[ ]
2022
ANNUAL REPORT
DEAR SHAREHOLDERS,
We achieved several key milestones in 2022, and most importantly
progressed with our transformation and path to return to revenue and
EBITDA growth. First, we added more than 40,000 fiber subscribers during
the year, an increase of more than 2X year-over-year, which contributed to
growth in total consumer broadband connections in 2022. Second, consumer
fiber broadband revenue increased 37%, reflective of growth in fiber
subscribers coupled with increased average revenue per unit or customer
(ARPU) as over 70% of our new fiber customers are choosing our 1-Gig
Internet offering. Third, we again demonstrated that we can build fiber at
scale with the completion of more than 400,000 upgrades enabling Gigabit+
speeds. We surpassed 1 million total Gig+ fiber locations at year end, and
have extended fiber to nearly 40% of our addressable market, up almost
4x versus 2020! This critical milestone provides us with a significant
opportunity to grow our fiber subscriber base through deeper penetration
in our markets.
Fidium Fiber, our new consumer broadband offering, reached its 1-year
anniversary last fall. We are excited with the positive consumer response
to Fidium, which is transforming how people connect, work and live. Our
industry-leading Net Promoter Score (NPS) of greater than 50 is validation
for the superior customer experience. With simple and highly competitive
plans, symmetrical multi-Gig speeds, premium whole-home mesh WiFi
capabilities and an entirely transformed customer experience, we are making
broadband easy for our customers. Recently, we launched Fidium@Work,
a simple, highly competitive fiber broadband service with the Attune@Work
WiFi™ app, which leverages a digital sales channel and is marketed to
small businesses.
Our commercial and carrier channels are also leveraging our new fiber
passings which provide opportunities for us to grow data-transport services.
Our lit buildings increased 7% in 2022, while our fiber network increased
by nearly 5,500 miles, and now reaches 58,000 fiber route miles. This
provides us substantial opportunity as we differentiate ourselves with
high-quality and scalable network connectivity supported by our cloud
services suite and our best in breed partnerships to grow data-transport
revenues over the long term, notwithstanding some near term pressure
on carrier wireless backhaul revenue.
Turning to our capital structure, we exited the year with strong liquidity,
including cash of more than $400 million on the heels of over $600 million
of non-core asset divestitures during the year, and have availability under
our $250 million revolving credit facility. This positions us well to continue
executing on our fiber build plan, while seeking additional broadband
public-private partnerships and government funding opportunities and
further growing our consumer fiber business.
With a newly aligned leadership team, we are laser focused and fully
committed to a return to growth. Our fiber expansion plan is supported
by positive market trends and incredible demand for broadband services.
And, it’s the right time for Consolidated Communications as we build a
network to support future growth and provide a robust product portfolio
that will position us to win more customers and grow market share.
Our transformation to becoming a fiber-first broadband company is right
on track. We’ve reached several important milestones over the past two
years, and we intend to reach several more as we execute on our growth
plan. Accordingly, for 2023, our first priority is increasing fiber penetration
across what we call our 3 C’s – Consumer, Commercial and Carrier channels.
During 2022, we grew strategic revenue across each of our 3 C’s. With
over 1 million fiber passings, we now have a growing fiber infrastructure
and expanding sales channels to leverage across our business which we
believe will generate material long-term growth. Our second priority is to
deliver an improved customer experience by delivering on our promise of
providing simple and reliable broadband services, which we expect to
increase customer retention and referrals. Our third priority for the year is
to drive operational efficiencies and improve unit costs across our business
by reducing costs associated with repeatable activities as we optimize
processes and productivity. This leads us to our next critical inflection
point in 2024 where we expect year-over-year revenue and EBITDA
growth as the majority of our broadband revenue shifts to fiber.
We remain committed to our ESG priorities as we continue to make
advancements in these areas. As a leading fiber broadband provider in the
markets we serve, we are building stronger communities by connecting
people to critical health services, educational resources and social,
professional and economic opportunities. As we add fiber locations, we
are building a more sustainable network and helping to reduce the carbon
footprint of our customers by empowering them to work, play and
communicate digitally by providing access to the world. Our commitment
to the communities we serve extends well beyond building rural
broadband networks and includes financial investments and company
giving programs, and more than 6,600 employee volunteer hours.
I want to extend my gratitude to our 3,200 employees across 20+ states
who work tirelessly to serve our customers and carry on our mission to
connect hundreds of thousands of people with reliable broadband
solutions, transforming how they work and live. I also want to thank our
valued shareholders for their continued support as we execute on our
growth plan and a mission which will improve the lives of those we serve,
ultimately creating long-term shareholder value.
Sincerely,
Bob Udell
President and Chief Executive Officer
Certain figures within this document have been normalized for the divestitures of the Company’s Ohio
and Kansas assets, where applicable, which closed on Jan. 31, 2022 and Nov. 30, 2022, respectively. Please
refer to the Company’s fourth quarter 2022 financial results press release for additional details, including a
reconciliation of non-GAAP measures to the nearest comparable GAAP measures.
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, 2022
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
(I.R.S. Employer
Identification No.)
61938-5973
(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. Yes ☐ No ☒
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 ☒
Securities registered pursuant to Section 12(g) of the Act: None
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.
Yes ☒ No ☐
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, a 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.
Large accelerated filer ☐
Smaller reporting company ☐
Accelerated filer ☒
Emerging growth company ☐
Non-accelerated filer ☐
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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
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, 2022, the aggregate market value of the shares held by non-affiliates of the registrant’s common stock was $515,607,358 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 27, 2023, the registrant had 114,680,271 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the 2023 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,
2022.
TABLE OF CONTENTS
PAGE
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
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
SIGNATURES
1
15
25
25
25
26
26
27
28
51
51
51
51
54
54
54
54
54
54
54
55
59
60
Cautionary Note Regarding Forward-Looking Statements
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 Securities and Exchange Commission (the “SEC”), we disclaim any
intention or obligation to update or revise publicly any forward-looking statements.
Item 1. Business.
PART I
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, we have achieved business growth and a diversification of revenue and cash
flow streams through our acquisitions over a 15-year period from 2002 to 2017 that have created a strong platform and
expanded network for future expansion. 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”) and also completed a global debt refinancing, which in combination provided 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 company that is well-positioned
to further expand and grow broadband services to meet ever-evolving customer needs.
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
57,800 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. Consolidated is
dedicated to moving people, businesses and communities forward by delivering the most reliable fiber communications
solutions.
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
1
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 launched our largest-ever fiber infrastructure project in 2021 with the goal of upgrading approximately
1.6 million residential and small business premises to fiber-to-the-home/premise (“FTTP”) over six years, enabling multi-
Gig symmetrical speeds. The fiber network investments will be made across eight states, including more than 1 million
passings within our northern New England service areas. During the years ended 2022 and 2021, we upgraded
approximately 403,000 and 330,000 homes and small businesses, respectively, and in 2021, we launched Fidium Fiber,
our new Gigabit consumer fiber internet product. We plan to upgrade at least 225,000 passings in 2023 and expand Fidium
Fiber further into our footprint as well as to small business customers. 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 have and will
continue to 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.”
Recent Business Developments
Discontinued Operations - Sale of Investment in Wireless Partnerships
On September 13, 2022, we completed the sale of all of our limited partnership interests in 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)”) to Cellco Partnership (“Cellco”) for an aggregate
purchase price of $490.0 million, other than a portion of the interest in one of the partnerships which was sold to a limited
partner of such partnership pursuant to its right of first refusal. Cellco is the general partner for each of the five wireless
partnerships and is an indirect, wholly-owned subsidiary of Verizon Communications, Inc. In accordance with Accounting
Standards Codification (“ASC”) 205-20, Presentation of Financial Statements – Discontinued Operations, the sale of the
limited partnership interests met the criteria for reporting as discontinued operations. As a result, the financial results of
the limited partnership interests have been classified as discontinued operations in our consolidated financial statements
for all periods presented. Refer to Note 6 to the consolidated financial statements included in this report in Part II – Item 8 –
“Financial Statements and Supplementary Data” for additional information on the transaction and the partnership interests.
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)
Consumer:
Broadband (Data and VoIP)
Voice services
Video services
Commercial:
Data services (includes VoIP)
Voice services
Other
Carrier:
Data and transport services
Voice services
Other
Subsidies
Network access
Other products and services
Total operating revenues
Key Operating Statistics
Consumer customers
Fiber Gig+ capable
DSL/Copper
Consumer data connections
Consumer voice connections
Video connections
2022
2021
2020
% of
Revenues
$
% of
Revenues
$
% of
Revenues
$
$
272.1
144.8
54.2
471.1
228.5
142.3
43.1
413.9
137.4
14.7
1.7
153.8
22.8 % $
12.2
4.5
39.5
19.2
12.0
3.6
34.8
11.5
1.2
0.2
12.9
269.3
160.7
65.1
495.1
228.9
154.6
40.0
423.5
133.4
17.2
1.6
152.2
21.0 % $
12.5
5.1
38.6
263.1
170.5
74.3
507.9
20.1 %
13.1
5.7
38.9
17.9
12.1
3.1
33.1
10.4
1.4
0.1
11.9
225.3
161.2
43.4
429.9
136.8
20.5
1.7
159.0
17.3
12.4
3.3
33.0
10.5
1.6
0.1
12.2
33.4
104.7
14.4
$ 1,191.3
2.8
8.8
1.2
69.8
120.5
21.1
100.0 % $ 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
100.0 %
2022
484,669
As of December 31,
2021
516,949
2020
554,763
70,610
330,747
401,357
86,122
298,442
384,564
328,849
63,447
370,660
76,041
122,872
244,586
367,458
276,779
35,039
We completed the sale of substantially all of the assets of our non-core, rural ILEC business located in Ohio (the “Ohio
operations”) and our business located in the Kansas City market (the “Kansas City operations”) on January 31, 2022 and
November 30, 2022, respectively. For the year ended December 31, 2021, operating revenues for the Ohio operations and
the Kansas City operations were $8.9 million and $51.3 million, or 0.7% and 4.0% of consolidated operating revenues,
respectively. The sale of substantially all of the net assets of our Kansas City operations and Ohio operations resulted in a
reduction of approximately 3,325 fiber consumer data connections, 14,505 DSL/Copper consumer data connections and
14,800 video connections in 2022. Prior period amounts have not been adjusted to reflect the sales.
The telecommunications industry continues to experience 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 consumer demand for data-
based services and faster speeds increases. 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 declines in
traditional voice services impacted by the ongoing industry-wide reduction in access lines.
3
Consumer
Broadband Services
Broadband services include revenues from residential customers for subscriptions to our data products. We offer high-
speed Internet access at speeds of up to 2 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 fiber internet product offers symmetrical speeds from 50 Mbps to 2 Gbps over the latest WiFi 6 technology
with no data caps. Customers have the ability to view and manage their WiFi network through our Attune WiFi app, which
enables customers to create individual profiles, turn on parental controls, manage devices and provide guest access. Our
Voice over Internet Protocol (“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 options for unlimited local and long distance calls
and customizable calling features and voicemail including voicemail to email options.
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 video subscribers can also 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. As the consumer demand for streaming services increases, we
continue to de-emphasize our linear video services and transition customers to streaming TV packages offered through
our streaming partnerships.
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.
Commercial
Data 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,
SIP trunking and 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 connections; 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.
4
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 or 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 currently
maintain a turn-key, state of the art statewide next-generation emergency 911 system located in Maine. As of October 29,
2020, we were no longer the 911 service provider in Vermont. These systems have processed several million calls relying
on the caller’s location information for routing. 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.
Carrier
We provide high-speed fiber data transmission services to regional and national interexchange and wireless carriers
including Ethernet, cellular backhaul, dark fiber and colocation services. The demand for backhaul services continues to
grow as wireless carriers are faced with escalating consumer and commercial demands for wireless data. Voice services
include basic local phone service packages with customized features for resell by wholesale customers. The plans include
options for voicemail, conference calling, linking multiple office locations and other custom calling features.
Subsidies
Subsidies consist of both federal and state funding designed to promote widely available, quality broadband services at
affordable prices with higher data speeds in rural areas and for low-income consumers across the country. Some subsidies
are funded by end user surcharges to which telecommunications providers, including local, long-distance and wireless
carriers, contribute on a monthly basis, while others are components of broader economic stimulus or recovery legislation.
Certain subsidies are allocated and distributed to participating carriers monthly based upon their respective costs for
providing local service. In other cases, subsidies are awarded to carriers periodically over a predetermined number of
years to support their deployment of high-speed broadband infrastructure in underserved or unserved areas. 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 multi-gigabit broadband speeds to residential and commercial
customers. Public Private Partnerships are a key component of Consolidated’s commitment to expand rural broadband
access.
5
Wireless Partnerships
In addition to our core business, we derived a portion of our cash flow and earnings from investments in five wireless
partnerships: Mobilnet South Partnership, RSA #17, Pittsburgh SMSA, RSA 6(I) and RSA 6(II). 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.
On September 13, 2022, we completed the sale of all of our limited partnership interests in the five wireless partnerships
to Cellco for an aggregate purchase price of $490.0 million, other than a portion of the interest in one of the partnerships
which was sold to a limited partner of such partnership pursuant to its right of first refusal. We intend to use the proceeds
from the sale to support our fiber expansion plan. The financial results of the limited partnership interests have been
reported as discontinued operations in our consolidated financial statements for all periods presented. Prior to classification
as discontinued operations, wireless partnership investment income was included as a component of other income in the
consolidated statements of operations.
We owned 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 accounted for this investment at
our initial cost less any impairment because fair value was not readily available for this investment. Income was recognized
only upon cash distributions of our proportionate earnings in the partnership.
We owned 20.51% of RSA #17, which serves areas in and around Conroe, Texas. This investment was accounted for
under the equity method. Income was recognized on our proportionate share of earnings and cash distributions were
recorded as a reduction in our investment.
We owned 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 accounted
for this investment at our initial cost less any impairment because fair value was not readily available for this investment.
RSA 6(I) and RSA 6(II) were accounted for under the equity method.
For the years ended December 31, 2022, 2021 and 2020, we recognized income of $23.5 million, $41.8 million and
$40.7 million, respectively, and received cash distributions of $29.2 million, $43.0 million and $41.5 million, respectively,
from these wireless partnerships.
Network Architecture and Technology
We have made significant investments in our 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. 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, 2022, our fiber-optic network consisted of over 57,800 route-miles, which includes approximately
17,000 miles of FTTP deployments, approximately 22,000 route miles of fiber located in the northern New England area,
approximately 3,950 miles of fiber network in Minnesota and surrounding areas, approximately 4,790 miles of fiber
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network in Texas including parts of the greater Dallas/Fort Worth market, approximately 1,830 route-miles of fiber-optic
facilities in the Pittsburgh metropolitan area, approximately 2,300 miles of fiber network in Illinois and approximately
1,150 route-miles of fiber optic facilities in California that cover large parts of the greater Sacramento metropolitan area.
Our remaining network includes approximately 4,850 route-miles spanning across various states including portions of
Alabama, Colorado, Florida, Georgia, Kansas, Massachusetts, New York, Pennsylvania and Washington.
As of December 31, 2022, we passed more than 2.6 million homes and have direct fiber connections to 14,427 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 2 Gbps
in select markets, and up to 100 Mbps in markets where 2 Gbps is not yet available, depending on the geographical
region. As part of our multi-year fiber build plan, we plan to extend fiber coverage enabling multi-Gig data speeds to over
70% of our passings by 2026. The upgrades will be made primarily across ten states including more than 1.1 million
passings within the northern New England service areas to significantly enhance our broadband speeds. The ultimate total
passings will be dependent upon, amongst other things, our ability to secure Public Private Partnership grant arrangement
opportunities. 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, and intend to also leverage our investments to grow commercial data services. In all the
markets we serve, we have launched initiatives to support fiber backhaul services to cell sites. As of December 31, 2022,
we had 3,805 cell sites in service and an additional 304 additional cell sites pending completion.
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;
• Providing customers with a broad array of broadband, 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;
• Building our Fidium Fiber brand as our leading consumer and small business fiber service with a differentiated
customer service; 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 in select markets using the brand known as Fidium Fiber, which launched
in November 2021. In February 2023, we launched Fidium@Work and expanded our Fidium Fiber service to small
businesses everywhere Fidium internet is available.
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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 multi-year build plan with construction beginning in early 2021. The build plan includes the upgrade of
approximately 1.6 million passings to fiber enabling multi Gigabit-capable services to over 70% of our passings by 2026.
The ultimate total passings upgraded to fiber will be dependent upon, amongst other things, our ability to secure Public
Private Partnership grant arrangement opportunities. During the years ended December 31, 2022 and 2021, we built fiber
to approximately 403,000 and 330,000 passings, respectively, enabling faster broadband speeds and in 2023, we plan to
upgrade at least 225,000 locations. This marks the biggest fiber deployment project in our Company’s history. Our strategy
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 1.1 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.
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 multi-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.
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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, changes in the
regulatory and legislative 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, including fixed wireless Internet service providers (“WISPs”); online video providers; and in some cases
new forms of providers that 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, Optimum, 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 5G and
beyond, in order to provide increasingly faster data speeds to their customers. A growing number of companies are also
building and enhancing their fiber networks in order to provide 1 Gbps or multi Gigabit-capable broadband services within
many of our service areas. 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 of free or lower cost services, such as video
over the Internet, complimentary Wi-Fi service and other streaming devices have 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.
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, 2022, we employed approximately 3,200 employees, including part-time employees. We also use
temporary and contract employees in the normal course of our business. Approximately 49% of our employees were
covered by collective bargaining agreements as of December 31, 2022. For a more detailed discussion regarding how the
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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. We offered
leadership Diversity, Equity and Inclusion (“DEI”) training to senior leaders across the Company and our DEI Council,
which we formed in 2021, meets regularly as part of an enhanced and comprehensive employee engagement initiative.
Our employees complete training each year on discrimination and harassment prevention on topics that include ageism,
anti-bullying and respect for people from other racial, ethnic and religious groups. We continue to expand our DEI
initiatives and are actively working to help advance our diversity journey and build upon our practices on diversity,
inclusion and fairness.
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.
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 Communications Act of 1934 (the “Communications Act” and
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.
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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, 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 (“Transformation Order”), which 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 access charge portion of the Transformation Order systematically reduced 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 subsidy 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 Transformation Order redirected support from voice services to broadband services,
and is now called the CAF. 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.
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 RDOF program 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 (which is not certain to occur) 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 our 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, beginning January 1, 2022 through December 31, 2031, which resulted in a
reduction of approximately $42.2 million in annual support as of January 1, 2022. Consolidated filed its long form
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application with supporting documents on January 29, 2021 and received final FCC approval on December 14, 2021.
