash balance plans
Other Non-qualified Deferred Compensation Agreements
2021
2020
2019
2.81 % 3.51 % 4.36 %
3.05 % 2.81 % 3.51 %
6.00 % 6.25 % 6.97 %
2.50 % 2.50 %
2.00 % 2.00 % 3.00 %
N/A
We also are liable for deferred compensation agreements with former members of the board of directors and certain other
former employees of acquired companies. Depending on the plan, benefits are payable in monthly or annual installments
for a period of time based on the terms of the agreement which range from five years up to the life of the participant or to
the beneficiary upon death of the participant and may begin as early as age 55. Participants accrue no new benefits as
these plans had previously been frozen. Payments related to the deferred compensation agreements totaled approximately
$0.2 million for each of the years ended December 31, 2021 and 2020, respectively. The net present value of the remaining
obligations was approximately $0.6 million and $0.8 million at December 31, 2021 and 2020, respectively, and is included
in pension and post-retirement benefit obligations in the accompanying balance sheets.
We also maintain 22 life insurance policies on certain of the participating former directors and employees. We recognized
$0.1 million and $1.4 million in life insurance proceeds as other non-operating income in 2021 and 2020, respectively.
The excess of the cash surrender value of the remaining life insurance policies over the notes payable balances related to
these policies is determined by an independent consultant, and totaled $2.7 million and $2.5 million at December 31, 2021
and 2020, respectively. These amounts are included in investments in the accompanying consolidated balance sheets. Cash
principal payments for the policies and any proceeds from the policies are classified as operating activities in the
consolidated statements of cash flows. The aggregate death benefit payment payable under these policies totaled $6.2
million and $6.3 million as of December 31, 2021 and 2020, respectively.
Post-retirement Benefit Obligations
We sponsor various healthcare and life insurance plans (“Post-retirement Plans”) that provide post-retirement medical and
life insurance benefits to certain groups of retired employees. Certain plans are frozen so that no person is eligible to
become a new participant. Retirees share in the cost of healthcare benefits, making contributions that are adjusted
periodically—either based upon collective bargaining agreements or because total costs of the program have changed.
Covered expenses for retiree health benefits are paid as they are incurred. Post-retirement life insurance benefits are fully
insured. A majority of the healthcare plans are unfunded and have no assets, and benefits are paid from the general
F-34
operating funds of the Company. However, a certain healthcare plan is funded by assets that are separately designated
within the Pension Plans for the sole purpose of providing payments of retiree medical benefits for this specific plan.
The following tables summarize the change in benefit obligation, plan assets and funded status of the post-retirement
benefit obligations as of December 31, 2021 and 2020:
(In thousands)
Change in benefit obligation
Benefit obligation at the beginning of the year
Service cost
Interest cost
Plan participant contributions
Actuarial loss (gain)
Benefits paid
Plan amendments
Benefit obligation at the end of the year
(In thousands)
Change in plan assets
Fair value of plan assets at the beginning of the year
Employer contributions
Plan participant’s contributions
Actual return on plan assets
Benefits paid
Fair value of plan assets at the end of the year
Funded status at year end
2021
2020
$ 106,704 $ 107,132
825
3,265
218
6,387
(9,376)
(1,747)
$ 96,434 $ 106,704
649
2,579
868
(4,860)
(9,506)
—
2021
2020
$
$
3,337 $
8,638
868
209
(9,506)
3,546 $
3,164
9,159
218
172
(9,376)
3,337
$
(92,888) $ (103,367)
In the year ended December 31, 2021, the actuarial gain on the benefit obligation was primarily due to the underwriting
gain and an increase in the discount rate. In the year ended December 31, 2020, the actuarial loss on the benefit obligation
was primarily due to a decrease in the discount rate which was partially offset by the underwriting gain.