Consolidated began receiving RDOF funding in January 2022.
Unbundled Network Element Rules
In 2019, the FCC issued two orders that eliminated certain obligations that require incumbent telecommunications carriers
to lease Unbundled Network Element (“UNE”) to competitors. 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 provided 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 of the FCC’s Business Data Services (“BDS”) order. BDS were previously known as Special Access
services. The FCC broadly deregulated BDS services in 2017. This decision was appealed and a U.S. Court of Appeals
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. On remand, the FCC addressed this issue in the same order used
to provide forbearance relief on UNE transport. The FCC has signaled its intent to continue evaluating various aspects of
its UNE and related resale rules, and to forbear from or otherwise modernize them where necessary in light of evolving
market conditions.
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 $33.4 million, $69.8 million and $72.0 million in 2022,
2021 and 2020, respectively.
State Regulation
We are subject to regulation by state governments in the jurisdictions in which we operate. State regulatory commissions
generally exercise jurisdiction over our provision of intrastate telecommunications services. 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) regulate ILECs’ financing activities including their ability to borrow against
and pledge their assets, (vi) regulate transactions between ILECs and their affiliates and (vii) impose various quality of
service standards. In many states, BDS and switched interconnection services are subject to price regulation, although the
extent of such 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 states continue to assess their laws and implement various regulatory changes, there can be no assurance
that these mechanisms will continue to provide us with the same level of cost recovery we historically have received.
Local Government Authorizations
In the various states we operate in, we operate under a structure in which municipalities and other local governmental
authorities may impose various fees, such as for the privilege of originating and terminating messages and placing facilities
within the relevant area, 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 Video and Internet Services
Video Services
Our cable television subsidiaries each require a state or local franchise or other similar authorization in order to provide
cable television service to customers. Each of these subsidiaries is subject to regulation under 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 such provisions of federal law have been implemented
through FCC regulations. The FCC has expanded its oversight and regulation of certain aspects of the provision of cable
television over time. For example, 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 currently not significantly regulated by either the FCC or the state commissions
(with the exception of the California Public Utilities Commission). 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 rescinding its previous classification of Internet service as a telecommunications service regulated under Title II of
the Communications Act effectively limiting the FCC’s authority over Internet Service Providers. However, the FCC
retained rules requiring Internet Service Providers to disclose practices associated with blocking, throttling and paid
prioritization of Internet traffic. The FCC order was challenged in court and in 2019, a U.S. Court of Appeals upheld the
FCC’s decision reclassifying Internet access services as an information service. However, the ruling invalidated the FCC’s
decision that state regulators may not impose obligations similar to the federal network neutrality obligations. Several
states have adopted rules similar to the network neutrality requirements that were eliminated by the FCC and new state
legislation may be adopted in the future.
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.
COVID-19 and Broadband Adoption Initiatives
Federal and state governments have adopted initiatives to assist with the impacts of the COVID-19 pandemic and to
provide funding programs to assist in the deployment of broadband in order to support access to high speed broadband
services in underserved or unserved areas. The awards may include a number of regulatory requirements including the
completion of construction by certain dates. We are evaluating each of these programs and expect to continue to pursue
funding opportunities available to us. We cannot predict what funding we will receive, the ultimate requirements that will
be adopted or the impact of these programs on our business.
Coronavirus Aid, Relief, and Economic Security Act Funding
States received 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.
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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 introduced the Keep Americans Connected pledge, which was in effect through 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 COVID-19 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 prohibiting carriers from disconnecting
service within their state during the respective Governors’ declared states of emergency, which Consolidated also
supported. Certain states such as Washington and New York were extended to July 31, 2021 and December 31, 2021,
respectively. The state moratoriums on disconnections have since expired.
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 was 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 began distributing funds on March 1, 2022. Consolidated is 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 to
support broadband infrastructure deployment and access across the United States. 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 (“BEAD”). The
National Telecommunications and Information Administration administers the BEAD program and has awarded grants to
jurisdictions across the country, which in turn will use the funding to support service providers’ broadband deployment
and access initiatives. The FCC currently is undertaking a broadband availability and quality mapping project, the results
of which may impact the ultimate distribution of BEAD funding.
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
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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 wireline and wireless companies, long-
distance carriers and resellers, Internet service providers, including fixed wireless Internet service providers (“WISPs”),
satellite companies and cable television companies, and, in some cases, new forms of providers that are able to offer
competitive 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. Wireless companies are
aggressively developing networks using next-generation data technologies, including 5G wireless broadband services, in
order to provide increasingly faster data speeds to their customers. A growing number of telecommunications companies
are also building and enhancing their fiber networks within many of our service areas. 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, our video
service faces increased competition as 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, provide streaming and other Over-The-Top (“OTT”) services that deliver video content to televisions, computers
and other devices over the Internet. Newer products and services will likely continue to be developed, further increasing
the number of competitors that all our services face. 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, a 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
their 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.
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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 communications 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 communications 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. We expect to continue to incur additional costs as we execute
on our technological developments including our fiber network expansion plan. 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. 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. In addition, a growing number of telecommunications companies are building
advanced fiber networks to significantly increase broadband speeds. Although we use fiber optics in parts of our networks
and are continuing to expand and enhance our fiber network, we continue to rely on coaxial cable and copper transport
media to serve customers in certain areas. 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 severity, magnitude and duration of global or regional pandemics are uncertain and hard to predict. Although
the domestic and global economies have begun to recover from the COVID-19 pandemic as many health and safety
restrictions have been lifted, certain adverse consequences of the pandemic continue to impact the economy, including
disruptions in the supply chain, labor shortages, rising inflationary pressures and interest rates, and the risk of a recession.
As a critical infrastructure provider, we continued to operate our business and provide services to our customers. A future
resurgence in the transmission of current or new variants of COVID-19 or other pandemic conditions that result in any
preventive or protective actions implemented by governmental authorities may have a material adverse effect on our
operations, customers and suppliers. Adverse economic and market conditions as a result of COVID-19 or other pandemics
could 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, volatility in financial and other capital markets may 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.
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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 “Transformation 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
Transformation 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 (“RDOF”), the next phase of the CAF program, which resulted in a reduction of
approximately $42.2 million in the annual support we receive as of January 1, 2022. See Part I – Item 1 – “Regulatory
Environment” above for statistics of current funding levels. We must comply with numerous FCC and state requirements
to continue receiving the RDOF funding. Any failure to comply with the requirements could impact our current funding,
which could adversely impact our results of operations and financial condition.
We receive subsidy payments from various federal and state universal service support programs, including high-cost
support, Lifeline, which reduces the cost of communications services for low-income consumers, and E-Rate, which
subsidizes the purchase of communications services by 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. For example, climate change may increase the intensity and frequency of various natural disasters,
as well as contribute to chronic changes in the physical environment (such as changes to ambient temperature and
precipitation patterns or sea-level rise) that may impair the operating conditions of our infrastructure or otherwise adversely
impact our operations. 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. We utilize our information technology infrastructure to manage and store various
proprietary information and sensitive or confidential data relating to our operations. We routinely process, store and
transmit large amounts of data for our customers, including sensitive and personally identifiable information. We depend
on our information technology infrastructure to conduct business operations and provide customer services. We may be
subject to data breaches and disruptions of the information technology systems we use for these purposes. Attempts by
others to gain unauthorized access to organizations’ information technology systems by hackers and other malicious actors
such as foreign governments, criminals, hacktivists, terrorists and insider threats 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. Hackers and other malicious actors
may be able to penetrate our network security and misappropriate or compromise our confidential, sensitive, personal or
proprietary information, or that of third parties, and engage in the unauthorized use or dissemination of such information.
They may be able to create system disruptions, or cause shutdowns. Hackers and other malicious actors may be able to
develop and deploy viruses, worms, ransomware and other malicious software programs that attack our products or
otherwise exploit any security vulnerabilities of our systems. In addition, sophisticated hardware and operating system
software and applications that we procure from third parties may contain defects in design or manufacture, including
“bugs,” cybersecurity vulnerabilities and other problems that could unexpectedly interfere with the operation or security
of our 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.
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To date, interruptions of our information technology infrastructure and third party suppliers have been infrequent and have
not had a material impact on our operations. However, because technology is increasingly complex and cyber-attacks are
increasingly sophisticated and more frequent, there can be no assurance that such incidents will not have a material adverse
effect on us in the future. The consequences of a breach of our security measures or those of a third-party provider, a cyber-
related service or operational disruption, or a breach of personal, confidential, proprietary or sensitive data caused by a
hacker or other malicious actor could be significant for us, our customers and other affected third parties. For example, the
consequences could include damage to infrastructure and property, impairment of business operations, disruptions to
customer service, financial costs and harm to our liquidity, costs associated with remediation, loss of revenues, loss of
customers, competitive disadvantage, legal expenses associated with litigation, regulatory action, fines or penalties or
damage to our brand and reputation.
In addition, the costs to us to eliminate or address the foregoing security challenges and vulnerabilities before or after a
cyber-incident could be significant. In addition, our remediation efforts may not be successful and could result in
interruptions, delays or cessation of service. We could also lose existing or potential customers for our services in
connection with any actual or perceived security vulnerabilities in the services.
We are subject to laws, rules and regulations relating to the collection, use and security of user data. Our operations are
also subject to federal and state laws governing information security. In the event of a data breach or operational disruption
caused by an information security incident, such rules may require consumer and government agency notification and may
result in regulatory enforcement actions with the potential of monetary forfeitures as well as civil litigation. We have
incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols imposed by
law, regulation, industry standards and contractual obligations.
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 state and local
governmental authorities, including highway and transit authorities, as well as from various private parties, such as
telephone companies, including long-distance companies, and other utilities, and railroads 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.
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
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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, 2022, approximately 49% 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
2023 through 2026, of which contracts covering 2% of our employees will expire in 2023.
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.
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.
Increasing attention to, and evolving expectations for, environmental, social, and governance (“ESG”) initiatives could
increase our costs, harm our reputation, or otherwise adversely impact our business.
Companies across industries are facing increasing scrutiny from a variety of stakeholders related to their ESG practices.
Expectations regarding voluntary ESG initiatives and disclosures may result in increased costs (including but not limited
to increased costs related to compliance, stakeholder engagement, contracting and insurance), changes in demand for
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certain offerings, enhanced compliance or disclosure obligations, or other adverse impacts to our business, financial
condition, or results of operations.
While we may at times engage in voluntary initiatives (such as voluntary disclosures, certifications, or goals, among others)
to improve the ESG profile of our company and/or offerings or to respond to stakeholder demands, such initiatives may
be costly and may not have the desired effect. Expectations around companies’ management of ESG matters continues to
evolve rapidly, in many instances due to factors that are out of our control. While we commit to certain initiatives or goals,
we may not ultimately be able to achieve them due to cost, technological, or other constraints. Moreover, actions or
statements that we may take based on based on expectations, assumptions, or third-party information that we currently
believe to be reasonable may subsequently be determined to be erroneous or be subject to misinterpretation. Even if this
is not the case, our current actions may subsequently be determined to be insufficient by various stakeholders, and we may
be subject to investor or regulator engagement on our ESG initiatives and disclosures, even if such initiatives are currently
voluntary.
Certain market participants, including major institutional investors and capital providers, use third-party benchmarks and
scores to assess companies’ ESG profiles in making investment or voting decisions. Unfavorable ESG ratings could lead
to increased negative investor sentiment towards us, which could negatively impact our share price as well as our access
to and cost of capital. To the extent ESG matters negatively impact our reputation, it may also impede our ability to
compete as effectively to attract and retain employees, customers, or business partners, which may adversely impact our
operations. In addition, we expect there will likely be increasing levels of regulation, disclosure-related and otherwise,
with respect to ESG matters, which will likely lead to increased costs as well as scrutiny that could heighten all of the risks
identified in this risk factor. Additionally, many of our customers and suppliers may be subject to similar expectations,
which may augment or create additional risks, including risks that may not be known to us.
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, including the impacts of inflation and the
ongoing war between Russia and Ukraine, 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. In addition, recent inflationary pressures may also
have an adverse impact on our cost structure and result in increased costs for materials, labor and other operating expenses.
If such impacts are prolonged and substantial, it could have a negative impact on our results of operations and capital
expenditures. Weak economic conditions may also impact the ability of our customers and third parties to satisfy their
obligations to us.
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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;
• 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, 2027 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, 2027, 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
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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, 2022, 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.
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, with respect to the revolving credit facility only, requires us to comply with specified
financial ratios, including a financial covenant based on a maximum consolidated first lien leverage ratio. 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.
22
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. The Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”),
enacted in March 2022, provides a framework for certain contracts to replace LIBOR with a benchmark rate based on
SOFR. While the LIBOR Act effectively established SOFR as the default replacement rate for LIBOR, it is not possible
to predict at this time 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 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. We currently expect to complete the transition from LIBOR to SOFR or an alternate
base rate for our variable rate debt and interest rate swap agreements during the second quarter of 2023.
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 governmental authorities. Rapid changes in technology and market conditions have resulted in changes in
how the government regulates 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.
23
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 relatively 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. In 2017, the FCC adopted an order rescinding its previous classification of Internet service as
a telecommunications service regulated under Title II of the Communications Act, which has effectively limited the FCC’s
authority over Internet Service Providers. However, the FCC retained rules requiring Internet Service Providers to disclose
practices associated with blocking, throttling and paid prioritization of Internet traffic. The FCC order was challenged in
court and in 2019, a U.S. Court of Appeals upheld the FCC’s decision reclassifying Internet access services as an
information service. However, the ruling invalidated the FCC’s decision that state regulators may not impose obligations
similar to the federal network neutrality obligations. Several states have adopted rules similar to the network neutrality
requirements that were eliminated by the FCC and new state legislation may be adopted in the future.
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 jointly and severally 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
• 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.
Effects of climate change may impose risk of damage to our infrastructure, our ability to provide services, and may
cause changes in federal and state regulation, all of which may result in potential adverse impact to our financial
results.
Extreme weather events precipitated by long-term climate change have the potential to directly damage network facilities
or disrupt our ability to build and maintain portions of our network. Any such disruption could delay network deployment
plans, interrupt service for our customers, increase our costs and have a negative effect on our operating results. The
potential physical effects of climate change, such as increased frequency and severity of storms, droughts, floods, fires,
freezing conditions, sea-level rise, and other climate-related events, could adversely affect our operations, infrastructure,
and financial results. Operational impacts resulting from the potential physical effects of climate change, such as damage
to our network infrastructure, could result in increased costs and loss of revenue. We could incur significant costs to
improve the climate resiliency of our infrastructure and otherwise prepare for, respond to, and mitigate such physical
24
effects of climate change. We are not able to accurately predict the materiality of any potential losses or costs associated
with the physical effects of climate change.
Further, customers, consumers, investors and other stakeholders are increasingly focusing on environmental issues,
including climate change, water use, deforestation, plastic waste, and other sustainability concerns. Concern over climate
change or other ESG matters may result in new or increased legal and regulatory requirements to reduce or mitigate impacts
to the environment and reduce the impact of our business on climate change, which could increase our costs for monitoring
and compliance. Further, climate change regulations may require us to alter our proposed business plans or increase our
operating costs due to increased regulation or environmental considerations, and could adversely affect our business and
reputation.
In addition, in March 2022, the SEC proposed new rules relating to the disclosure of a range of climate-related data risks
and opportunities, including financial impacts, physical and transition risks, related governance and strategy and
greenhouse gas (GHG) emissions, for certain public companies. As part of the proposed rule, companies would have to
disclose direct emissions from their operations as well as emissions created through their supply chains. We are currently
assessing this rule, but at this time we cannot predict the ultimate impact of the rule on our business. The SEC originally
planned to issue a final rule by October 2022, but most commentators now expect a final rule to be issued in early 2023.
To the extent this rule is finalized as proposed, we could incur increased costs related to the assessment and disclosure of
climate-related risks and certain emissions metrics.
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 –
25
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.
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 March 1,
2023, there were approximately 3,743 stockholders of record of the Company’s common stock.
Share Repurchases
During the quarter ended December 31, 2022, we repurchased 273,457 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, 2022
November 1-November 30, 2022
December 1-December 31, 2022
Performance Graph
Total number of
shares purchased
—
—
273,457
Average price
paid per share
—
—
4.31
$
Total number of Maximum number
shares purchased
of shares that may
as part of publicly yet be purchased
under the plans
announced plans
or programs
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, 2017 in each index. The stock performance shown on the graph below is not necessarily
indicative of future price performance.
26
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
2017
$ 100.00
$ 100.00
$ 100.00
2018
$ 92.04
$ 95.62
$ 77.39
Sale of Unregistered Securities
As of December 31,
2020
2019
$ 38.74
$ 125.72
$ 91.90
$ 48.83 $ 74.69
$ 148.85 $ 191.58
$ 101.16 $ 103.32
2021
2022
$ 35.75
$ 156.89
$ 75.55
During the year ended December 31, 2022, we did not sell any equity securities of the Company which were not registered
under the Securities Act of 1933, as amended.
Item 6. Reserved.
27
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Reference is made to “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, 2022 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 57,800 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”),
as described below, combined with the refinancing of our capital structure in 2020 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 are enhancing our fiber infrastructure and accelerating 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. In 2021, we launched our multi-year fiber expansion plan to upgrade approximately 1.6 million passings,
or more than 70% of our service area across select service areas to enable multi-Gig capable services to these homes and
small businesses including more than 1.1 million passings within our northern New England service areas. The ultimate
total passings will be dependent upon, amongst other things, our ability to secure Public Private Partnership grant
arrangement opportunities.
During the years ended December 31, 2022 and 2021, we upgraded approximately 403,000 and 330,000 passings to fiber,
respectively, and total fiber passings were approximately 1,009,000 or 38% of our service area at December 31, 2022
compared to 10% at December 31, 2020. During the year ended December 31, 2022, we added approximately 40,075
consumer fiber Gig-capable subscribers. In our northern New England service areas, approximately 32% of the passings
we serve were fiber Gig-capable as of December 31, 2022 compared to 17% at December 31, 2021. As of December 31,
2022, approximately 50% of the passings we serve in all other markets were fiber Gig-capable compared to 31% at
December 31, 2021. Our fiber build plan includes the upgrade of at least 225,000 homes and small businesses in 2023.