Amounts recognized in the consolidated balance sheets at December 31, 2021 and 2020 consist of:
(In thousands)
Current liabilities
Long-term liabilities
2021
(5,446) $
2020
$
(5,709)
$ (87,442) $ (97,658)
Amounts recognized in accumulated other comprehensive loss for the years ended December 31, 2021 and 2020 consist
of:
(In thousands)
Unamortized prior service credit
Unamortized net actuarial loss (gain)
2021
(2,865) $
(4,585)
(7,450) $
2020
(3,766)
284
(3,482)
$
$
The following table summarizes the components of the net periodic costs for post-retirement benefits for the years ended
December 31, 2021, 2020 and 2019:
2021
2020
2019
$
649 $
2,579
(200)
825 $
3,265
(197)
—
(901)
2,127 $
(1,859)
1,147
3,181 $
957
4,231
(180)
(2,033)
3,072
6,047
(In thousands)
Service cost
Interest cost
Expected return on plan assets
Amortization of:
Net actuarial gain
Prior service cost (credit)
Net periodic postretirement benefit cost
$
F-35
The components of net periodic post-retirement benefit cost other than the service cost component are included in other,
net within other income (expense) in the consolidated statements of operations.
The following table summarizes other changes in plan assets and benefit obligations recognized in other comprehensive
loss, before tax effects, during 2021 and 2020:
(In thousands)
$ (4,869) $ 6,412
Actuarial loss (gain), net
1,859
Recognized actuarial gain
(1,747)
Prior service credit
Recognized prior service (cost) credit
(1,147)
Total amount recognized in other comprehensive loss, before tax effects $ (3,968) $ 5,377
—
—
901
2020
2021
The weighted-average assumptions used to determine the projected benefit obligations and net periodic benefit cost for
the years ended December 31, 2021, 2020 and 2019 were as follows:
Discount rate - net periodic benefit cost
Discount rate - benefit obligation
Rate of compensation/salary increase
2021
2020 2019
2.57 % 3.35 % 4.35 %
2.93 % 2.56 % 3.34 %
2.50 % 2.50 % 2.50 %
For purposes of determining the cost and obligation for post-retirement medical benefits, a 6.25% healthcare cost trend
rate was assumed for the plan in 2021, declining to the ultimate trend rate of 5.00% in 2027.
Plan Assets
Our investment strategy is designed to provide a stable environment to earn a rate of return over time to satisfy the benefit
obligations and minimize the reliance on contributions as a source of benefit security. The objectives are based on a long-
term (5 to 15 year) investment horizon, so that interim fluctuations should be viewed with appropriate perspective. The
assets of the fund are to be invested to achieve the greatest return for the pension plans consistent with a prudent level of
risk.
The asset return objective is to achieve, as a minimum over time, the passively managed return earned by managed index
funds, weighted in the proportions outlined by the asset class exposures identified in the pension plan’s strategic allocation.
We update our long-term, strategic asset allocations every few years to ensure they are in line with our fund objectives.
At December 31, 2021, the target allocation of the Pension Plan assets is approximately 70 - 90% in return seeking assets
consisting primarily of equity and fixed income funds with the remainder in hedge funds. Our investment policy allows
the use of derivative instruments when appropriate to reduce anticipated asset volatility or to gain desired exposure to
various markets and return drivers. Currently, we believe that there are no significant concentrations of risk associated
with the Pension Plan assets.
The following is a description of the valuation methodologies for assets measured at fair value utilizing the fair value
hierarchy discussed in Note 1, which prioritizes the inputs used in the valuation methodologies in measuring fair value.
The fair value measurements used to value our plan assets as of December 31, 2021 were generated by using market
transactions involving identical or comparable assets. There were no changes in the valuation techniques used during
2021.
Common Stocks: Includes domestic and international common stocks and are valued at the closing price as of the
measurement date as reported on the active market on which the individual securities are traded.