Fidium Fiber, our new Gigabit consumer fiber internet product with an all-new customer experience, launched in
November 2021 in select northern New England markets, reinforces our broadband-first strategy. In May 2022, Fidium
Fiber was expanded to additional markets in California, Illinois, Minnesota, Pennsylvania and Texas. In June 2022, we
28
launched symmetrical 2 Gig speeds across the entire Fidium fiber network. Our Fidium plans offer symmetrical speeds
from 50 Mbps to 2 Gbps over the latest WiFi 6 technology with no data caps. We expect to continue to expand the
availability of Fidium Fiber further in 2023. In February 2023, we launched Fidium@Work and expanded our Fidium
Fiber service to small businesses everywhere Fidium internet is available. Fidium@Work is ideal for small businesses that
have outgrown residential or traditional internet service, but do not require an enterprise solution.
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. 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 fiber network, we can tailor our services for business customers by developing solutions to
fit their specific needs. We are focused on driving fiber connectivity, achieving data services growth and standardizing
our commercial product portfolio, which increases efficiency and enables greater scalability and reliability for businesses.
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 14% as of December 31, 2022
compared to 2021. We have been able to mitigate some of the access line losses through alternative product offerings,
such as our VoIP service.
Our competitive multi-gig 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
45% as of December 31, 2022 compared to 2021 as a result of a divestiture in 2022, which accounted for approximately
21% of the decline, and our plan to de-emphasize our linear video services and transition customers to streaming and over-
the-top video services. 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 resulted in
a reduction in the federal subsidies we receive of approximately $42.2 million annually as of January 1, 2022. See the
“Regulatory Matters” section below for a further discussion of the subsidies we receive.
29
Significant Recent Developments
Discontinued Operations - Sale of Investment in Wireless Partnerships
On September 13, 2022, we completed the sale of our five limited wireless partnership interests to Cellco Partnership
(“Cellco”) for an aggregate purchase price of $490.0 million. Cellco is the general partner for each of the five wireless
partnerships and is an indirect, wholly-owned subsidiary of Verizon Communications, Inc. Our wireless partnership
investment consisted of ownership in five wireless partnerships: 2.34% of GTE Mobilnet of South Texas Limited
Partnership, 20.51% of GTE Mobilnet of Texas RSA #17 Limited Partnership, 3.60% of Pittsburgh SMSA Limited
Partnership, 16.67% of Pennsylvania RSA No. 6(I) Limited Partnership and 23.67% of Pennsylvania RSA No. 6(II)
Limited Partnership. We intend to use the proceeds from the sale to support our fiber expansion plan. The financial results
of the limited partnership interests have been reported as discontinued operations in our consolidated financial statements
for all periods presented. In the statement of cash flows, we have elected to combine cash flows from discontinued
operations with cash flows from continuing operations. In connection with the sale of the partnership interests, we
recognized a pre-tax gain on sale of $389.9 million during the year ended December 31, 2022. For the years ended
December 31, 2022, 2021 and 2020, we recognized income of $23.5 million, $41.8 million and $40.7 million, respectively,
and received cash distributions of $29.2 million, $43.0 million and $41.5 million, respectively, from these wireless
partnerships.
Divestitures
On March 2, 2022, we entered into a definitive agreement to sell substantially all the assets of our business located in the
Kansas City market (the “Kansas City operations”). The Kansas City operations provide data, voice and video services to
customers within the Kansas City metropolitan area and surrounding counties and includes approximately 17,100
consumer customers and 1,600 commercial customers. For the year ended December 31, 2021, operating revenues for the
Kansas City operations were $51.3 million, or 4.0% of total consolidated operating revenues. The sale closed on November
30, 2022 for gross cash proceeds of $82.1 million, subject to the finalization of certain working capital and other post-
closing purchase price adjustments. In 2022, in connection with the expected sale, the carrying value of the net assets to
be sold was reduced to their estimated fair value and we recognized an impairment loss of $131.7 million during the year
ended December 31, 2022. During the quarter and year ended December 31, 2022, we recognized an additional loss on
the sale of $16.8 million as a result of purchase price adjustments and an increase in net assets held for sale and estimated
selling costs during the period.
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” or the “Ohio operations”).
CCOC provides telecommunications and data services to residential and business customers in 11 rural communities in
Ohio and surrounding areas and included approximately 3,800 access lines, 3,900 data connections and 1,400 video
connections. For the year ended December 31, 2021, operating revenues for the Ohio operations were $8.9 million or
0.7%, of total consolidated operating revenues. The sale was completed on January 31, 2022 for gross cash proceeds of
$26.1 million, including customary working capital adjustments. As of December 31, 2021, the assets and liabilities to be
disposed of were classified as held for sale in the 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. During the year ended
December 31, 2022, we recognized an additional loss on the sale of $0.8 million, which is included in selling, general and
administrative expense in the consolidated statement of operations. The asset sales align with our strategic asset review
and focus on our core broadband regions. We intend to use the proceeds from the asset sales to support our fiber expansion
plan.
30
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, at the time of issuance, was
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, 2022 and 2021, shares of common stock issued to Searchlight represent approximately 34% and 35%,
respectively, of the Company’s outstanding common stock. The strategic investment with Searchlight provides us a valued
partner with significant experience in deploying broadband infrastructure as we continue to execute our fiber-focused
strategy and grow broadband services.
31
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, 2022, 2021 and 2020.
Financial Data
2022
2021
2020
% Change
2022 vs
2021
2021 vs
2020
(In millions, except for percentages)
Operating Revenues
Consumer:
Broadband (Data and VoIP)
Voice services
Video services
Commercial:
Data services (includes VoIP)
Voice services
Other
Carrier:
Data and transport services
Voice services
Other
Subsidies
Network access
Other products and services
Total operating revenues
Operating Expenses
$
272.1
144.8
54.2
471.1
228.5
142.3
43.1
413.9
137.4
14.7
1.7
153.8
$
269.3
160.7
65.1
495.1
228.9
154.6
40.0
423.5
133.4
17.2
1.6
152.2
$
263.1
170.5
74.3
507.9
225.3
161.2
43.4
429.9
136.8
20.5
1.7
159.0
33.4
104.7
14.4
1,191.3
69.8
120.5
21.1
1,282.2
72.0
125.3
9.9
1,304.0
1 %
(10)
(17)
(5)
2 %
(6)
(12)
(3)
(0)
(8)
8
(2)
3
(15)
6
1
(52)
(13)
(32)
(7)
(4)
11
—
2,211
100
(0)
12
(169)
(29)
100
100
931
(744)
(28)
882
1,385
25
191
2
(4)
(8)
(1)
(2)
(16)
(6)
(4)
(3)
(4)
113
(2)
2
(2)
(100)
100
—
(7)
(2)
(0)
22
(7)
(463)
(87)
(300)
(2,458)
3
100
33
(397)
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
Loss on disposal of assets
Depreciation and amortization
Total operating expenses
Income (loss) from operations
Interest expense, net
Loss on extinguishment of debt
Change in fair value of contingent payment rights
Other income, net
Income tax expense (benefit)
Income (loss) from continuing operations
Income from discontinued operations, net of tax
Dividends on Series A preferred stock
Net income attributable to noncontrolling interest
Net income (loss) attributable to common shareholders
Adjusted EBITDA from continuing operations (1)
Adjusted EBITDA (1)
546.7
301.6
—
131.7
4.2
300.2
1,284.4
(93.1)
(125.0)
—
—
13.4
(27.0)
(177.7)
318.3
40.1
0.5
100.0
569.6
271.1
—
5.7
—
300.6
1,147.0
135.2
(175.2)
(17.1)
(86.5)
1.3
(3.2)
(139.1)
32.4
2.7
0.4
$ (109.8)
384.4
413.6
$
$
463.8
506.9
$
$
$
$
$
$
560.6
275.4
7.6
—
—
324.9
1,168.5
135.5
(143.6)
(18.3)
23.8
10.1
1.6
5.9
31.4
—
0.3
37.0
487.7
529.2
(17)%
(18)%
(5)%
(4)%
(1) Adjusted EBITDA from continuing operations and Adjusted EBITDA are non-GAAP measures. See the “Non-GAAP
Measures” section below for additional information and reconciliation to the most directly comparable GAAP
measure. Adjusted EBITDA includes investment distributions from discontinued operations.
32
Key Operating Statistics
2022
484,669
2021
516,949
2020
554,763
% Change
2022 vs. 2021 vs.
2021
2020
(6) % (7)%
122,872
244,586
367,458
86,122
298,442
384,564
70,610
330,747
401,357
43
(18)
(4)
22
(10)
(4)
Consumer customers
Fiber Gig+ capable
DSL/Copper
Consumer data connections
Consumer voice connections
Video connections
276,779
35,039
328,849
63,447
370,660
76,041
(16)
(45)
(11)
(17)
The sale of substantially all of the net assets of our Kansas City operations and Ohio operations in 2022 resulted in a
reduction of approximately 3,325 fiber consumer data connections, 14,505 DSL/Copper consumer data connections and
14,800 video connections. Prior period amounts have not been adjusted to reflect the sales.
Operating Revenues
Consumer
Broadband Services
Broadband services include revenues from residential customers for subscriptions to our data and VoIP products. We
offer high-speed Internet access at speeds of up to 2 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.
Broadband services revenues increased $2.8 million during 2022 compared to 2021 despite a 4% decrease in broadband
connections in 2022 primarily due to an increase in Internet services as a result of price increases and growth in fiber
Internet services. We estimate that the sale of substantially all of the assets our Ohio operations and Kansas City operations
in 2022 reduced revenue for 2022 by approximately $3.1 million.
Broadband services revenues increased $6.2 million during 2021 compared to 2020 despite a 4% decrease in broadband
connections in 2021 primarily due to an increase in Internet services as a result of price increases as well as growth in
CCiTV revenue, our cloud-enabled video service. However, the increase in broadband revenue was partially offset by a
decline in VoIP revenue due to a 15% decline in connections in 2021 as more customers continue to rely exclusively on
wireless service.
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 $15.9 million during 2022 compared to 2021 primarily due to a 17% decline in access
lines during 2022 compared to 2021. 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. The number of local access lines in service
directly affects the recurring revenues 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.
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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 $10.9 million during 2022 compared to 2021 and decreased $9.2 million during 2021
compared to 2020 primarily due to the continued decline in connections. We expect to continue to experience a decline in
video connections as we de-emphasize our linear video subscriptions and transition customers to streaming services, which
may amplify the demand for higher broadband speeds to facilitate streaming content.
Commercial
Data 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,
SIP trunking 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”), a software-based network
technology that provides a simplified management and automation of wide area network connections, 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.
Data services revenues decreased $0.4 million during 2022 compared to 2021, of which we estimate that the sale of our
Kansas City operations in late 2022 reduced revenue for 2022 by approximately $1.4 million. The remaining change was
primarily due to the continued growth in dedicated Internet access, SIP trunking and SD-WAN services, which were
reduced in part by declines in Metro Ethernet as a result of customer churn. Data services revenues increased $3.6 million
during 2021 compared to 2020 primarily due to growth in dedicated Internet access and SD-WAN services. In recent years,
the growth in data services revenues has been impacted by customer churn from increased competition and price
compression as customers are migrating from legacy data connection products to more competitive products, which have
a lower average revenue per user.
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 or a measured rate or
can be bundled with selected services at a discounted rate.
Voice services revenues decreased $12.3 million during 2022 compared to 2021 primarily due to a 15% decline in access
lines in 2022 compared to 2021. Voice services revenues decreased $6.6 million during 2021 compared to 2020 primarily
due to a 9% decline in access lines in 2021 compared to 2020. Commercial customers are increasingly choosing alternative
technologies 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 currently
maintain a turn-key, state of the art statewide next-generation emergency 911 system located in Maine. As of October 29,
34
2020, we were no longer the 911 service provider in Vermont. These systems, have processed several million calls relying
on the caller’s location information for routing. 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.
Other services revenues increased $3.1 million during 2022 compared to 2021 primarily due to an increase in business
equipment sales and custom construction revenues. Other services revenues decreased $3.4 million during 2021 compared
to 2020 primarily due to the expiration of our 911 service contract in Vermont in late 2020 as well as decreases in pole
attachment and custom construction revenues.
Carrier
Data and Transport Services
We provide high-speed fiber data transmission services to regional and national interexchange and wireless carriers
including Ethernet, cellular backhaul, dark fiber and colocation services. Data and transport services revenues increased
$4.0 million during 2022 compared to 2021 primarily due to an increase in dark fiber revenue as a result of a new IRU
agreement entered into in 2022. Cellular backhaul revenue was consistent with prior year, however, we may recognize
future declines in cellular backhaul revenue as a result of the delayed timing of new pricing in 2022 and ongoing contract
renewals. Future declines are expected to be partially offset by pursing new tower opportunities and demand for other
Ethernet services.
Data and transport services revenues decreased $3.4 million during 2021 compared to 2020 primarily due to a decline in
dark fiber revenue and cellular backhaul in 2021 as a result of a reduction in pricing of recent contract renewals with our
wireless backhaul partners.
Voice Services
We provide basic local phone service packages with customized features for resell by wholesale customers. The plans
include options for voicemail, conference calling, linking multiple office locations and other custom calling features.
Voice services revenues decreased $2.5 million during 2022 compared to 2021 and decreased $3.3 million during 2021
compared to 2020 as customers continue to choose alternative technology solutions.
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 and for low-income consumers across the country.
Subsidies revenues decreased $36.4 million during 2022 compared to 2021 primarily due to a reduction in federal subsidies
support. In 2020, the FCC adopted an order establishing the Rural Digital Opportunity Fund (“RDOF”), which resulted in
a reduction in our annual support of approximately $42.2 million as of January 1, 2022. However, state subsidies support
increased $6.4 million due to a settlement recognized in 2022 for support temporarily suspended from the Texas High Cost
Fund. Subsidies revenues decreased $2.2 million in 2021 compared to 2020 primarily due to a reduction in state subsidies
support. 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 $15.8 million during 2022 compared to 2021 and
$4.8 million in 2021 compared to 2020 primarily as a result of the continuing decline in interstate rates, minutes of use,
voice connections and carrier circuits as transition to Ethernet based transport solutions. In addition, for the year ended
December 31, 2022, end user access revenue decreased due to a reduction in the Federal Universal Fund Contribution
Factor during the first half of 2022.
35
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 fiber to the home/premise (“FTTP”) Internet networks. The new town
networks provide multi-gigabit broadband speeds 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 decreased $6.7 million during 2022 compared to 2021 and increased $11.2 million
during 2021 compared to 2020 primarily due to revenue recognition of Public Private Partnership construction projects
during 2022 and 2021.
Operating Expenses
Cost of Services and Products
Cost of services and products, exclusive of depreciation and amortization decreased $22.9 million during 2022 compared
to 2021. Video programming costs decreased as a result of a decline in video connections and the sale of the Kansas City
operations in 2022. Access expense decreased related to additional fiber costs in 2021 for the Public Private Partnership
agreements, as described above. Access expense also decreased as a result of access charges of $3.4 million incurred in
2021 related to the early termination of a contract obligation for fixed wireless services. In addition, required contributions
to the Federal Universal Service Fund (“USF”) decreased as a result of a reduction in the annual funding rate for the first
half of the year. Employee labor costs also declined due to an increase in capitalized costs for the fiber network expansion
in 2022. These reductions in cost of services and products were offset in part by an increase in utility and fuel costs in the
current year.
In 2021, cost of services and products increased $9.0 million compared to 2020 primarily due to an increase in access
expense related to fiber costs for the Public Private Partnership agreements. 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 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.
Selling, General and Administrative Costs
Selling, general and administrative costs increased $30.5 million during 2022 compared to 2021. Advertising expense
increased due to greater promotional activities surrounding the continued marketing of our new fiber broadband products.
In 2022, we incurred additional professional fees for various system enhancements and customer service improvement
initiatives. In addition, employee labor costs were greater than prior year from additional headcount. Travel costs also
increased related to the fiber network build and fewer travel restrictions as compared to the prior year. Real estate taxes
increased primarily due to refunds and settlements received in 2021.
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.
Acquisition and Other Transaction Costs
There were no acquisition and other transaction costs incurred during 2022 or 2021. Acquisition and other transaction
costs of $7.6 million incurred in 2020 were 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 Searchlight transaction.
36
Loss on Impairment of Assets Held for Sale
In connection with the classification of substantially all of the assets of the Kansas City operations as held for sale in 2022,
the carrying value of the net assets to be sold was reduced to their estimated fair value and we recognized an impairment
loss of $131.7 million during the year ended December 31, 2022. During the year ended December 31, 2021, we recognized
an impairment loss of $5.7 million related to the classification of the Ohio operations as assets held for sale.
Loss on Disposal of Assets
As described above, we recognized a loss of $16.8 million on the sale of substantially all of the assets of our Kansas City
operations during the year ended December 31, 2022. We also recognized a loss of $8.3 million related to the potential
sale of certain utility poles during the year ended December 31, 2022. However, during the year ended December 31, 2022,
we completed the sale of certain non-strategic communication towers for cash proceeds of $21.0 million and recognized a
pre-tax gain on the sale of $20.8 million.
Depreciation and Amortization
Depreciation and amortization expense decreased $0.4 million during 2022 compared to 2021 primarily due to a decline
in amortization expense for customer relationships, which are amortized under the accelerated method. Depreciation
expense also declined due to certain assets becoming fully depreciated during the year and the sale of the Ohio and Kansas
City operations in 2022. 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 as well as success-based capital
projects for consumer and commercial services.
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 expected 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.
Reclassifications
Certain amounts in our 2021 and 2020 consolidated financial statements have been reclassified to conform to the 2022
presentation, primarily related to the presentation of the financial results for our wireless partnership interests as
discontinued operations. Certain operating revenues have also been reclassified to report commercial and carrier revenues
separately. The change in the classification of these revenues had no impact to total operating revenues as previously
reported.
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 Communications Act and 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
37
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 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.
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 its 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 our 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 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 approximately $5.9 million, beginning January 1, 2022 through
December 31, 2031, which resulted in a reduction of approximately $42.2 million in annual support as of January 1, 2022.
Consolidated filed its long form application with supporting documents on January 29, 2021 and received final FCC
approval on December 14, 2021. Consolidated began receiving RDOF funding in January 2022.
The annual FCC price cap filing was made on June 16, 2022 and became effective on July 1, 2022. The net impact is an
increase of approximately $2.0 million in network access and CAF ICC support funding for the July 2022 through June
2023 tariff period.
State Matters
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 reduced-cost
services to low-income consumers. 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 that it would be reducing all funded
carriers support by 64% beginning January 15, 2021. The potential impact of the decision by the PUCT was a reduction
in support we receive of approximately $4.0 million annually. The Texas Telephone Association (“TTA”), of 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 motion to expedite was granted. On June 30, 2022, the Third Court of Appeals
in Austin ruled in favor of the rural phone companies requiring the state to increase the state surcharge to fully fund the
38
TUSF and reimburse rural phone companies for the shortfall. The state had 45 days from the ruling date to decide whether
to appeal the decision. The state did not appeal the ruling and in October 2022, the TTA, TSTCI and PUCT reached an
agreement on how the outstanding funding would be repaid. Monthly support payments resumed in full in October 2022
and the funding shortfall for the periods from January 2021 through September 2022 is being reimbursed to carriers evenly
over a 15-month period. All reimbursements are expected to be completed by December 2023. During the year ended
December 31, 2022, we recognized subsidy revenue of $6.3 million related to the funding owed for the shortfall period in
accordance with the settlement agreement.
Coronavirus Aid, Relief, and Economic Security Act Funding
States received 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 to participate in this broadband grant program.
COVID-19
On March 13, 2020, the FCC introduced the Keep Americans Connected pledge which was in effect through 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 COVID-19 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 prohibiting carriers from disconnecting
service within their state during the respective Governors’ declared states of emergency, which Consolidated also
supported. Certain states such as Washington and New York were extended to July 31, 2021 and December 31, 2021,
respectively. The state moratoriums on disconnections have since expired.
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 was a participant in this program. The EBB ended 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 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 began distributing funds on March 1, 2022. Consolidated is participating in this program.
Infrastructure Investment and Jobs Act
The Infrastructure Investment and Jobs Act (the “Infrastructure Act”) signed on November 15, 2021 included $65.0 billion
to support broadband infrastructure deployment and access across the United States. The broadband internet portion of
the Infrastructure Act is aimed at increasing internet coverage for more universal access, including for rural, low-income,
39
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 (“BEAD”) grants. The
National Telecommunications and Information Administration administers the BEAD program and has awarded grants to
jurisdictions across the country, which in turn will use the funding to support service providers’ broadband deployment
and access initiatives. The FCC currently is undertaking a broadband availability and quality mapping project, the results
of which may impact the ultimate distribution of BEAD funding.
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
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, decreased $50.2 million during 2022 compared to 2021. In 2021, we recognized
interest expense, including amortized costs, of $39.3 million on the Note issued to Searchlight as part of the investment
agreement entered into in October 2020. The Note was converted into perpetual preferred stock in conjunction with the
closing of the second stage of the Searchlight investment in December 2021. In addition, the maturity of an interest rate
swap agreement in July 2021 reduced interest expense $6.3 million during the year ended December 31, 2022 as compared
to 2021. Interest expense was also reduced by an increase in interest income of $3.0 million from additional cash
equivalents and short-term investments in 2022.
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.
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, net, increased $12.1 million during 2022 compared to 2021. Pension and post-retirement benefit expense
decreased $8.5 million as a result of a reduction in annual expense and a pension settlement charge of $5.9 million
recognized during the year ended December 31, 2021. See Note 13 to the consolidated financial statements for a more
detailed discussion regarding our pension and other post-retirement plans. In addition, in 2021, we recognized a loss of
$3.6 million on the disposition of wireless spectrum licenses.
40
Other income decreased $8.8 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.
Income Taxes
Income taxes decreased $23.8 million in 2022 compared to 2021. Our effective tax rate was 13.2% for 2022 compared to
2.2% for 2021.
As a result of the Kansas City and Ohio transactions, we recorded an increase of $23.2 million and $4.2 million,
respectively, to our current tax expense in 2022 related to the write-down of noncash goodwill included in the transactions
that is not deductible for tax purposes. For the Ohio transaction, we recorded an increase to our current tax expense of
$1.5 million related to the write-down of noncash goodwill in 2021.
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 to our current tax expense for
2021.
In 2022 and 2021, we placed additional valuation allowances on deferred tax assets related to state NOL and state tax
credit carryforwards of $0.6 million and $1.7 million, respectively. We also recognized approximately $0.1 million of tax
benefit in the fourth quarter of 2022 to adjust our 2021 provision to match our 2021 returns compared to $2.6 million of
tax benefit in the fourth quarter of 2021 to adjust our 2020 provision to match our 2020 returns.
Exclusive of these discrete adjustments, our effective tax rate for 2022 would have been approximately 25.6% compared
to 25.3% for 2021. In addition, for 2022 and 2021, 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.
Income taxes decreased $4.8 million in 2021 compared to 2020. Our effective tax rate was 2.2% for 2021 compared to
22.2% 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. As a result of the Ohio transaction, 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. Exclusive of these discrete adjustments, our effective tax rate for 2021 would have been approximately
25.3% compared to 41.2% for 2020. 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.
Non-GAAP Measures
In addition to the results reported in accordance with US GAAP, we also use certain non-GAAP measures such as
EBITDA, Adjusted EBITDA from continuing operations 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 (loss) 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
41
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.
The following tables are a reconciliation of net income (loss) from continuing operations to Adjusted EBITDA for the
years ended December 31, 2022, 2021 and 2020:
(In thousands, unaudited)
Income (loss) from continuing operations
Add (subtract):
Interest expense, net of interest income
Income tax expense (benefit)
Depreciation and amortization
EBITDA
Adjustments to EBITDA:
Other, net (1)
Loss on disposal of assets
Loss on extinguishment of debt
Loss on impairment
Change in fair value of contingent payment rights
Non-cash, stock-based compensation
Adjusted EBITDA from continuing operations
Investment distributions from discontinued operations
Adjusted EBITDA
Year Ended December 31,
2021
2020
2022
$ (177,704) $ (139,127) $
5,874
124,978
(27,058)
300,166
220,382
17,347
4,233
131,698
—
—
175,195
(3,132)
300,597
333,533
10,911
—
17,101
5,704
86,476
10,097
463,822
43,040
$ 506,862 $
10,755
384,415
29,165
413,580
$
143,591
1,679
324,864
476,008
9,692
—
18,264
—
(23,802)
7,533
487,695
41,529
529,224
(1) Other, net includes 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.
Outlook and Overview
Liquidity and Capital Resources
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, proceeds from sales of nonstrategic assets and, if needed,
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.
42
The following table summarizes our cash flows:
(In thousands)
Cash flows provided by (used in):
Operating activities
Continuing operations
Discontinued operations
Investing activities
Continuing operations
Discontinued operations
Financing activities
Increase (decrease) in cash and cash equivalents
Cash Flows Provided by Operating Activities
Years Ended December 31,
2021
2022
2020
$
$
194,545
29,165
$
275,827 $
43,040
323,451
41,529
(466,728)
482,966
(13,731)
226,217
(586,443)
—
211,650
(55,926) $
(210,066)
—
(11,748)
143,166
$
Net cash provided by operating activities from continuing operations was $194.5 million in 2022, a decrease of
$81.3 million compared to the same period in 2021. Cash flows provided by operating activities decreased in part due to
a decline in earnings as a result of a decrease in operating revenue and a reduction in our annual federal subsidies support
of approximately $42.2 million. In addition, cash paid for income taxes increased $8.7 million in 2022. These reductions
in cash provided by operating activities were offset in part by a decrease in cash contributions to our defined benefit
pension plan of $10.7 million in 2022 compared to 2021.
In 2021, net cash provided by operating activities from continuing operations was $275.8 million, a decrease of
$47.6 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 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.
Cash Flows Used In Investing Activities
Net cash used in investing activities for continuing operations was $466.7 million and $586.4 million in 2022 and 2021,
respectively, and consisted primarily of cash used for capital expenditures, the purchase and maturity of short-term
investments and proceeds received from business dispositions and the sale of assets.
Capital expenditures continue to be our primary recurring investing activity and were $620.0 million, $480.3 million and
$217.6 million in 2022, 2021 and 2020, respectively. Our fiber expansion plan contributed to the increase in capital
expenditures in 2022 and 2021, which included the upgrade of more than 403,000 and 330,000 fiber passings, respectively,
with multi-Gig data speeds. Capital expenditures for 2023 are expected to be $425.0 million to $445.0 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 2023 of at least 225,000 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 2022, we received $327.4 million of proceeds from the maturity and sale of investments, which was offset in part by
the purchase of $302.9 million in short-term investments consisting primarily of held-to-maturity debt securities with
original maturities of three to twelve months. In 2021, we purchased $175.8 million in short-term investments, offset by
the maturity of investments of $66.2 million.
In 2022, we completed the sale of substantially all of the assets of CCOC, our non-core, rural ILEC business located in
Ohio, for cash proceeds, net of selling costs, of $25.2 million. We also received net cash proceeds of approximately
$80.6 million from the sale of substantially all the assets of our Kansas City operations.
43
Cash proceeds from the sale of assets increased $19.4 million in 2022 compared to 2021, primarily from cash proceeds of
approximately $21.0 million for the sale of certain non-strategic communication towers in 2022.
Net cash provided by discontinued operations of $483.0 million consists of the net proceeds from the sale of our five
limited wireless partnership interests in 2022. The proceeds from the sale are expected to be used to support the fiber
expansion plan.
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, 2022:
(In thousands)
6.50% Senior Notes
5.00% Senior Notes
Term loans, net of discount
Finance leases
Balance
750,000
400,000
991,176
35,746
2,176,922
$
$
Maturity Date
October 1, 2028
October 1, 2028
October 2, 2027
Rate(1)
6.50 %
5.00 %
LIBOR plus 3.50 %
6.60 % (2)
(1) At December 31, 2022, the 1-month LIBOR applicable to our borrowings was 4.38%. 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
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.
44
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, 2027 and an applicable margin (at our election) of 4.00%
for SOFR-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,
2022 and 2021, there were no borrowings outstanding under the revolving credit facility. Stand-by letters of credit of
$24.5 million were outstanding under our revolving credit facility as of December 31, 2022. The stand-by letters of credit
are renewable annually and reduce the borrowing availability under the revolving credit facility. As of December 31,
2022, $225.5 million was available for borrowing under the revolving credit facility.
On November 22, 2022, the Company, entered into Amendment No. 3 to the Credit Agreement (the “Third Amendment”)
to, among other things, extend the maturity of the revolving credit facility by two years from October 2, 2025 to October
2, 2027, subject to springing maturity on April 2, 2027 if the Term Loans, as of April 1, 2027, are scheduled to mature
earlier than March 31, 2028. The Third Amendment also relaxed the revolving credit facility’s consolidated first lien
leverage maintenance covenant, as described below, through June 30, 2025 to 6.35:1.00 from 5.85:1.00. In connection and
simultaneously with the effectiveness of the Third Amendment, Searchlight III CVL, L.P., an affiliate of Searchlight and
the sole holder of shares of the Company’s Series A Preferred Stock, delivered a waiver to the Company waiving, until
October 2, 2027, the restriction under the Certificate of Designations of Series A Perpetual Preferred Stock, dated
December 7, 2021 precluding the Company from electing not to declare and pay any cash dividends with respect to the
Series A Preferred Stock after October 2, 2025, provided that any dividend not declared and fully paid in cash, whether
during the period of such waiver or otherwise, shall accrue as set forth in the Certificate of Designations.
The weighted-average interest rate on outstanding borrowings under our credit facilities was 7.63% and 4.25% at
December 31, 2022 and 2021, respectively. Interest is payable at least quarterly.
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 is greater than 6.35:1.00 as of the end of any fiscal quarter, if on such date the testing threshold is met. The
testing threshold is met if the aggregate amount of our borrowings outstanding under the revolving credit facility exceeds
35%. As of December 31, 2022, the testing threshold was not met and our consolidated first lien leverage ratio under the
Credit Agreement was 4.40:1.00. As of December 31, 2022, we were in compliance with the Credit Agreement covenants.
Senior Notes
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.
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. 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.
45
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, 2022, the Company was in compliance with all terms, conditions and covenants under
the indenture governing the Senior Notes.
Finance Leases
We lease certain facilities and equipment under various finance leases which expire between 2023 and 2040. As of
December 31, 2022, the present value of the minimum remaining lease commitments was approximately $35.7 million, of
which $12.8 million was due and payable within the next twelve months. The leases require total remaining rental
payments of $39.7 million as of December 31, 2022.
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 34% of
the Company’s outstanding common stock as of December 31, 2022. 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, 2027 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, 2027, solely in cash. The liquidation preference at any given time is $1,000 per share. As of December
31, 2022 and 2021, the liquidation preference of the Series A Preferred Stock was $477.0 million and $436.9 million,
respectively, which includes accrued and unpaid dividends of $20.7 million and $2.7 million, respectively. The Company
intends to exercise the PIK dividend option on the Series A Preferred Stock through at least 2025.
Dividends
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
December 31,
$
2022
413,803
331,240
2.24
$
2021
210,436
142,270
1.50
Our net working capital position improved $189.0 million as of December 31, 2022 compared to December 31, 2021.
Cash, cash equivalents and short-term investments increased $203.4 million primarily as a result of the net cash proceeds
from the sale of our limited wireless partnership interests and the Kansas City operations, which was reduced in part by
capital expenditures for the fiber build plan in 2022. Working capital also improved from a decrease in accounts payable
of $7.9 million primarily related to the timing of capital expenditures for the fiber build plan. Accrued compensation also
46
declined $7.4 million as of the result of the payment in 2022 of certain employer payroll taxes of $6.0 million which were
deferred under the CARES Act in 2020. However, working capital at December 31, 2021 included net assets classified as
held for sale of $26.0 million related to the sale of substantially all of the assets of our ILEC business located in Ohio,
which was completed in the first quarter of 2022.
Our most significant use of funds in 2023 is expected to be for: (i) capital expenditures of between $425.0 million and
$445.0 million; and (ii) interest payments on our indebtedness of between $145.0 million and $155.0 million. The recent
refinancing of our capital structure including the availability of approximately $225.5 million on our revolving credit
facility combined with the net proceeds from asset divestitures in 2022 provides us the capital and financial flexibility to
re-invest in 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.
On March 27, 2020, the 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.
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 and we paid the remaining portion during the
fourth quarter of 2022.
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.
After that, our ability to fund expected uses of cash and to comply with the financial covenants under our debt agreements
will depend on the results of future operations, performance, cash flow and potential additional divestitures of non-core
assets. Our ability to fund 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.
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, 2022, we had approximately $6.6 million of these bonds outstanding.
47
Contractual Obligations
As of December 31, 2022, 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
Short-Term
$
Long-Term
Total
— $ 2,149,875 $ 2,149,875
796,211
39,695
35,346
163,704
651,423
24,953
28,687
29,566
144,788
14,742
6,659
134,138
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. We
currently have no maturities on our outstanding long-term debt until 2027. 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,
2022 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 may 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.
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% in 2022 and 2021. As of January 1, 2023, we estimate the long-term rate of
return of Plan assets will be 7.00%. 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 was $(12.3) million, $(3.8) million and $(4.1) million for the years ended
December 31, 2022, 2021 and 2020, respectively. We contributed $10.1 million, $20.8 million and $24.0 million in 2022,
2021 and 2020, respectively to our Pension Plans. Our contribution amounts meet the minimum funding requirements as
set forth in employee benefit and tax laws. We elected to participate in ARPA beginning with the 2021 plan year. 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. During 2021 and the six months ended June 30, 2022, we elected
to fund our pension contributions at the pre-ARPA levels, which has created a pre-funded balance. We expect that for
2023 and 2024, no pension contributions will be required under the ARPA minimum required contributions and we intend
use our current pre-funded balance to satisfy the minimum contribution requirements. For our other post-retirement plans,
we contributed $6.9 million, $8.6 million and $9.2 million in 2022, 2021 and 2020, respectively. In 2023, we expect to
make contributions totaling approximately $6.2 million to our other post-retirement benefit plans. See Note 13 to the
consolidated financial statements for a more detailed discussion regarding our pension and other post-retirement plans.
48
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
may result 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.
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.
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, 2022 and 2021, the carrying value of our goodwill was $929.6 million and $1,013.2 million,
respectively. Goodwill decreased $83.6 million during 2022 as a result of a divestiture, 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.
For the 2022 assessment, we evaluated the fair value of goodwill compared to the carrying value using the quantitative
approach and we concluded that the fair value of the reporting unit exceeded the carrying value at November 30, 2022 and
that there was no impairment of goodwill. 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
49
(“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 using a discount rate of 9.7%, as well as relevant comparable company earnings multiples for
the market-based approaches. Significant assumptions used in the analysis include a long-term growth rate and the
weighted average cost of capital which is used to discount estimates of projected future results and cash flows. Such
assumptions are judgmental and subject to change as a result of changing economic and competitive conditions.
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, was $10.6 million at December 31, 2022 and 2021.
When we use the quantitative approach to estimate the fair value of our trade name, we use DCF models 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 2022 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
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% in 2022 and 2021. As
of January 1, 2023, we estimate that the expected long-term rate of return of pension plan assets will be 7.00%.
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 2022 and 2021 projected benefit obligations, we used a weighted-average discount rate of 5.63% and
3.05%, respectively, for our pension plans and 5.64% and 2.93%, respectively, for our other post-retirement plans.
50
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
$
$
2,879
$
(6,089) $
(933)
6,089
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 6.50% healthcare cost trend rate was assumed for 2022,
declining to the ultimate trend rate of 5.00% in 2029. A 1.00% increase in the assumed healthcare cost trend rate would
result in increases of approximately $1.2 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 $1.4 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
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.
Based on our variable rate debt outstanding as of December 31, 2022, a 1.00% change in market interest rates would
increase or decrease annual interest expense by approximately $7.1 million.
As of December 31, 2022, the fair value of our interest rate swap agreements amounted to a net asset of $6.0 million.
Total pre-tax deferred gains related to our interest rate swap agreements included in accumulated other comprehensive
loss was $6.9 million at December 31, 2022. Our current interest rate swap agreements mature on July 31, 2023.
Item 8. Financial Statements and Supplementary Data
For information pertaining to our Financial Statements and Supplementary Data, refer to pages F-1 to F-45 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
51
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, 2022. 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 at the reasonable assurance level as of December 31, 2022.
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,
2022. 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, 2022, our internal control over financial reporting was effective to
provide reasonable assurance that the desired control objectives were achieved.
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, 2022 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
52
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, 2022, 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, 2022, 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, 2022 and 2021, 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, 2022, and the related notes and our
report dated March 3, 2023 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 3, 2023
53
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. We intend to satisfy the disclosure
requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our code, as well as
Nasdaq’s requirement to disclose waivers with respect to directors and executive officers, by posting such information on
our website at the address and location specified above.
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, 2022.
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, 2022.
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, 2022.
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, 2022.