Common Collective Trusts and Commingled Funds: Units in the fund are valued based on the net asset value (“NAV”) of
the funds, which is based on the fair value of the underlying investments held by the fund less its liabilities as reported by
the issuer of the fund. The NAV per share is used as a practical expedient to estimate fair value. This practical expedient
is not used when it is determined to be probable that the fund will sell the investment for an amount different than the
reported net asset value. These investments have no unfunded commitments, are redeemable daily, weekly, monthly,
quarterly or semi-annually and have redemption notice periods of up to 180 days.
F-36
The fair values of our assets for our defined benefit pension plans at December 31, 2021 and 2020, by asset category were
as follows:
(In thousands)
Cash and cash equivalents
Equities:
Stocks:
U.S. common stocks
International stocks
Total plan assets in the fair value hierarchy
Common Collective Trusts measured at NAV: (1)
Short-term investments (2)
Equities:
Global
Real estate
Fixed Income
Hedge Funds
Total plan assets
(In thousands)
Equities:
Stocks:
U.S. common stocks
International stocks
Total plan assets in the fair value hierarchy
Common Collective Trusts measured at NAV: (1)
Short-term investments (2)
Equities:
Global
Real estate
Fixed Income
Hedge Funds
Other assets/(liabilities) (3)
Total plan assets
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
As of December 31, 2021
Significant
Other
Observable Unobservable
Significant
Inputs
(Level 2)
Inputs
(Level 3)
$
459 $
— $
—
Total
$
459
24
1
484
$
24
1
484 $
—
—
— $
—
—
—
6,477
223,101
126,980
194,189
66,309
$ 617,540
Total
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
As of December 31, 2020
Significant
Other
Significant
Observable Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
$
15
1
16
$
$
15 $
1
16 $
— $
—
— $
—
—
—
7,479
232,933
89,508
247,479
46,402
9
$ 623,826
(1) Certain investments that are measured at fair value using NAV per share as a practical expedient have not been categorized in the
fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy
to the total plan assets.
(2) Short-term investments include an investment in a common collective trust which is principally comprised of certificates of deposit,
commercial paper, U.S. government obligations and variable rate securities with maturities less than one year.
(3) Other assets/(liabilities) include accrued receivables, net payables and pending settlements.
F-37
The fair values of our assets for our post-retirement benefit plans at December 31, 2021 and 2020 were as follows:
Total
$
3
39
1,330
757
1,158
395
3,682
(136)
$3,546
(In thousands)
Cash and cash equivalents
Common Collective Trusts measured at NAV: (1)
Short-term investments (2)
Equities:
Global
Real estate
Fixed Income
Hedge Funds
Total plan assets
Benefit payments payable
Net plan assets
(In thousands)
Common Collective Trusts measured at NAV: (1)
Short-term investments (2)
Equities:
Global
Real estate
Fixed Income
Hedge Funds
Total plan assets
Benefit payments payable
Net plan assets
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
As of December 31, 2021
Significant
Other
Observable Unobservable
Significant
Inputs
(Level 2)
Inputs
(Level 3)
$
3 $
— $
—
As of
December 31,
2020
$
41
1,288
496
1,369
257
3,451
(114)
3,337
$
(1) Certain investments that are measured at fair value using NAV per share as a practical expedient have not been categorized in the
fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy
to the total plan assets.
(2) Short-term investments include investment in a common collective trust which is principally comprised of certificates of deposit,
commercial paper and U.S. government obligations with maturities less than one year.
Cash Flows
Contributions
Our funding policy is to contribute annually an actuarially determined amount necessary to meet the minimum funding
requirements as set forth in employee benefit and tax laws. We have elected not to reduce our required pension
contributions to the minimum funding requirements under ARPA and our expected contributions for 2022 are based on
historical minimum funding requirements in order to increase the Pension Plan’s funded status. We expect to contribute
approximately $20.5 million to our Pension Plans and $8.2 million to our other post-retirement plans in 2022.