Item 14. Principal Accounting 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, 2022.
54
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, 2022
Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period
ended December 31, 2022
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Changes in Mezzanine Equity and Shareholders’ Equity for each of the
three years in the period ended December 31, 2022
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31,
2022
Notes to Consolidated Financial Statements
F-1
F-4
F-5
F-6
F-7
F-8
F-9
(2) Financial Statement Schedules
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, except as otherwise
indicated, as part of this report.
Exhibit
No.
2.1
3.1
3.2
3.3
3.4
3.5
Description
Partnership Interest Purchase Agreement, dated as of August 1, 2022, by and among Cellco Partnership,
Clio Subsidiary, LLC and, solely for the purposes of certain provisions specified therein, Consolidated
Communications Enterprise Services, Inc. (incorporated by reference to Exhibit 2.1 to our Current Report
on Form 8-K dated August 1, 2022)
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)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Consolidated
Communications Holdings, Inc., as amended as of April 26, 2021 (incorporated by reference to Exhibit 3.1
to our Current Report on Form 8-K dated April 26, 2021)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Consolidated
Communications Holdings, Inc., as amended as of April 26, 2021 (incorporated by reference to Exhibit 3.2
to our Current Report on Form 8-K dated April 26, 2021)
Amended and Restated Bylaws of Consolidated Communications Holdings Inc., as amended as of April
26, 2021 (incorporated by reference to Exhibit 3.3 to our Current Report on Form 8-K dated April 26, 2021)
55
4.1
4.2
4.3
4.4
4.5
4.6
4.7*
4.8*
4.9
4.10
4.11
4.12
4.13
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 (the “2020 Indenture”) (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)
Indenture, dated as of March 18, 2021, by and among Consolidated Communications, Inc., Consolidated
Communications Holdings, Inc., the other Guarantors party thereto and Wells Fargo Bank, National
Association, as Trustee and Notes Collateral Agent (the “2021 Indenture”) (incorporated by reference to
Exhibit 4.1 to our Current Report on Form 8-K dated March 18, 2021)
Form of 5.000% Senior Secured Note due 2028 (incorporated by reference to Exhibit A to Exhibit 4.1 to
our Current Report on Form 8-K dated March 18, 2021)
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)
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 to the 2020 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)
56
4.14
4.15
4.16
4.17
4.18
4.19
10.1*
10.2
10.3*
10.4
10.5*
10.6
10.7
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. 1 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. 1 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)
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)
Amendment No. 2, dated as of April 5, 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 April 5, 2021)
57
10.8
10.9
10.10
10.11**
10.12**
10.13**
10.14**
10.15*
10.16**
10.17**
10.18**
10.19**
10.20**
10.21**
10.22**
10.23**
10.24**
10.25**
10.26
21.1
23.1
31.1
Amendment No. 3, dated as of November 22, 2022, 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 November 22, 2022)
Waiver, dated as of November 22, 2022, made by Searchlight III CVL, L.P. (incorporated by reference to
Exhibit 10.2 to our Current Report on Form 8-K dated November 22, 2022)
Separation Agreement, dated December 22, 2022, by and between Consolidated Communications, Inc. and
Steven L. Childers
Offer Letter, dated November 11, 2022, by and between Consolidated Communications, Inc. and Fred A.
Graffam III
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. Long-Term Incentive Plan (as amended and restated
effective February 21, 2021) (incorporated by reference to Exhibit C to our definitive proxy statement on
Schedule 14A filed with the SEC on March 17, 2021)
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 10.3 to our Current Report on Form 8-K dated November 28, 2022)
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)
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)
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-Q 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
58
31.2
32.1***
101
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, 2022, 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.
**Indicates management contract or compensatory plan or arrangement.
***Furnished herewith.
Item 16. Form 10-K Summary
Not Applicable.
59
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 3, 2023.
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.
C. Robert Udell Jr.
President and
Chief Executive Officer, Director
(Principal Executive Officer)
Date
March 3, 2023
By: /s/ FRED A. GRAFFAM III
Fred A. Graffam III
Chief Financial Officer (Principal
Financial and Accounting Officer)
March 3, 2023
By: /s/ ROBERT J. CURREY
Chairman of the Board
March 3, 2023
Robert J. Currey
By: /s/ ANDREW S. FREY
Andrew J. Frey
By: /s/ DAVID G. FULLER
David G. Fuller
By: /s/ THOMAS A. GERKE
Thomas A. Gerke
By: /s/ ROGER H. MOORE
Roger H. Moore
Director
Director
Director
Director
By: /s/ MARIBETH S. RAHE
Director
Maribeth S. Rahe
By: /s/ MARISSA M. SOLIS
Marissa M. Solis
Director
March 3, 2023
March 3, 2023
March 3, 2023
March 3, 2023
March 3, 2023
March 3, 2023
60
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, 2022 and 2021, 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, 2022 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, 2022 and 2021, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2022, 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, 2022, 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 3, 2023, 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 matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex
judgments. The communication of critical audit matters 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 matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Description of the Matter
Defined Benefit Pension and Other Post-Retirement Benefit Obligations
The Company sponsors several pension plans and other postretirement benefit plans.
At December 31, 2022, the Company’s aggregate defined benefit pension obligation
was $539 million and exceeded the fair value of pension plan assets of $465 million,
resulting in an unfunded defined benefit pension obligation of $74 million. Also, at
December 31, 2022, the other postretirement benefits obligation was approximately
$56 million. As explained in Note 13 of the consolidated financial statements, the
F-1
How we addressed the Matter
in our audit
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
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.
Goodwill Impairment Test
Description of the Matter
At December 31, 2022, the Company’s goodwill balance was $929.6 million. As
discussed in Note 1 to the consolidated financial statements, goodwill is tested for
impairment at least annually at the reporting unit level. The operations of the Company
comprise a single reporting unit.
Auditing management’s annual goodwill impairment test is complex and highly
judgmental due to the significant estimation required in determining the fair value of
the Company. In particular, the fair value estimate was sensitive to significant
assumptions, such as changes in the future cash flow projections, weighted average
cost of capital, control premium, and guideline company revenue and EBITDA
multiples, which are affected by expectations about future market and economic
conditions.
How we addressed
Matter in our audit
the
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls over the Company’s goodwill impairment review process,
including controls over management’s review of the significant assumptions described
above.
To test the estimated fair value of the Company, we performed audit procedures that
included, among others, assessing methodologies and testing the significant
assumptions discussed above and the underlying data used by the Company in its
analysis. We evaluated the sensitivity of the estimated fair value to changes in the
significant assumptions and reviewed market data relative to implied control
premiums.
To evaluate management’s weighted average cost of capital assumptions, we involved
EY valuation specialists to assess the methodology and selected assumptions. Our
F-2
specialists also evaluated the estimated fair value of the Company using guideline
company revenue and EBITDA multiples. We also tested management’s reconciliation
of the fair value of the Company to the market capitalization of the Company and
evaluated the implied control premium for reasonableness against observable
transactions in the industry.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
St. Louis, Missouri
March 3, 2023
F-3
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
Year Ended December 31,
2021
$ 1,191,263 $ 1,282,233 $ 1,304,028
2020
2022
546,661
301,667
—
131,698
4,233
300,166
(93,162)
569,629
271,125
—
5,704
—
300,597
135,178
560,644
275,361
7,646
—
—
324,864
135,513
(124,978)
—
—
13,378
(204,762)
(175,195)
(17,101)
(86,476)
1,335
(142,259)
(143,591)
(18,264)
23,802
10,093
7,553
(27,058)
(177,704)
(3,132)
(139,127)
1,679
5,874
23,467
389,885
94,999
318,353
41,845
—
9,411
32,434
140,649
40,104
564
(106,693)
2,677
392
99,981 $ (109,762) $
(1.90) $
2.77
(1.63) $
0.37
0.87 $
(1.26) $
$
$
$
40,685
—
9,257
31,428
37,302
—
325
36,977
0.07
0.40
0.47
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
Loss on disposal of assets
Depreciation and amortization
Income (loss) from operations
Other income (expense):
Interest expense, net of interest income
Loss on extinguishment of debt
Change in fair value of contingent payment rights
Other, net
Income (loss) from continuing operations before income taxes
Income tax expense (benefit)
Income (loss) from continuing operations
Discontinued operations:
Income from discontinued operations
Gain on sale of discontinued operations
Income tax expense
Income from discontinued operations
Net income (loss)
Less: dividends on Series A preferred stock
Less: net income attributable to noncontrolling interest
Net income (loss) attributable to common shareholders
Net income (loss) per common share - basic and diluted
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss) per basic and diluted common shares attributable to
common shareholders
See accompanying notes.
F-4
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,
2021
$ 140,649 $ (106,693) $ 37,302
2020
2022
Change in net actuarial loss and prior service cost, net of tax of $16,744,
$11,903 and $(9,710)
Amortization of actuarial loss (gain) and prior service cost (credit) to
earnings, net of tax $(269), $1,950 and $140
Derivative instruments designated as cash flow hedges:
Change in fair value of derivatives, net of tax of $3,847, $306 and $(4,797)
Reclassification of realized loss to earnings, net of tax of $607, $3,773 and
$4,061
Comprehensive income (loss)
Less: comprehensive income attributable to noncontrolling interest
Total comprehensive income (loss) attributable to common shareholders
47,123
33,344
(27,007)
(762)
5,444
436
10,879
868
(13,601)
1,721
199,610
564
10,191
(56,846)
392
$ 199,046 $ (57,238) $
11,622
8,752
325
8,427
See accompanying notes.
F-5
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
Assets of discontinued operations
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
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 15)
$
$
$
December 31,
2022
2021
325,852 $
87,951
119,675
1,670
62,996
—
598,144
99,635
110,801
133,362
1,134
56,831
26,052
427,815
2,234,122
10,297
929,570
43,089
10,557
—
61,315
3,887,094 $
2,019,444
10,799
1,013,243
73,939
10,557
98,779
58,116
3,712,692
33,096 $
46,664
60,903
18,201
95,206
12,834
—
266,904
2,129,462
274,309
123,644
47,326
2,841,645
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
Series A preferred stock, par value $0.01 per share; 10,000,000 shares authorized, 456,343 and
434,266 shares outstanding as of December 31, 2022 and December 31, 2021, respectively;
liquidation preference of $477,047 and $436,943 as of December 31, 2022 and December 31,
2021, respectively
328,680
288,576
Shareholders’ equity:
Common stock, par value $0.01 per share; 150,000,000 shares authorized, 115,167,193 and
113,647,364 shares outstanding as of December 31, 2022 and December 31, 2021, respectively
Additional paid-in capital
Retained earnings (accumulated deficit)
Accumulated other comprehensive loss, net
Noncontrolling interest
Total shareholders’ equity
Total liabilities, mezzanine equity and shareholders’ equity
1,152
720,442
(11,866)
(610)
7,651
716,769
3,887,094 $
1,137
740,746
(141,599)
(59,571)
7,087
547,800
3,712,692
$
See accompanying notes.
F-6
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS’
EQUITY
(amounts in thousands)
Mezzanine Equity
Shareholders’ Equity
Preferred Stock
Shares Amount
Common Stock
Additional
Paid-in
Amount Capital
Shares
Retained
Earnings
(Deficit)
Accumulated
Other
Non-
Comprehensive controlling
Loss, net
Interest
Total
Balance at December 31, 2019
— $
— 71,961 $
720 $ 492,246 $ (71,217) $
(80,868) $ 6,370 $ 347,251
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
—
—
—
—
—
—
—
— $
— 1,061
— 6,353
—
—
—
—
(147)
—
—
—
— 79,228 $
—
—
11
63
—
(2)
—
(11)
26,716
7,533
(811)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
26,779
7,533
(813)
(28,550)
— (28,550)
(274)
—
—
37,302
792 $ 525,673 $ (34,514) $ (109,418) $ 6,695 $ 389,228
(274)
36,977
—
—
—
325
—
—
—
—
Shares issued under employee
plan, net of forfeitures
Shares issued to Searchlight
Series A preferred stock issued 434 285,899
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)
—
—
—
—
2,677
—
—
—
—
—
— 1,652
— 32,986
—
17
330
—
(17)
209,387
—
—
—
—
(2,677)
— 10,097
(219)
(2)
(1,717)
—
—
—
—
—
— (107,085)
Balance at December 31, 2021
434 $ 288,576 113,647 $ 1,137 $ 740,746 $ (141,599) $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 209,717
—
—
—
—
—
(2,677)
10,097
(1,719)
49,847
—
49,847
—
(106,693)
392
(59,571) $ 7,087 $ 547,800
Shares issued under employee
plan, net of forfeitures
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)
—
22
— 1,809
—
—
17
—
(17)
—
—
—
—
—
—
—
—
—
—
—
—
40,104
—
—
—
—
—
—
—
—
— (29,752)
(10,352)
—
— (40,104)
— 10,755
(289)
(2)
(1,290)
—
—
—
—
—
—
10,755
(1,292)
—
—
—
—
—
—
— 140,085
58,961
—
—
58,961
140,649
564
(610) $ 7,651 $ 716,769
Balance at December 31, 2022
456 $ 328,680 115,167 $ 1,152 $ 720,442 $ (11,866) $
See accompanying notes.
F-7
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
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 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 on extinguishment of debt
Loss (gain) on change in fair value of contingent payment rights
Loss on impairment of assets held for sale
Gain on sale of partnership interests
Loss on disposal of assets
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 and maturity of investments
Proceeds from sale of assets
Proceeds from business dispositions
Proceeds from sale of partnership interests
Net cash provided by (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
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
Year Ended December 31,
2021
2020
2022
$
140,649
$
(106,693) $
37,302
300,166
58,894
5,697
(29,205)
10,755
7,331
—
—
—
131,698
(389,885)
4,233
(367)
5,167
(536)
(7,699)
(909)
(12,279)
223,710
(619,981)
(302,907)
327,419
22,918
105,823
482,966
16,238
—
—
—
(9,836)
—
—
(2,603)
(1,292)
—
(13,731)
226,217
99,635
325,852
$
$
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)
66,198
3,469
—
—
(586,443)
400,000
150,000
75,000
(6,365)
(397,000)
—
(8,266)
(1,719)
—
211,650
(55,926)
155,561
99,635 $
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)
—
426
7,071
—
—
(210,066)
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
See accompanying notes.
F-8
CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
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 57,800 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
Discontinued Operations – Sale of Investment in Wireless Partnerships
On September 13, 2022, we completed the sale of our five limited wireless partnership interests to Cellco Partnership
(“Cellco”) for an aggregate purchase price of $490.0 million, other than a portion of the interest in one of the partnerships
which was sold to a limited partner of such partnership pursuant to its right of first refusal. Cellco is the general partner
for each of the five wireless partnerships and is an indirect, wholly-owned subsidiary of Verizon Communications, Inc. In
accordance with Accounting Standards Codification (“ASC”) 205-20, Presentation of Financial Statements –
Discontinued Operations, the sale of the limited partnership interests met the criteria for reporting as discontinued
operations. As a result, the financial results of the limited partnership interests have been classified as discontinued
operations in our consolidated financial statements for all periods presented. Refer to Note 6 for additional information on
the transaction and the partnership interests.
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 34% of the Company’s outstanding common stock
as of December 31, 2022. For a more complete discussion of the transaction, refer to Note 4. With the strategic investment
from Searchlight, we launched our fiber build plan to enhance our fiber infrastructure and accelerate the investment in our
network, which will include the upgrade over six years of approximately 1.6 million passings across select service areas
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to enable multi-Gig capable services to these homes and small businesses. During the years ended December 31, 2022 and
2021, we upgraded approximately 403,000 and 330,000 passings to fiber, respectively.
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
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, 2022, 2021 and 2020:
(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
Investments
2022
2020
2021
$ 9,961 $ 9,136 $ 4,549
144
11,573
(7,130)
$11,470 $ 9,961 $ 9,136
—
7,752
(6,927)
—
8,684
(7,175)
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
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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.
Property, plant and equipment consisted of the following as of December 31, 2022 and 2021:
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
2022
Useful Lives
270,708 $ 276,027 18 -40 years
1,590,510 3 -25 years
2,152,253 3 -50 years
324,562 3 -15 years
44,495 2 -20 years
1,635,263
2,445,298
347,346
58,081
4,756,696
(2,754,587)
2,002,109
123,736
108,277
4,387,847
(2,698,421)
1,689,426
265,054
64,964
$ 2,234,122 $ 2,019,444
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.
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Depreciation and amortization expense related to property, plant and equipment was $269.3 million, $261.1 million and
$274.2 million in 2022, 2021 and 2020, 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
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. Significant
assumptions used in the analysis include a long-term growth rate and the weighted average cost of capital which is used
to discount estimates of projected future results and cash flows. Such assumptions are judgmental and 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 2022 assessment, using the quantitative approach, we
concluded that the fair value of the reporting unit exceeded the carrying value at November 30, 2022 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 2022, 2021 or 2020 as a result of the
impairment tests.
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At December 31, 2022 and 2021, the carrying value of goodwill was $929.6 million and $1,013.2 million, respectively.
Goodwill decreased $83.6 million during 2022 as a result of a divestiture, 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 2022 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,
2022 and 2021.
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. 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, 2022, 2021 or 2020.
The components of finite-lived intangible assets are as follows:
(In thousands)
Useful Lives
Gross Carrying Accumulated
Amortization
Amount
Gross Carrying Accumulated
Amortization
Amount
December 31, 2022
December 31, 2021
Customer relationships
7 - 11 years
$
318,498
$
(275,409)
$
318,498 $
(244,559)
Amortization expense related to the finite-lived intangible assets for the years ended December 31, 2022, 2021 and 2020
was $30.9 million, $39.5 million and $50.7 million, respectively. Expected future amortization expense of finite-lived
intangible assets is as follows:
(In thousands)
2023
2024
2025
2026
2027
Thereafter
Total
$
$
23,963
10,617
3,180
2,529
1,996
804
43,089
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
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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.
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.
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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
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 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.
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
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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 funding, designed to promote widely available, quality telephone and broadband
services at affordable prices and with higher data speeds in rural areas and for low-income consumers across the
country. 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. 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.