F-38
Estimated Future Benefit Payments
As of December 31, 2021, benefit payments expected to be paid over the next ten years are outlined in the following table:
(In thousands)
2022
2023
2024
2025
2026
2027 - 2031
Defined Contribution Plans
$
Pension
Plans
Other
Post-retirement
Plans
31,143 $
32,136
33,515
34,550
35,610
189,363
8,155
7,710
7,206
6,691
6,284
27,262
We offer defined contribution 401(k) plans to substantially all of our employees. Contributions made under the defined
contribution plans include a match, at the Company’s discretion, of employee contributions to the plans. We recognized
expense with respect to these plans of $15.6 million, $15.6 million and $15.8 million in 2021, 2020 and 2019, respectively.
14. INCOME TAXES
Income tax expense (benefit) consists of the following components:
(In thousands)
Current:
Federal
State
Total current expense
Deferred:
Federal
State
Total deferred expense (benefit)
Total income tax expense (benefit)
For the Year Ended
2020
2019
2021
$
305 $
470
775
314 $
2,236
2,550
143
1,392
1,535
4,867
637
5,504
6,279 $ 10,936 $
8,802
(416)
8,386
(4,339)
(910)
(5,249)
(3,714)
$
The following is a reconciliation of the federal statutory tax rate to the effective tax rate for the years ended December
31, 2021, 2020 and 2019:
(In percentages)
Statutory federal income tax rate
State income taxes, net of federal benefit
Searchlight investment
Other permanent differences
Change in deferred tax rate
Valuation allowance
Provision to return
Nondeductible goodwill
State audit settlement
Other
For the Year Ended
2021
2020
2019
21.0 % 21.0 % 21.0 %
1.6
6.4
(3.3)
(33.0)
2.2
(0.5)
—
—
2.8
(1.7)
(1.1)
2.6
—
(1.5)
—
—
0.4
(0.5)
(6.3)% 22.7 % 15.7 %
10.6
—
(4.5)
(2.9)
(4.7)
(0.5)
—
(3.2)
(0.1)
F-39
Deferred Taxes
The components of the net deferred tax liability are as follows:
(In thousands)
Non-current deferred tax assets:
Reserve for uncollectible accounts
Accrued vacation pay deducted when paid
Accrued expenses and deferred revenue
Net operating loss carryforwards
Excess interest carryforward
Pension and postretirement obligations
Share-based compensation
Derivative instruments
Financing costs
Tax credit carryforwards
Valuation allowance
Net non-current deferred tax assets
Non-current deferred tax liabilities:
Goodwill and other intangibles
Basis in investment
Partnership investments
Property, plant and equipment
Financing costs
Other
Net non-current deferred taxes
Year Ended December 31,
2021
2020
$
2,632 $
4,388
15,019
100,402
2,402
57,507
1,706
2,633
—
4,854
191,543
(8,580)
182,963
2,420
4,354
16,419
76,198
—
79,688
974
6,582
1,177
4,990
192,802
(7,139)
185,663
(44,044)
(4)
(16,902)
(310,579)
(5,892)
—
(377,421)
(53,797)
(12)
(15,988)
(286,888)
—
1
(356,684)
$ (194,458) $ (171,021)
The investment made by Searchlight in 2020 is treated as a contribution of equity for federal tax purposes; therefore, the
impact of the non-cash PIK interest expense, discount and issuance costs, and fair value adjustments on the CPR resulted
in an increase of $33.1 million and a decrease of $1.6 million to our current tax expense for 2021 and 2020, respectively.
As of December 31, 2021, the American Rescue Plan Act did not have a material impact on the Company’s income tax
positions. We will continue to evaluate the impact of enacted and future legislation.
Deferred income taxes are provided for the temporary differences between assets and liabilities recognized for financial
reporting purposes and assets and liabilities recognized for tax purposes. The ultimate realization of deferred tax assets
depends upon taxable income during the future periods in which those temporary differences become deductible. To
determine whether deferred tax assets can be realized, management assesses whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized, taking into consideration the scheduled reversal of deferred
tax liabilities, projected future taxable income and tax-planning strategies.