Some subsidies are funded by end user surcharges to which telecommunications providers, including local, long-distance
and wireless carriers, contribute on a monthly basis, while others are components of broader economic stimulus or recovery
legislation. In other cases, subsidies are awarded to carriers periodically over a predetermined number of years to support
their deployment of high-speed broadband infrastructure in underserved or unserved areas. During the year ended
December 31, 2022, subsidies included federal funding from the Rural Development Opportunity Fund (“RDOF”). The
RDOF provides funding to bring faster broadband speeds to unserved and underserved areas of America. In the first phase
of the RDOF auction process, we were awarded annual funding of approximately $5.9 million, beginning January 1, 2022
through December 31, 2031. The specific obligations associated with the RDOF funding include the obligation to deliver
1 Gbps downstream and 500 Mbps upstream data speeds to approximately 27,000 locations in seven states. RDOF
subsidies are recognized as operating revenue since the primary conditions for the funding are the upgrade and operation
of the broadband network over the funding period.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was $34.5 million, $18.8 million and $11.1 million in
2022, 2021 and 2020, respectively.
Statement of Cash Flows Information
During 2022, 2021 and 2020, we made payments for interest and income taxes as follows:
(In thousands)
Interest, net of amounts capitalized ($10,112, $5,590 and $1,660 in 2022, 2021
and 2020, respectively)
Income taxes paid (received), net
2022
2021
2020
$ 119,322 $ 123,031 $120,897
(553)
$
9,585 $
836 $
In 2022, 2021 and 2020, we acquired equipment of $20.6 million, $13.9 million and $2.5 million, respectively, through
finance lease agreements.
F-16
In 2022, 2021 and 2020, we acquired property and equipment of $34.1 million, $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, 2022, we adopted the Accounting Standards Update (“ASU”) 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 adoption of this guidance did not have a material impact on our related disclosures.
In March 2020, the Financial Accounting Standards Board (“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. In December
2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,
to extend the optional relief guidance in Topic 848 from December 31, 2022 to December 31, 2024. As of December 31,
2022, we have interest rate swap agreements and variable rate long-term debt for which existing payments are based on
the London Interbank Offered Rate (“LIBOR”) expected to cease as June 30, 2023. We expect to complete the transition
from LIBOR to the Secured Overnight Financing Rate (“SOFR”) or an alternate base rate for these agreements during the
second quarter of 2023. We do not expect this adoption to have a material impact on our consolidated financial statements
and related disclosures.
Reclassifications
Certain amounts in our 2021 and 2020 consolidated financial statements have been reclassified to conform to the current
year presentation primarily related to the presentation of the financial results for our wireless partnership interests as
discontinued operations.
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.
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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, 2022, 2021 and
2020:
(In thousands)
Operating Revenues
Consumer:
Broadband (Data and VoIP)
Voice services
Video services
Commercial:
Data services (includes VoIP)
Voice services
Other
Carrier:
Data and transport services
Voice services
Other
Subsidies
Network access
Other products and services
Total operating revenues
Contract Assets and Liabilities
Year Ended December 31,
2021
2020
2022
$
272,146
144,853
54,153
471,152
228,466
142,274
43,100
413,840
$
269,323 $
160,698
65,114
495,135
228,931
154,567
40,032
423,530
263,059
170,503
74,343
507,905
225,279
161,179
43,454
429,912
137,378
14,772
1,688
153,838
33,382
104,644
14,407
$ 1,191,263
133,434
17,183
1,592
152,209
69,739
120,487
21,133
136,799
20,521
1,701
159,021
71,989
125,261
9,940
$ 1,282,233 $ 1,304,028
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,
$
2022
119,675
25,322
54,537
$
2021
133,362
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, 2022, 2021 and
2020, the Company recognized expense of $12.9 million, $11.1 million and $9.0 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,
F-18
2022, 2021 and 2020, the Company recognized previously deferred revenues of $478.9 million, $471.7 million and
$443.0 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,
2022. 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
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.
F-19
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)
Income (loss) from continuing operations
Less: dividends on Series A preferred stock
Less: net income attributable to noncontrolling interest
Loss attributable to common shareholders before allocation of earnings to
participating securities
Less: earnings allocated to participating securities
Income (loss) from continuing operations attributable to common
shareholders, after earnings allocated to participating securities
Income from discontinued operations
Less: earnings allocated to participating securities
Income from discontinued operations attributable to common shareholders,
after earnings allocated to participating securities
Net income (loss) attributable to common shareholders, after earnings
allocated to participating securities
Year Ended December 31,
2021
2022
2020
$ (177,704) $ (139,127) $
40,104
564
2,677
392
(218,372)
(6,284)
(142,196)
—
5,874
—
325
5,549
427
(212,088)
(142,196)
5,122
318,353
9,161
32,434
—
31,428
2,417
309,192
32,434
29,011
$
97,104 $ (109,762) $ 34,133
Weighted-average number of common shares outstanding
111,754
87,293
72,752
Basic and diluted earnings (loss) per common share:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss) per common share attributable to common shareholders -
basic and diluted
$
$
(1.90) $
2.77
(1.63) $
0.37
0.07
0.40
0.87 $
(1.26) $
0.47
Diluted EPS attributable to common shareholders for the year ended December 31, 2022 and 2021 excludes 3.3 million
and 3.2 million potential common shares, respectively, 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.
F-20
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, 2022 and 2021, the total shares of common stock
issued to Searchlight represent approximately 34% and 35%, respectively, of the Company’s outstanding common stock.
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. 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.
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’s unamortized discount and issuance costs were being amortized over the contractual term of the Note
using the effective interest method. 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 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 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
Kansas City Operations
On March 2, 2022, we entered into a definitive agreement 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 17,100
consumer customers and 1,600 commercial customers. The sale closed on November 30, 2022 for gross cash proceeds of
$82.1 million, subject to the finalization of certain working capital and other post-closing purchase price adjustments. We
expect to utilize the proceeds from the sale to support our fiber expansion plan in our core regions.
F-21
The major classes of assets and liabilities sold consisted of the following:
(In thousands)
Current assets
Property, plant and equipment
Goodwill
Other long-term assets
Impairment to net realizable value
Total assets
Current liabilities
Other long-term liabilities
Total liabilities
$
$
$
$
3,205
138,587
83,673
1,238
(148,462)
78,241
1,064
790
1,854
In 2022, in connection with the classification as assets held for sale, the carrying value of the net assets were reduced to
their estimated fair value, which was determined based on the estimated selling price less costs to sell, and as a result, we
recognized an impairment loss of $131.7 million during the year ended December 31, 2022. During the quarter and year
ended December 31, 2022, we recognized an additional loss on the sale of $16.8 million as a result of purchase price
adjustments and an increase in net assets held for sale and estimated selling costs during the period.
Tower Assets
During the year ended December 31, 2022, we completed the sale of certain non-strategic communication towers for cash
proceeds of approximately $21.0 million and recognized a pre-tax gain on the sale of $20.8 million.
Ohio Operations
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”). CCOC provides
telecommunications and data services to residential and business customers in 11 rural communities in Ohio and
surrounding areas and includes approximately 3,800 access lines and 3,900 data connections. The sale was completed on
January 31, 2022 for gross cash proceeds of $26.1 million, including customary working capital adjustments. The asset
sale aligns with our strategic asset review and focus on our core broadband regions.
The major classes of assets and liabilities sold consisted of the following:
(In thousands)
Current assets
Property, plant and equipment
Goodwill
Total assets
Current liabilities
Other long-term liabilities
Total liabilities
$
$
$
$
137
9,584
16,327
26,048
102
6
108
At December 31, 2021, the assets and liabilities to be sold were classified as held for sale in the consolidated balance sheet.
In 2021, in connection with the expected 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. During the year ended December 31, 2022, we recognized an additional loss on the
sale of $0.8 million, which is included in selling, general and administrative expense in the consolidated statement of
operations, as a result of changes in working capital and estimated selling costs.
F-22
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
CoBank, ACB Stock
Other
Assets of discontinued operations:
Investments at cost:
GTE Mobilnet of South Texas Limited Partnership (2.34% interest)
Pittsburgh SMSA Limited Partnership (3.60% interest)
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)
2022
2021
87,951
$
110,801
2,774
7,250
273
10,297
—
—
—
—
—
—
$
$
$
$
2,659
7,867
273
10,799
21,450
22,950
19,648
7,303
27,428
98,779
$
$
$
$
$
Held-to-Maturity Debt Securities
Our held-to-maturity debt securities consist of investments in commercial paper and certificate of deposits. At December
31, 2022, we had $88.0 million of investments in commercial paper included in short-term investments. 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, 2022 and 2021, the
amortized cost of the investments approximated their fair value and the gross unrecognized gains and losses were not
material.
Long-Term Investments
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.
Discontinued Operations
Investments at Cost
We owned 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 owned 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 accounted 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 adjusted the carrying value for any purchases or sales of our ownership interests,
if any (there were none during the periods presented). Prior to classification as discontinued operations, we recorded
distributions received from these investments as investment income in non-operating income (expense). In 2022, 2021
and 2020, we received cash distributions from these partnerships totaling $11.7 million, $20.7 million and $19.1 million,
respectively.
F-23
Equity Method
We owned 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 had significant influence over the operating and financial policies
of these three entities, we accounted for the investments using the equity method. Prior to classification as discontinued
operations, income was recognized as investment income in non-operating income (expense) on our proportionate share
of earnings and cash distributions were recorded as a reduction in our investment. In 2022, 2021 and 2020, we received
cash distributions from these partnerships totaling $17.5 million, $22.3 million and $22.4 million, respectively. The
carrying value of the investments exceeded the underlying equity in net assets of the partnerships by $32.8 million as of
December 31, 2021.
On September 13, 2022, we completed the sale of our five limited wireless partnership interests to Cellco for an aggregate
purchase price of $490.0 million. Cellco is the general partner for each of the five wireless partnerships and is an indirect,
wholly-owned subsidiary of Verizon Communications, Inc. A portion of the interest in one of the partnerships was sold to
a limited partner of such partnership, pursuant to its right of first refusal. We intend to use the proceeds from the sale to
support our fiber expansion plan.
The financial results of the limited partnership interests have been reported as discontinued operations in our consolidated
financial statements for all periods presented. At December 31, 2021, the carrying value of the investments in the
partnership interests of $98.8 million were reported as assets of discontinued operations in the consolidated balance sheet.
The results of discontinued operations included in the consolidated statements of operations consisted of the following:
(In thousands)
Investment income
Gain on sale of discontinued operations
Income from discontinued operations, before income taxes
Income tax expense
Net income from discontinued operations
2022
23,467
389,885
413,352
94,999
318,353
$
$
2021
41,845
—
41,845
9,411
32,434
$
$
2020
40,685
—
40,685
9,257
31,428
$
$
In connection with the sale of the partnership interests, we expect to recognize a taxable gain of approximately of $477.7
million on the transaction. For federal income tax purposes, we expect to utilize our available net operating loss
carryforwards to offset the taxable gain. For state income tax purposes, we are estimating approximately $8.0 million in
state tax liabilities.
In the statement of cash flows, we have elected to combine cash flows from discontinued operations with cash flows from
continuing operations. The following table presents cash flows from operating and investing activities for discontinued
operations:
(In thousands)
Cash provided by operating activities - discontinued operations
Cash provided by investing activities - discontinued operations
2022
29,165
482,966
$
$
2021
43,040
—
$
$
2020
41,529
—
$
$
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.
F-24
Our interest rate swap agreements measured at fair value on a recurring basis at December 31, 2022 and 2021 were as
follows:
(In thousands)
Interest rate swap assets
(In thousands)
Long-term interest rate swap liabilities
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
Total
As of December 31, 2022
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
5,959
$
— $
5,959 $
—
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
Total
As of December 31, 2021
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$ (12,813) $
— $
(12,813) $
—
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, 2022 and 2021.
(In thousands)
Long-term debt, excluding finance leases
Carrying Value
Fair Value
Carrying Value
Fair Value
$
2,141,176
$
1,759,430
$
2,139,567 $
2,186,508
As of December 31, 2022
As of December 31, 2021
Investments
Our investments at December 31, 2022 and 2021 accounted for at cost consisted primarily of our investment in CoBank.
It is impracticable to determine the fair value of this investment.
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, 2022
and 2021:
(In thousands)
Senior secured credit facility:
Term loans, net of discounts of $8,699 and $10,308 at December 31, 2022 and 2021,
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
F-25
2022
2021
$
991,176 $
750,000
400,000
35,746
2,176,922
(12,834)
(34,626)
989,567
750,000
400,000
24,990
2,164,557
(7,959)
(37,745)
$ 2,129,462 $ 2,118,853
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
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
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”) 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 Amendment No. 2 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, 2027 and an applicable margin (at our election) of 4.00%
for SOFR-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, 2022 and 2021, there were no borrowings outstanding under the revolving credit facility. Stand-by letters of credit of
$24.5 million were outstanding under our revolving credit facility as of December 31, 2022. The stand-by letters of credit
are renewable annually and reduce the borrowing availability under the revolving credit facility. As of December 31,
2022, $225.5 million was available for borrowing under the revolving credit facility.
On November 22, 2022, the Company, entered into Amendment No. 3 to the Credit Agreement (the “Third Amendment”)
to, among other things, extend the maturity of the revolving credit facility by two years from October 2, 2025 to October
2, 2027, subject to springing maturity on April 2, 2027 if the Term Loans, as of April 1, 2027, are scheduled to mature
earlier than March 31, 2028. The Third Amendment also relaxed the revolving credit facility’s consolidated first lien
leverage maintenance covenant, as described below, through June 30, 2025 to 6.35:1.00 from 5.85:1.00.
The weighted-average interest rate on outstanding borrowings under our credit facilities was 7.63% and 4.25% at
December 31, 2022 and 2021, respectively. Interest is payable at least quarterly.
F-26
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 is greater than 6.35:1.00 as of the end of any fiscal quarter, if on such date the testing threshold is met. The
testing threshold is met if the aggregate amount of our borrowings outstanding under the revolving credit facility exceeds
35%. As of December 31, 2022, the testing threshold was not met and our consolidated first lien leverage ratio under the
Credit Agreement was 4.40:1.00. As of December 31, 2022, we were in compliance with the Credit Agreement covenants.
Senior Notes
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.
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. 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.
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, 2022, the Company was in compliance with all terms, conditions and covenants under
the indenture governing the Senior Notes.
Future Maturities of Debt
At December 31, 2022, the aggregate maturities of our long-term debt excluding finance leases were as follows:
(In thousands)
2023
2024
2025
2026
2027
Thereafter
Total maturities
Less: Unamortized discount
Carrying value
$
$
—
—
—
—
999,875
1,150,000
2,149,875
(8,699)
2,141,176
See Note 10 regarding the future maturities of our obligations for finance leases.
F-27
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.
The following interest rate swaps were outstanding at December 31, 2022:
(In thousands)
Cash Flow Hedges:
Notional
Amount
2022 Balance Sheet Location
Fair Value
Fixed to 1-month floating LIBOR (with floor)
$ 500,000 Prepaid expenses and other current assets
$
5,959
Our interest rate swap agreements mature on July 31, 2023.
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)
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, 2022 and 2021, the total pre-tax unrealized gain (loss) related to our interest rate swap agreements
included in AOCI was $6.9 million and $(10.1) million, respectively. From the balance in AOCI as of December 31, 2022,
we expect to recognize a gain of approximately $6.9 million in earnings as a reduction to 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
Year Ended December 31,
2021
1,174
2020
2022
$ 14,726
$ (18,398)
$ (2,328) $ (13,964) $ (15,683)
$
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 86 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.
F-28
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,
2022, 2021 and 2020. Variable lease payments are expensed as incurred.
The following table summarizes the components of our lease right-of use assets and liabilities at December 31, 2022 and
2021:
(In thousands)
Operating leases
Operating lease right-of-use assets
Current lease liabilities
Noncurrent lease liabilities
Finance leases
Finance lease right-of-use assets, net of
accumulated depreciation of $15,308 and
$16,255
Current lease liabilities
Balance Sheet Classification
2022
2021
Other assets
Accrued expense
Other long-term liabilities
$ 26,548 $ 25,072
$ (5,076) $ (6,383)
$ (22,249) $ (19,072)
Property, plant and equipment, net
Current portion of long-term debt and
finance lease obligations
$ (12,834) $ (7,959)
$ 42,773 $ 28,240
Noncurrent lease liabilities
Long-term debt and finance lease
obligations
$ (22,912) $ (17,031)
Weighted-average remaining lease term
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
7.7 years
3.5 years
7.1 years
4.6 years
6.47 %
6.60 %
6.27 %
5.55 %
The components of lease expense for the years ended December 31, 2022, 2021 and 2020 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
Year Ended December 31,
2021
2020
2022
$
$
4,804 $
1,444
8,469
2,167
16,884 $
4,152 $
1,106
8,359
2,054
15,671 $
7,442
1,356
8,421
2,205
19,424
The following table presents supplemental cash flow information related to leases for the years ended December 31, 2022,
2021 and 2020:
(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,
2021
2020
2022
$
8,003
1,444
9,836
9,261
20,592
$
8,111 $
1,106
6,365
5,673
13,888
8,325
1,356
9,020
6,842
2,534
F-29
At December 31, 2022, the aggregate maturities of our lease liabilities were as follows:
(In thousands)
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: Interest
Lessor
Operating Leases
Finance Leases
$
$
6,659
5,684
4,973
3,488
2,847
11,695
35,346
(8,021)
27,325
$
$
14,742
12,903
7,209
1,847
1,770
1,224
39,695
(3,949)
35,746
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,
2022, 2021 and 2020, 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. During the year ended December 31, 2022, we recognized revenue of $3.8 million and
a gain of $1.5 million related to these arrangements. During years ended 2021 and 2020, we did not enter into any material
dark fiber IRU arrangements.
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 under the Certificate of
Designations of the Series A Perpetual Preferred Stock (“Certificate of Designations”).
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. Subsequent to a waiver issued by
Searchlight in November 2022 as described below, dividends are payable until October 2, 2027 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, 2027, 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, 2027, among other conditions,
the dividend rate applicable to each subsequent dividend period will increase to 11.0%.
On November 22, 2022, in connection with entering into the Third Amendment to the Credit Agreement, Searchlight
waived for two years, until October 2, 2027, the obligation under the Certificate of Designations to begin paying in cash
F-30
after October 2, 2025 rather than being permitted to accrue dividends on the Series A Preferred Stock. Any dividend not
declared and fully paid in cash during the waiver period or otherwise, will continue to accrue in accordance with the
Certificate of Designations.
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, 2027, 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. As of December 31, 2022, the liquidation preference of the Series A
Preferred Stock was $477.0 million, which includes accrued and unpaid dividends of $20.7 million. During the year ended
December 31, 2022, the Company paid dividends in-kind of $22.1 million or 22,077 shares. Searchlight is the sole holder
of all of the issued and outstanding shares of the Company’s Series A Preferred Stock. The Company intends to exercise
the PIK dividend option on the Series A Preferred Stock through at least 2025.