Consolidated and its wholly owned subsidiaries, which file a consolidated federal income tax return, estimates it has
available federal NOL carryforwards as of December 31, 2021 of $423.1 million and related deferred tax assets of $88.9
million. The federal NOL carryforwards for tax years beginning after December 31, 2017 of $157.2 million and related
deferred tax assets of $33.0 million can be carried forward indefinitely. The federal NOL carryforwards for the tax years
prior to December 31, 2017 of $265.9 million and related deferred tax assets of $55.8 million expire in 2027 to 2035.
ETFL, a nonconsolidated subsidiary for federal income tax return purposes, estimates it has available NOL carryforwards
as of December 31, 2021 of $0.6 million and related deferred tax assets of $0.1 million. ETFL’s federal NOL carryforwards
are for the tax years prior to December 31, 2017 and expire in 2022 to 2024.
We estimate that we have available state NOL carryforwards as of December 31, 2021 of $812.8 million and related
deferred tax assets of $16.1 million. The state NOL carryforwards expire from 2022 to 2041. Management believes that
it is more likely than not that we will not be able to realize state NOL carryforwards of $89.0 million and related deferred
F-40
tax asset of $5.9 million and has placed a valuation allowance on this amount. The related NOL carryforwards expire
from 2022 to 2041. If or when recognized, the tax benefits related to any reversal of the valuation allowance will be
accounted for as a reduction of income tax expense.
We estimate that we have available state tax credit carryforwards as of December 31, 2021 of $6.1 million and related
deferred tax assets of $4.9 million. The state tax credit carryforwards are limited annually and expire from 2022 to 2031.
Management believes that it is more likely than not that we will not be able to realize state tax credit carryforwards of $3.4
million and related deferred tax asset of $2.7 million and has placed a valuation allowance on this amount. The related
state tax credit carryforwards expire from 2022 to 2031. If or when recognized, the tax benefits related to any reversal of
the valuation allowance will be accounted for as a reduction of income tax expense.
Unrecognized Tax Benefits
Under the accounting guidance applicable to uncertainty in income taxes, we have analyzed filing positions in all of the
federal and state jurisdictions where we are required to file income tax returns as well as all open tax years in these
jurisdictions. Our unrecognized tax benefits as of December 31, 2021 and 2020 were $4.9 million. There were no material
effects on the Company’s effective tax rate. The net amount of unrecognized benefits that, if recognized, would result in
an impact to the effective rate is $4.7 million for each of the years ended December 31, 2021 and 2020.
Our practice is to recognize interest and penalties related to income tax matters in interest expense and selling, general and
administrative expenses, respectively. As of December 31, 2021 and 2020, we did not have a material liability for interest
or penalties and had no material interest or penalty expense.
The periods subject to examination for our federal return are years 2018 through 2020. The periods subject to examination
for our state returns are years 2017 through 2020. In addition, prior tax years may be subject to examination by federal or
state taxing authorities if the Company’s NOL carryovers from those prior years are utilized in the future. We are currently
under examination by state taxing authorities. We do not expect any settlement or payment that may result from the
examination to have a material effect on our results or cash flows.
We do not expect that the total unrecognized tax benefits and related accrued interest will significantly change due to the
settlement of audits or the expiration of statute of limitations in the next twelve months. There were no material effects
on the Company’s effective tax rate.
15. COMMITMENTS AND CONTINGENCIES
We have certain obligations for various contractual agreements to secure future rights to goods and services to be used in
the normal course of our operations. These include purchase commitments for planned capital expenditures, agreements
securing dedicated access and transport services, and service and support agreements.
As of December 31, 2021, future minimum contractual obligations and the estimated timing and effect the obligations will
have on our liquidity and cash flows in future periods are as follows:
2022
(in thousands)
Service and support agreements (1) $ 10,122 $ 4,852
7,022
Transport and data connectivity
Capital expenditures (2)
—
Other operating agreements (3)
553
$ 93,122 $ 12,427
7,333
74,991
676
Total
2023
Minimum Annual Contractual Obligations
2025
2026
2024
Thereafter Total
$ 1,941 $ 1,144
230
—
251
$ 7,934 $ 1,625
5,585
—
408
$
$
299 $ 1,059
169
87
—
—
230
446
616 $ 1,674
$ 19,417
20,426
74,991
2,564
$ 117,398
(1) We have entered into service and maintenance agreements to support various computer hardware and software
applications and certain equipment.
(2) We have binding commitments with numerous suppliers for future capital expenditures.
(3) We have entered into various non-cancelable rental agreements for certain facilities and equipment used in our
operations.
F-41
Litigation, Regulatory Proceedings and Other Contingencies
Gross Receipts Tax
Two of our subsidiaries, Consolidated Communications of Pennsylvania Company LLC (“CCPA”) and Consolidated
Communications Enterprise Services Inc. (“CCES”), have, at various times, received Assessment Notices and/or Audit
Assessment Notices from the Commonwealth of Pennsylvania Department of Revenue (“DOR”) increasing the amounts
owed for the Pennsylvania Gross Receipts Tax, and have had audits performed for the tax years 2008 through 2018. We
filed Petitions for Reassessment with the DOR’s Board of Appeals, contesting these audit assessments. These cases remain
pending and are in various stages of appeal. We received notification that the DOR has started audits for the tax years
2019 and 2020.
In May 2017, we entered into an agreement to guarantee any potential liabilities to the DOR up to $5.0 million. We believe
that certain of the DOR’s findings regarding CCPA’s and CCES’s additional tax liabilities for the tax years 2008 through
2018, for which we have filed appeals, continue to lack merit. However, in 2019, CCPA and CCES finalized a settlement
of the intrastate and interstate tax liabilities for the tax years 2008 through 2013, except for the 2010 CCPA appeals,
bringing the appeals to a conclusion. The additional tax liabilities calculated by the DOR for these tax years for CCPA
and CCES were approximately $3.4 million and $4.0 million, respectively. The settlement resulted in a payment from us
to the DOR of $2.1 million, including interest, which the Company previously reserved for.
The additional tax liabilities calculated by the DOR for CCPA and CCES for the remaining unsettled tax years 2010
(CCPA) and 2014 through 2018 (CCPA and CCES) are approximately $4.6 million and $2.6 million, respectively. Based
on the initial settlement offers for the tax years 2008 through 2013 and the Company’s best estimate of the potential
additional tax liabilities for the remaining unsettled tax years 2010 (CCPA) and 2014 through 2018 (CCPA and CCES),
we have reserved $0.8 million and $1.6 million, including interest, for our CCPA and CCES subsidiaries, respectively.
We expect the filings for the tax years 2014 through 2018 to be settled at a later date similar to the initial settlement. While
we continue to believe a settlement of all remaining disputed claims is possible, we cannot anticipate at this time what the
ultimate resolution of these cases will be, nor can we evaluate the likelihood of a favorable or unfavorable outcome or the
potential losses (or gains) should such an outcome occur. We do not believe that the outcome of these claims will have a
material adverse impact on our financial results or cash flows.
From time to time we may be involved in litigation that we believe is of the type common to companies in our industry,
including regulatory issues. While the outcome of these claims cannot be predicted with certainty, we do not believe that
the outcome of any of these legal matters will have a material adverse impact on our business, results of operations,
financial condition or cash flows.