12. SHAREHOLDERS’ EQUITY
Common Stock Dividends
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 Consolidated Communications
Holdings, Inc. Long-Term Incentive Plan, as amended and restated (the “Plan”). The Plan permits the issuance of awards
in the form of stock options, stock appreciation rights, stock grants and stock unit grants 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.
F-31
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
each annual 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
awards generally vest ratably over a four-year vesting period.
Pursuant to the performance-based incentive program, PSAs issued to certain senior executives entitle the executives to
earn shares depending on the level of attainment of the predetermined performance goals over a three-year performance
period, with payouts ranging from 0% to 150% of the target for PSAs issued in 2022 and from 0% to 120% for PSAs
issued in 2021 and 2020. The earned PSAs are then subject to possible adjustment based on our total shareholder return
relative to our peer group over the same performance period, which may increase or decrease the number of shares actually
awarded by up to 25%. The fair value of these awards are initially measured on the grant date using estimated payout
levels derived from a Monte Carlo simulation model. The awards vest in the month following the end of the of the three-
year performance period.
The following table summarizes grants of RSAs and PSAs under the Plan during the years ended December 31, 2022,
2021 and 2020:
Year Ended December 31,
RSAs Granted
PSAs Granted
Total
Grant Date
Fair Value
2021
Grant Date
Fair Value
2020
2022
1,031,999 $
$
904,435
1,936,434
4.70
7.52
941,748 $
$
788,054
1,729,802
7.51
6.31
Grant Date
Fair Value
6.30
9.86
863,710 $
240,669 $
1,104,379
The following table summarizes the RSA and PSA activity during the year ended December 31, 2022:
Non-vested shares outstanding - December 31, 2021
Shares granted
Shares vested
Shares forfeited, cancelled or retired
Non-vested shares outstanding - December 31, 2022
RSAs
Weighted
Average Grant
Date Fair Value
Shares
7.34
$
1,069,817
4.70
1,031,999
$
6.31
(839,609) $
6.31
(76,227) $
5.84
$
1,185,980
PSAs
Weighted
Shares
920,010 $
904,435 $
(309,387) $
(51,000) $
1,464,058 $
Average Grant
Date Fair Value
7.40
7.52
9.18
8.20
7.07
The total fair value of the RSAs and PSAs that vested during the years ended December 31, 2022, 2021 and 2020 was $8.1
million, $7.3 million and $6.4 million, respectively.
Share-based Compensation Expense
The following table summarizes total compensation costs recognized for share-based payments during the years ended
December 31, 2022, 2021 and 2020:
(In thousands)
Restricted stock
Performance shares
Total
$
$
Year Ended December 31,
2021
5,478 $
4,619
10,097 $
$
$
2022
5,296
5,459
10,755
2020
4,597
2,936
7,533
Income tax benefits related to share-based compensation of approximately $2.8 million, $2.6 million and $2.0 million
were recorded for the years ended December 31, 2022, 2021 and 2020, respectively. Share-based compensation expense
is included in “selling, general and administrative expenses” in the accompanying consolidated statements of operations.
F-32
As of December 31, 2022, total unrecognized compensation cost related to non-vested RSAs and PSAs was $12.4 million
and will be recognized over a weighted-average period of approximately 1.6 years.
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss), net of tax, by component
during 2022 and 2021:
(In thousands)
Balance at December 31, 2020
Other comprehensive gain before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive income (loss)
Balance at December 31, 2021
Other comprehensive gain before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive income
Balance at December 31, 2022
Pension and
Post-Retirement
Obligations
Derivative
Instruments
$
$
$
(90,887) $
33,344
5,444
38,788
(52,099) $
47,123
(762)
46,361
(5,738) $
(18,531) $
868
10,191
11,059
(7,472) $
10,879
1,721
12,600
5,128 $
Total
(109,418)
34,212
15,635
49,847
(59,571)
58,002
959
58,961
(610)
The following table summarizes reclassifications from accumulated other comprehensive loss during 2022 and 2021:
(In thousands)
Amortization of pension and post-retirement items:
Prior service credit
Actuarial gain (loss)
Settlement loss
Loss on cash flow hedges:
Interest rate derivatives
Year Ended December 31,
Affected Line Item in the
2022
2021
Statement of Income
777
254
—
1,031
(269)
762
$
$
779 (a)
(2,309) (a)
(5,864) (a)
(7,394) Total before tax
1,950 Tax (expense) benefit
(5,444) Net of tax
(2,328) $
607
(1,721) $
(13,964) Interest expense
3,773 Tax benefit
(10,191) 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-33
The following tables summarize the change in benefit obligation, plan assets and funded status of the Pension Plans as of
December 31, 2022 and 2021:
(In thousands)
Change in benefit obligation
Benefit obligation at the beginning of the year
Interest cost
Actuarial 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
2022
2021
744,463 $
22,273
(197,697)
(30,071)
—
538,968 $
826,120
22,758
(19,218)
(36,381)
(48,816)
744,463
2022
2021
617,540 $
623,826
10,055
20,755
(132,767)
58,156
(30,071)
(36,381)
—
(48,816)
617,540
464,757 $
(74,211) $ (126,923)
$
$
$
$
$
In the years ended December 31, 2022 and 2021, the actuarial gain on the benefit obligation was primarily due to an
increase in the discount rate.
Amounts recognized in the consolidated balance sheets at December 31, 2022 and 2021 consisted of:
(In thousands)
Current liabilities
Long-term liabilities
2022
2021
(236) $
$
(242)
$ (73,975) $ (126,681)
Amounts recognized in accumulated other comprehensive loss for the years ended December 31, 2022 and 2021 consisted
of:
(In thousands)
Unamortized prior service cost
Unamortized net actuarial loss
2022
685 $
61,193
61,878 $
2021
808
90,318
91,126
$
$
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, 2022, 2021 and 2020:
(In thousands)
Interest cost
Expected return on plan assets
Amortization of:
Net actuarial loss
Prior service cost
Plan settlement
Net periodic pension cost (benefit)
2022
22,273
(36,535)
$
2021
22,758 $
(36,997)
2020
25,971
(34,544)
730
123
—
(13,409) $
2,309
122
5,864
(5,944) $
1,165
123
—
(7,285)
$
$
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.
In 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. Upon issuance of the group annuity contract, in
F-34
2021 the pension benefit obligation of $47.1 million for approximately 400 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 year ended December 31, 2021, we recognized a pension settlement charge of $5.9 million as a result of the
transfer of the pension liability to the annuity provider and other lump sum payments made during the year.
The following table summarizes other changes in plan assets and benefit obligations recognized in other comprehensive
loss, before tax effects, during 2022 and 2021:
(In thousands)
Actuarial gain, net
Recognized actuarial loss
Recognized prior service cost
Plan settlement
Total amount recognized in other comprehensive loss, before tax effects
2022
(28,395) $
(730)
(123)
—
(29,248) $
2021
(40,377)
(2,309)
(122)
(5,864)
(48,672)
$
$
The weighted-average assumptions used to determine the projected benefit obligations and net periodic benefit cost for
the years ended December 31, 2022, 2021 and 2020 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
2022
2021
2020
3.05 % 2.81 % 3.51 %
5.63 % 3.05 % 2.81 %
6.00 % 6.00 % 6.25 %
2.50 %
N/A
N/A
4.00 % 2.00 % 2.00 %
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, 2022 and 2021, respectively. The net present value of the remaining
obligations was approximately $0.5 million and $0.6 million at December 31, 2022 and 2021, 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 in life insurance proceeds as other non-operating income in 2021. We did not recognize any life insurance
proceeds in 2022. 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 $2.8 million and $2.7 million at
December 31, 2022 and 2021, 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 $6.3 million and $6.2 million as of December 31, 2022 and 2021, 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
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.
F-35
The following tables summarize the change in benefit obligation, plan assets and funded status of the post-retirement
benefit obligations as of December 31, 2022 and 2021:
(In thousands)
Change in benefit obligation
Benefit obligation at the beginning of the year
Service cost
Interest cost
Plan participant contributions
Actuarial gain
Benefits paid
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
2022
2021
96,434 $ 106,704
649
2,579
868
(4,860)
(9,506)
96,434
658
2,593
447
(36,567)
(7,342)
56,223 $
2022
2021
3,546 $
6,894
447
(852)
(7,342)
2,693 $
3,337
8,638
868
209
(9,506)
3,546
$
$
$
$
Funded status at year end
$ (53,530) $ (92,888)
In the years ended December 31, 2022 and 2021, the actuarial gain on the benefit obligation was primarily due to the
underwriting gain and an increase in the discount rate.
Amounts recognized in the consolidated balance sheets at December 31, 2022 and 2021 consist of:
(In thousands)
Current liabilities
Long-term liabilities
2022
(4,328) $
2021
$
(5,446)
$ (49,202) $ (87,442)
Amounts recognized in accumulated other comprehensive loss for the years ended December 31, 2022 and 2021 consist
of:
(In thousands)
Unamortized prior service credit
Unamortized net actuarial gain
$
2022
(1,965) $
(39,103)
$ (41,068) $
2021
(2,865)
(4,585)
(7,450)
The following table summarizes the components of the net periodic costs for post-retirement benefits for the years ended
December 31, 2022, 2021 and 2020:
(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
2022
2021
2020
$
$
658
2,593
(213)
(984)
(900)
1,154
$
$
649 $
2,579
(200)
825
3,265
(197)
—
(901)
2,127 $
(1,859)
1,147
3,181
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.
F-36
The following table summarizes other changes in plan assets and benefit obligations recognized in other comprehensive
loss, before tax effects, during 2022 and 2021:
(In thousands)
Actuarial gain, net
Recognized actuarial gain
Recognized prior service credit
Total amount recognized in other comprehensive loss, before tax
effects
2022
$ (35,502) $
984
900
2021
(4,869)
—
901
$ (33,618) $
(3,968)
The weighted-average assumptions used to determine the projected benefit obligations and net periodic benefit cost for
the years ended December 31, 2022, 2021 and 2020 were as follows:
Discount rate - net periodic benefit cost
Discount rate - benefit obligation
Rate of compensation/salary increase
2022 2021 2020
2.94 % 2.57 % 3.35 %
5.64 % 2.93 % 2.56 %
2.50 % 2.50 % 2.50 %
For purposes of determining the cost and obligation for post-retirement medical benefits, a 6.50% healthcare cost trend
rate was assumed for the plan in 2022, declining to the ultimate trend rate of 5.00% in 2029.
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, 2022, 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, 2022 were generated by using market
transactions involving identical or comparable assets. There were no changes in the valuation techniques used during
2022.
Common Stock: Includes domestic and international common stock 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-37
The fair values of our assets for our defined benefit pension plans at December 31, 2022 and 2021, 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
Other liabilities (3)
Total plan assets
(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
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
As of December 31, 2022
Significant
Other
Observable
Significant
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Total
$
38 $
38
$
—
$
21
2
61 $
21
2
61
$
—
—
—
$
—
—
—
—
4,739
154,626
96,641
137,174
71,519
(3)
464,757
$
Total
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
As of December 31, 2021
Significant
Other
Observable
Significant
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
$
459
$
459
$
—
$
24
1
484 $
24
1
484
$
—
—
—
$
—
—
—
—
6,477
223,101
126,980
194,189
66,309
617,540
$
(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 liabilities include net amount due from pending securities purchased and sold.
F-38
The fair values of our assets for our post-retirement benefit plans at December 31, 2022 and 2021 were as follows:
(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)
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
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
As of December 31, 2022
Significant
Other
Observable
Significant
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Total
$
1
$
1
$
—
$
—
28
917
573
814
425
2,758
(65)
2,693
Total
As of December 31, 2021
Quoted Prices Significant
In Active
Other
Markets for
Identical Assets
(Level 1)
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
3
$
3
$
—
$
—
39
1,330
757
1,158
395
3,682
(136)
3,546
$
$
$
(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 elected to participate in ARPA beginning with the 2021
plan year. 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 to provide funding relief for employers. During 2021 and the
six months ended June 30, 2022, we elected to fund our pension contributions at the pre-ARPA levels, which has created
a pre-funded balance. We expect that for the year ended December 31, 2023, no pension contributions will be required as
we will use our current pre-funded balance to satisfy the minimum contribution requirements under ARPA. We expect to
contribute approximately $6.2 million to our other post-retirement plans in 2023.
F-39
Estimated Future Benefit Payments
As of December 31, 2022, benefit payments expected to be paid over the next ten years are outlined in the following table:
(In thousands)
2023
2024
2025
2026
2027
2028 - 2032
Defined Contribution Plans
$
Pension
Plans
Other
Post-retirement
Plans
$
32,568
33,866
34,648
35,539
36,284
189,696
6,159
5,558
5,046
4,655
4,400
19,290
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 $15.8 million, $15.6 million and $15.6 million in 2022, 2021 and 2020, 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
2021
2020
2022
$
$
199
830
1,029
305 $
470
775
314
2,578
2,892
(20,983)
(7,104)
(28,087)
(3,921)
14
(3,907)
$ (27,058) $ (3,132) $
187
(1,400)
(1,213)
1,679
The following is a reconciliation of the federal statutory tax rate to the effective tax rate for the years ended December 31,
2022, 2021 and 2020:
For the Year Ended
2021
2020
2022
21.0 % 21.0 % 21.0 %
5.3
4.7
— (23.3)
(0.4)
0.2
(1.2)
1.9
(1.0)
0.3
2.2 % 22.2 %
(0.7)
1.5
(0.3)
0.1
(13.4)
(0.3)
13.2 %
10.4
(20.8)
9.8
(5.4)
17.8
(7.0)
—
(3.6)
(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
Non deductible goodwill
Other
F-40
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
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,
2022
2021
$
3,032 $
4,501
15,458
71,576
19,580
34,083
2,347
(1,815)
4,282
153,044
(8,379)
144,665
2,632
4,388
15,019
100,402
2,402
57,507
1,706
2,633
4,854
191,543
(8,580)
182,963
(36,384)
—
271
(377,886)
(4,976)
1
(418,974)
(44,044)
(4)
(16,902)
(310,579)
(5,892)
—
(377,421)
$(274,309) $ (194,458)
In connection to the sale of our five limited wireless partnership interests to Cellco in 2022, we have recognized a taxable
gain of approximately $477.7 million. For federal income tax purposes, we expect to utilize our available net operating
loss carry forwards to offset the taxable gain. For state income tax purposes, we are estimating approximately $8.0 million
in state tax liabilities. The financial results of the limited partnership interests have been classified as discontinued
operations in our consolidated financial statements for all periods presented. Refer to Note 6 for additional information on
the transaction and the partnership interests.
As a result of the Kansas City and Ohio transactions in 2022, we recorded an increase of $23.2 million and $4.2 million,
respectively, to our current tax expense in 2022 related to the write-down of noncash goodwill included in the transactions
that is not deductible for tax purposes.
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, 2022, 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, 2022 of $295.4 million and related deferred tax assets of $62.0
million. The federal NOL carryforwards for tax years beginning after December 31, 2017 of $154.7 million and related
F-41
deferred tax assets of $32.5 million can be carried forward indefinitely. The federal NOL carryforwards for the tax years
prior to December 31, 2017 of $140.7 million and related deferred tax assets of $29.5 million expire in 2030 to 2035.
ETFL, a nonconsolidated subsidiary for federal income tax return purposes, estimates it has available NOL carryforwards
as of December 31, 2022 of $0.4 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 2023 to 2024.
We estimate that we have available state NOL carryforwards as of December 31, 2022 of $406.4 million and related
deferred tax assets of $14.2 million. The state NOL carryforwards expire from 2023 to 2042. Management believes that
it is more likely than not that we will not be able to realize state NOL carryforwards of $91.5 million and related deferred
tax asset of $6.3 million and has placed a valuation allowance on this amount. The related NOL carryforwards expire
from 2023 to 2042. 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, 2022 of $5.4 million and related
deferred tax assets of $4.3 million. The state tax credit carryforwards are limited annually and expire from 2023 to 2032.
Management believes that it is more likely than not that we will not be able to realize state tax credit carryforwards of
$2.7 million and related deferred tax asset of $2.1 million and has placed a valuation allowance on this amount. The
related state tax credit carryforwards expire from 2023 to 2032. 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, 2022 and 2021 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, 2022 and 2021.
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, 2022 and 2021, 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 2019 through 2021. The periods subject to examination
for our state returns are years 2018 through 2021. 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.
F-42
As of December 31, 2022, 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:
(in thousands)
Service and support agreements (1) $ 12,552 $ 10,272 $
Transport and data connectivity
Capital expenditures (2)
Other operating agreements (3)
7,392
112,100
2,094
5,624
—
1,954
2023
2024
Total
$ 134,138 $ 17,850 $
2025
6,350 $
232
—
1,013
7,595 $
299 $
87
—
575
961 $
307
87
—
491
885
$
753 $ 30,533
13,504
82
— 112,100
7,567
$ 2,275 $ 163,704
1,440
Minimum Annual Contractual Obligations
2026
2027
Thereafter
Total
(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.
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.
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. In
2022, the DOR performed audits for the tax years 2019 and 2020 and we received Audit Assessment Notices for CCPA,
which included additional tax liabilities calculated by the DOR of approximately $0.8 million. We intend to contest these
audit assessments and file Petitions for Reassessment with the DOR’s Board of Appeals, which were filed on December
26, 2022. 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 statements.
Pole Sale
On December 30, 2020, the Company reached an agreement to sell to Public Service Company of New Hampshire d/b/a
Eversource Energy (“Eversource”) its joint ownership interest in approximately 343,000 poles and its sole ownership
interest in approximately 3,800 poles located in the Eversource electric service area. The agreement also included the
settlement of all vegetation maintenance costs disputed between the Company and Eversource through December 2020.
The Company recognized a net loss of $1.9 million during the quarter ended December 31, 2020 associated with the
F-43
execution of this agreement. Upon the closing of the sale, the Company will become a tenant on the poles and pay pole
attachment fees to Eversource. The Company will also no longer have any future obligations associated with vegetation
maintenance. The purchase and sale transaction requires regulatory approval by the New Hampshire Public Utilities
Commission (“NHPUC”) and was submitted for approval by the parties in 2021. Formal hearings on the transaction
concluded in May 2022. The NHPUC issued its order on November 18, 2022. During the quarter ended December 31,
2022, the Company recorded an additional loss on the proposed sale of $8.3 million as a result of the November 18, 2022
NHPUC order which included certain adjustments to components of the purchase price and expense allocations between
Eversource and the Company. The Company also increased its estimated closing costs necessary to complete the sale. The
New England Cable and Telecommunications Alliance has filed a motion for reconsideration and both parties have filed
a motion for clarification. The NHPUC has not yet issued a ruling on either of these motions.