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2021
Net revenues
Operating income
Net income (loss) attributable to common stockholders
Basic and diluted earnings (loss) per share
2020
Net revenues
Operating income
Net income (loss) attributable to common stockholders
Basic and diluted loss per share
Quarter Ended
March 31, June 30,
September 30, December 31,
(In thousands, except per share amounts)
$ 324,766
$ 38,326
$ (62,099)
(0.80)
$
$ 320,403
$ 30,015
$ (55,356)
(0.71)
$
$ 318,584
32,508
$
(4,721)
$
(0.05)
$
$ 318,480
34,329
$
12,414
$
0.12
$
Quarter Ended
March 31, June 30,
September 30, December 31,
(In thousands, except per share amounts)
$ 325,662
$ 37,352
$ 15,547
0.22
$
$ 325,176
$ 39,780
$ 13,840
0.19
$
$ 327,066
37,352
$
14,510
$
0.20
$
$ 326,124
21,029
$
(6,920)
$
(0.09)
$
During the quarter ended December 31, 2021, we purchased a group annuity contract to transfer the pension benefit
obligations and annuity administration for a select group of retirees or their beneficiaries to an annuity provider. As a
result of the transfer of the pension liability to the annuity provider, we recognized a non-cash pension settlement charge
of $5.9 million during the quarter ended December 31, 2021.
F-42
During the quarters ended December 31, 2021 and 2020, we recognized a gain of $13.1 million and $23.8 million on the
decline in the fair value of contingent payment rights issued to Searchlight.
In connection with the Investment Agreement entered into with Searchlight in October 2020 as discussed in Note 4, we
recognized transaction costs of $7.6 million during the quarter ended December 31, 2020 associated with the CPRs issued
as part of the transaction. We also incurred additional interest expense of $7.9 million on the Note issued to Searchlight in
the fourth quarter of 2020.
We incurred a loss on the extinguishment of debt of $18.5 million in connection with the refinancing of our credit
agreement and redemption of our 2022 Senior Notes during the quarter ended December 31, 2020.
As part of cost saving initiatives, we incurred severance costs of $7.5 million during the quarter ended December 31, 2020.
F-43
SUBSIDIARIES OF THE COMPANY
The following is a list of subsidiaries of the Company, omitting subsidiaries which, considered in the aggregate, would
not constitute a significant subsidiary. Unless otherwise noted, all subsidiaries are 100% owned (directly or indirectly) by
Consolidated Communications Holdings, Inc.
Exhibit 21
State of Incorporation
Name
New York
Berkshire Cable Corp.
New York
Berkshire Cellular, Inc.
New York
Berkshire New York Access, Inc.
New York
Berkshire Telephone Corporation
New York
C&E Communications, Ltd.
New York
Chautauqua & Erie Communications, Inc.
New York
Chautauqua and Erie Telephone Corporation
Washington
Consolidated Communications of Comerco Company
Delaware
Consolidated Communications Enterprise Services, Inc.
Delaware
Consolidated Communications Finance III Co.
California
Consolidated Communications of California Company
Illinois
Consolidated Communications of Central Illinois Company
Delaware
Consolidated Communications of Colorado Company
Florida
Consolidated Communications of Florida Company
Illinois
Consolidated Communications of Illinois Company
Kansas
Consolidated Communications of Kansas Company
Maine
Consolidated Communications of Maine Company
Minnesota
Consolidated Communications of Minnesota Company
Missouri
Consolidated Communications of Missouri Company
Consolidated Communications of New York Company, LLC
Delaware
Consolidated Communications of Northern New England Company, LLC Delaware
Delaware
Consolidated Communications of Northland Company
Delaware
Consolidated Communications of Ohio Company, LLC
Oklahoma
Consolidated Communications of Oklahoma Company
Delaware
Consolidated Communications of Pennsylvania Company, LLC
Texas
Consolidated Communications of Texas Company
Delaware
Consolidated Communications of Vermont Company, LLC
Delaware
Consolidated Communications of Washington Company, LLC
Illinois
Consolidated Communications, Inc.
Delaware
FairPoint Business Services LLC
Florida
St. Joe Communications, Inc.
New York
Taconic Technology Corp.
New York
Taconic Telcom Corp.
New York
Taconic Telephone Corp.
1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Registration Statement (Form S-8 No. 333-135440) pertaining to the Consolidated Communications, Inc.
401(k) Plan and Consolidated Communications 401(k) Plan for Texas Bargaining Associates,
Registration Statement (Form S-8 No. 333-128934) pertaining to the Consolidated Communications
Holdings, Inc. 2005 Long-Term Incentive Plan,
Registration Statement (Form S-8 No. 333-166757) pertaining to the Consolidated Communications, Inc.
2005 Long-Term Incentive Plan,
Registration Statement (Form S-8 No. 333-182597) pertaining to the SureWest Communications Employee
Stock Ownership Plan of Consolidated Communications Holdings, Inc.,
Registration Statement (Form S-8 to Form S-4/A No. 333-198000) pertaining to the Hickory Tech
Corporation 1993 Stock Award Plan,
Registration Statement (Form S-8 No. 333-203974) pertaining to the Consolidated Communications
Holdings, Inc. 2005 Long-Term Incentive Plan, and
(vii)
Registration Statement (Form S-8 No. 333-228199) pertaining to the Consolidated Communications
Holdings, Inc. 2005 Long-Term Incentive Plan;
of our reports dated March 4, 2022, with respect to the consolidated financial statements of Consolidated Communications
Holdings, Inc. and subsidiaries and the effectiveness of internal control over financial reporting of Consolidated
Communications Holdings, Inc. and subsidiaries included in this Annual Report (Form 10-K) of Consolidated
Communications Holdings, Inc. and subsidiaries for the year ended December 31, 2021.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 4, 2022
EXHIBIT 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, C. Robert Udell Jr., certify that:
1.
I have reviewed this annual report on Form 10-K of Consolidated Communications Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
March 4, 2022
/s/ C. Robert Udell Jr.
C. Robert Udell Jr.
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Steven L. Childers, certify that:
1.
I have reviewed this annual report on Form 10-K of Consolidated Communications Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
March 4, 2022
/s/ Steven L. Childers
Steven L. Childers
Chief Financial Officer
(Principal Financial Officer and Chief Accounting Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(“Section 906”), C. Robert Udell Jr. and Steven L. Childers, President and Chief Executive Officer and Chief Financial
Officer, respectively, of Consolidated Communications Holdings, Inc., each certify that to his knowledge (i) the Annual
Report on Form 10-K for the fiscal year ended December 31, 2021 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in such report fairly presents, in all
material respects, the financial condition and results of operations of Consolidated Communications Holdings, Inc.
/s/ C. Robert Udell Jr.
C. Robert Udell Jr.
President and Chief Executive Officer
(Principal Executive Officer)
March 4, 2022
/s/ Steven L. Childers
Steven L. Childers
Chief Financial Officer
(Principal Financial Officer and Chief Accounting Officer)
March 4, 2022
SHAREHOLDER INFORMATION
STOCK MARKET
NASDAQ: CNSL
TRANSFER AGENT
Computershare Trust Company, N.A.
U.S. 866.697.5701 or
International 781.575.4061
www.computershare.com/investor
CORPORATE
HEADQUARTERS
Consolidated Communications
2116 S. 17th Street
Mattoon, IL 61938
INVESTOR RELATIONS
Investor information and SEC filings
are available on our website at
ir.consolidated.com.
BOARD OF DIRECTORS
Robert J. Currey
Chairman
Thomas A. Gerke
Director
Roger H. Moore
Director
Dale E. Parker
Director
Maribeth S. Rahe
Director
Timothy D. Taron
Director
C. Robert Udell, Jr.
President, CEO and Director
Wayne L. Wilson
Director
(cid:127) Sacramento
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Gibsonia (cid:127)
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(cid:127) Pittsburgh
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Kansas City (cid:127)
Kansas City (cid:127)
Mattoon (cid:127)
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(cid:127) Indianapolis
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L EG EN
D
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Nat’l Core Network
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NASDAQ: CNSL
www.consolidated.com
121 S. 17th Street
Mattoon, Illinois 61938