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 financial statements.
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2022
Net revenues
Operating income (loss)
Loss from continuing operations
Discontinued operations, net of tax
Net income (loss) attributable to common stockholders
March 31,
June 30,
September 30, December 31,
(In thousands, except per share amounts)
Quarter Ended
$ 298,390
14,449
$ 295,976
$ 296,619
$ 300,278
20,852
$ (107,742) $
$ (20,721)
$
(7,257) $ (40,760)
$ (119,096) $ (10,591) $
5,793
$
$ 299,934
$
$
$ (45,490)
$ (125,262) $ (11,517) $ 282,250
9,079
3,547
Basic and diluted earnings (loss) per common share:
Loss from continuing operations
Income from discontinued operations
Net income (loss) per common share attributable to common
shareholders - basic and diluted
$
$
(1.15) $
0.03
(0.18) $
0.08
(0.15) $
2.60
(0.46)
0.05
(1.12) $
(0.10) $
2.45
$
(0.41)
2021
Net revenues
Operating income
Income (loss) from continuing operations
Discontinued operations, net of tax
Net income (loss) attributable to common stockholders
March 31,
June 30,
September 30, December 31,
(In thousands, except per share amounts)
Quarter Ended
$ 318,480
$ 320,403
$ 324,766
34,329
$
30,015
$
38,326
$
7,415
$ (78,304) $ (55,138) $ (13,100) $
7,545
8,619
$
$
$
$
12,414
(4,721) $
$ (62,099) $ (55,356) $
$ 318,584
32,508
$
16,221
49
Basic and diluted earnings (loss) per common share:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss) per common share attributable to common
shareholders - basic and diluted
$
$
(1.00) $
0.20
(0.71) $
-
(0.14) $
0.09
0.05
0.07
(0.80) $
(0.71) $
(0.05) $
0.12
In connection with the classification of the Kansas City operations as assets held for sale, as discussed in Note 5, we
recognized an impairment loss of $126.5 million and $5.2 million during the quarters ended March 31, 2022 and September
30, 2022, respectively. During the quarter ended December 31, 2022, we recognized an additional loss on the sale of
$16.8 million as a result of purchase price adjustments and an increase in net assets held for sale and estimated selling
costs during the period.
During the quarters ended September 30, 2022 and December 31, 2022, we recognized a pre-tax gain of $19.2 million and
$1.6 million, respectively, related to the sale of certain non-strategic communication towers. As discussed in Note 15, we
recognized a loss of $8.3 million related to the proposed sale of certain utility poles during the quarter ended December
31, 2022.
F-44
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.
During the quarter ended December 31, 2021, we recognized a gain of $13.1 million on the decline in the fair value of
contingent payment rights issued to Searchlight.
F-45
Exhibit 10.10
SEPARATION AGREEMENT
In consideration of the execution of this Separation Agreement (the “Agreement”), and for
other good and valuable consideration, Consolidated Communications, Inc. (the “Company”) and
Steven L. Childers (the “Executive”) agree to the following terms and conditions.
The Executive understands that December 31, 2022 (the “Separation Date”) will be his
last day of employment with the Company. Should the Executive terminate employment with the
Company for any reason prior to the Separation Date, this Agreement shall be null and void, and
the separation benefits described in Section 1(b)-(g) shall not be payable.
1.
Separation Benefits. The Company agrees that the Executive will, upon execution
of this Agreement and continued employment through the Separation Date, and upon execution of
the Release and expiration of the Release revocation period as described in Section 4 hereof,
receive the benefits described below:
(a) A lump sum payment equal to all accrued but unpaid base salary through the
Separation Date.
A lump sum payment equal to $600,000.00, representing one and one-half (1½)
times the amount of the Executive’s current base salary ($400,000.00).
A lump sum payment equal to $438,000.00, representing one and one-half (1½)
times the amount of the annual amounts payable to Executive under the
cash-based bonus plan in which Executive participates ($292,000,
representing 73% of Executive’s current base salary).
A lump sum payment equal to $292,000.00 representing the cash-based incentive
bonus payment at 100% of target for fiscal year ended 2022. (This payment
is in lieu of any payment under the Company’s annual cash bonus plan for
2022.)
Treatment of outstanding equity awards as follows:
Accelerated vesting of those certain outstanding restricted stock awards
(RSAs) and target number of performance stock awards (PSAs)
granted to the Executive under the Company’s Amended and
Restated Long-Term Incentive Plan (“LTIP”) and identified in
Column A of Exhibit A attached to this Agreement.
The immediate forfeiture of all other outstanding RSAs or PSAs (or
portions thereof), including those identified in Column B of Exhibit
A.
The Company and the Executive agree that the RSAs and PSAs described
in Section 1(e)(i)-(ii) are the only outstanding awards granted to the
Executive under the LTIP, and any other awards granted to the Executive
are hereby forfeited to the Company for no consideration.
The Company will continue to subsidize the Executive’s coverage under welfare
benefit plans maintained or contributed to by the Company, including, but
not limited to a plan that provides applicable health (including dental and
vision), life, accident or disability benefits or insurance, or similar coverage
at the employee rate, consistent with the coverage which the Executive
maintained as an active employee as of the Separation Date, through June
30, 2024.
The Executive understands that after June 30, 2024, he (and his covered eligible
spouse and dependents) may elect to continue dental and vision insurance
coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act
(“COBRA”). The Company will provide the Executive with notice of
applicable COBRA rights.
Any business expenses properly incurred by the Executive prior to the Separation Date will
be reimbursed in accordance with the Company’s expense reimbursement policy. The Executive’s
final paycheck will also include payment for any vacation time that is accrued but unused as of the
Separation Date. The Executive shall continue to be eligible for indemnification by the Company
to the extent provided to other former executives of the Company under any indemnification
agreement, policy of insurance obtained by the Company or as may be required by the Company’s
Certificate of Incorporation, its Bylaws or Delaware law. The Executive acknowledges that all of
his other employee benefits will terminate on the Separation Date, the last day of his employment,
except as elsewhere herein specifically provided.
2.
Adequacy of Consideration. The Executive understands that the payment of the
benefits hereunder and the other consideration provided by the Company under this Agreement
are not an admission of the Company’s liability. The Executive further understands that payment
of the separation benefits constitute valid and sufficient consideration for this Agreement and the
Release. In further consideration of the separation benefits hereunder, the parties acknowledge
and agree that the Employment Security Agreement (the “ESA”) previously entered into by and
between the Executive and Consolidated Communications Holdings, Inc., the parent of the
Company, shall hereby terminate as of the Separation Date, except with respect to the non-compete
and non-solicitation restrictive covenants in Section 8 and the confidentiality provisions of Section
9 thereof which shall continue under the terms of the ESA, and the Executive shall not be entitled
to any other rights or benefits under the ESA.
3.
Consulting Services. As further consideration for the separation benefits
hereunder, the Company has agreed to engage and hereby engages the Executive, and the
Executive hereby accepts such engagement, as an independent contractor to perform and provide
the services described in this Section 3. The services to be rendered by the Executive pursuant to
this Agreement (the “Services”) shall consist of such consulting services as the board of directors
of the Company or of its parent entity (the “Board”), or the Chief Executive Officer of the
Company (the “CEO”) shall from time-to-time reasonably request, and shall include assisting with
facilitating any financial, strategic or other transition support that may be needed following his
departure from the Company. The Executive shall devote such amount of time to performance of
the Services and work such hours as the CEO or the Board reasonably requests, but no more than
approximately 20 hours per month through June 30, 2023, and thereafter, not more than
approximately 10 hours of Services per month through December 31, 2023. The Executive shall
perform the Services to the best of the Executive’s abilities in a diligent, trustworthy, businesslike
and efficient manner. The Executive shall not engage in any other business activities that could
reasonably be expected to conflict with the Executive’s ability to devote the time necessary to
fulfill his duties, responsibilities and obligations hereunder. The Executive shall also comply with
all policies, rules and regulations of the Company applicable to consultants as well as all reasonable
directives and instructions from the Board and the CEO. To the fullest extent permitted by law,
the Company will defend, indemnify and hold harmless the Executive from and against any and
all liabilities, damages, losses, claims, demands, assessments, actions, causes of action and costs
(including reasonable attorneys’ fees and expenses), arising out of or resulting from the Services.
For the avoidance of doubt, the Executive’s right to indemnification hereunder for the Services
shall be in addition to any indemnification rights the Executive may have under the Company’s
Articles of Incorporation, Bylaws, or separate directors and officers insurance policy, as described
in Section 1 above.
4.
Release of Claims. The separation benefits described in Section 1(b)-(g) of this
Agreement shall be conditioned on, and shall not be paid until, the Executive’s execution and non-
revocation of a release of claims (the “Release”). The Release shall be provided to the Executive
prior to the Separation Date; provided that the Executive shall not execute the Release until the
Separation Date occurs. The Executive shall have 21 days to review and execute the Release and
seven days thereafter by which to revoke the Release, in which case the separation benefits shall
not be paid to the Executive.
5.
Confidentiality and Non-Disparagement. The Executive agrees not to disclose the
subject matter of this Agreement to any person other than his spouse, attorney, accountant or
income tax preparer, or as otherwise required by law. Except as required by law, listing exchange
rule or regulation, the Company agrees not to disclose the subject matter of this Agreement to any
person, other than to employees of the Company or its advisors that, in the Company’s reasonable
discretion, have a need to know such terms. The Executive and the Company each respectively
agree that at no time will such party disparage, defame, impugn or otherwise damage or assail the
reputation or integrity of the other party, (or with respect to the Company, any of its affiliates or
related parties), or publish any material relating to the other party, either via audio or visual
reproduction, or in writing, on the Internet, or any other public media.
6.
Return of Company Property.
(a)
Except for specific items that the Company agrees that the Executive is
entitled to retain following the Separation Date, the Executive represents
and warrants that he has returned all property and information belonging to
the Company, including but not limited to all files, documents, keys, credit
cards, access cards, digital cameras, optical scanners, laptops and other
Company-provided computer equipment, software and hardware, facsimile
machines, cellular phones, vehicles, technical information, customer
intellectual property, confidential
information, pricing
information,
information, trade secrets, and any other property belonging to the
Company, any of its affiliates or related parties, whether in written, tangible
or electronic form, and whether on his home or portable computer or other
electronic media.
The Executive understands that all rights to work product, discoveries, inventions,
improvements, or innovations related to his employment (whether or not
patentable, copyrightable, registerable as a trademark, or reduced to writing
or an electronic format) that originated during his employment with the
Company, either alone or with others and whether or not during working
hours or by the use of the Company’s facilities, shall be the exclusive
property of the Company. The Executive acknowledges that all such work
product has been maintained and still resides on the Company’s computer
network and, upon the request of the Company, will be deleted from his
home and/or portable computer equipment. The Executive agrees to assign
any and all rights to the Company relating to the above whenever requested.
7.
Right of Offset. If the Executive violates any obligation contained in this
Agreement, the Company shall have the right, subject to applicable law, to offset against and
deduct from any payments not yet made to him pursuant to this Agreement or that are otherwise
payable to him by the Company, such amounts as the Company deems reasonable to compensate
it, in whole or in part, for damages caused by a breach of this Agreement, in addition to all other
rights and remedies available to the Company in law or equity. The Executive acknowledges and
agrees that in the event of such an offset or deduction, the mutual covenants in this Agreement
plus the payments already made, if any, constitute sufficient consideration for this Agreement.
8.
Confidentiality. The Executive agrees that he will not divulge confidential
Company and customer information that he has learned through his employment. The Executive
acknowledged this policy as written in the employee handbook.
9.
Taxes. The Executive is responsible for paying any taxes due on benefits received
under this Agreement and agrees that the Company is to withhold all taxes it determines it is legally
required to withhold. For the avoidance of doubt, the separation benefits described in Section 1
of this Agreement will be reduced by all applicable federal, state and/or local withholding and/or
payroll taxes payable by employees as required by law, including, but not necessarily limited to,
the employee’s portion of FICA and Medicare taxes. The Company will pay its share of all
applicable federal, state and/or local withholding and/or payroll taxes payable by employers as
required by law, including, but not necessarily limited to, the employer’s portion of FICA and
Medicare taxes payable on such benefits. The portion of the insurance premiums paid by the
Company as described in Section 1(f) of this Agreement will be treated as taxable income to the
Executive and reported on the Forms W-2 provided to the Executive.
10.
Enforcement. Either party shall have the right specifically to enforce this
Agreement, except for provisions which subsequently may be held invalid or unenforceable, to
obtain appropriate injunctive relief, and to recover money damages for its breach, including
reasonable attorneys’ fees.
11.
Acknowledgments. The Executive represents that he has carefully read and fully
understands all the provisions of this Agreement and that he is entering into this Agreement
voluntarily. He is hereby advised by the Company to consult with his attorney regarding this
Agreement.
12.
Entire Agreement. This Agreement contains the entire agreement between the
parties and may be modified only in a writing executed in the same manner as the original
Agreement; and no agreements, representations, or statements of any party not contained herein
shall be binding on such party. If any provision of this Agreement is found to be unenforceable or
invalid by a court of competent jurisdiction, that provision shall be severed and all other provisions
shall remain in full force and effect.
[The remainder of this page is intentionally left blank.]
Agreed and acknowledged:
December 22, 2022
Date
By: /s/ Steven L. Childers
Steven L. Childers
Consolidated Communications, Inc.
/s/ J. Garrett Van Osdell
By:
J. Garrett Van Osdell
Chief Legal Officer
Exhibit A
The Executive shall (i) accelerate and vest in the outstanding restricted stock awards
(RSAs) and target number of performance stock awards (PSAs) listed in Column A; and (ii) forfeit
as of the Separation Date the outstanding RSAs and PSAs listed in Column B:
Column A
Column B
Year of
Award
Type of Grant
and Award
Date
2020
2021
2022
RSA (3/2/20)
PSA (3/2/20)*
RSA (5/3/21)
PSA (5/3/21)*
RSA (3/7/22)
PSA (3/7/22)
TOTAL
# of
Shares
Subject
to
Original
Grant
78,671
86,538
80,386
88,425
56,657
62,323
453,300
# of
Unvested
Shares
Currently
Outstanding
# of Unvested
RSAs and
Target PSAs
that will
Accelerate and
Vest
# of Unvested
RSAs and
Target PSAs
that will be
Forfeited
19,667
86,936
40,192
88,425
42,492
62,323
340,035
19,667
86,936
20,097
88,425
14,165
-
229,290
-
-
20,095
-
28,327
62,323
110,745
*PSAs to vest at 100% of target.
For the avoidance of doubt, any RSAs or PSAs that are not listed above in Column A shall be
forfeited to the Company.
Exhibit 10.11
November 11, 2022
Fred A. Graffam III
4383 West Northwest Hwy
Dallas TX 75220
Dear Fred,
We are in the midst of an incredible transformation of our company and this is an excellent time to join
us as we make the investments necessary to transition back to growth!
On behalf of Consolidated Communications, I am pleased to extend an offer of employment to you as
Executive Vice President, Chief Financial Officer and Treasurer reporting directly to me. Your
anticipated start date will be no later than December 1, 2022. Your compensation package will include
base salary, annual cash bonus and equity opportunities, as well as certain other compensation and
incentives as described below. Your position will be based out of our Conroe, Texas office, but you will
be permitted to work from home from time to time as mutually agreed and expected to travel based on
the needs of the business.
Your annual base salary will be $500,000 with an annual short-term incentive (STI) target bonus
equal to 100% of your base salary. You will be eligible to receive a pro rata STI bonus for 2022 that
will be paid at target. Following your acceptance of this offer and your start date of employment with
Consolidated Communications, you will receive one-time new hire cash bonus of $350,000. The new
hire cash bonus will be subject to a standard “clawback” feature based on your continued
employment, whereby 100% of the after-tax bonus amount will be subject to repayment if your
employment is terminated for “cause” or if you resign from Consolidated Communications without
“good reason” prior to the first anniversary of your start date (for clarity, in the event that Consolidated
Communications terminates your employment for any reason other than for “cause,” no clawback will
be required). For purposes of this clawback provision, (i) “cause” and “good reason” shall have the
meanings set forth in your Employment Security Agreement (as described below) and (ii) the after-tax
portion shall be based on the tax obligation you actually incur.
Following your acceptance of this offer and your start date of employment with Consolidated
Communications, you will receive an initial long-term incentive (LTI) equity award with a target value
of $1,000,000 (the “Inducement Award”). Your Inducement Award will be split equally between (i)
restricted stock awards, which are subject only to time vesting over four years consistent with our
company LTIP vesting schedule (which for this grant will commence on December 5, 2022), and (ii)
performance stock awards, which vest over a three-year performance period commencing January 1,
2022. The Inducement Award will be governed by restricted stock and performance stock grant
agreements to be entered into on your start date.
Beginning with the 2024 equity cycle, you will receive an annual LTI equity award with a target value
in subsequent years of employment as determined annually by the Compensation Committee of our
Board of Directors. Annual LTI awards are also typically comprised of an approximately equal mix of
restricted share awards, which are subject only to time vesting, and performance share awards, which
are subject to satisfying certain performance objectives and which also vest over time. The terms of
these awards will be governed by our Long-Term Incentive Plan, as Amended and Restated Effective
February 21, 2021 (the “Plan”) and standard grant certificates.
Vacation/Time Off
You will be entitled to four weeks (20 days) of paid vacation per calendar year. Vacation accrual
begins with the first pay period after your date of hire and accruals are applied weekly. In addition to
vacation time, five personal holidays are also granted each year providing you with a total of five
weeks of paid time off.
Consolidated Communications also recognizes nine national holidays during the year. Family is a
priority at Consolidated Communications so we encourage you to take advantage of opportunities to
create lasting memories with your family.
Benefits
Your eligibility to participate in Consolidated Communications' comprehensive benefit program is
subject to the terms and conditions of each plan. These programs include medical, dental, life,
accidental death and dismemberment, short-term disability, long-term disability and optional life. As a
full-time employee, your coverage is effective the first day of the calendar month following your date of
hire.
Your eligibility to participate in the 401(k) savings plan also begins immediately upon hire. Consolidated
Communications will make matching contributions up to a maximum of six percent (6%) of your eligible
compensation contributed to the plan. Plan details will be provided separately.
You will participate in the Company’s executive relocation program and expense reimbursement policy
at the senior officer level. This will include reimbursement for temporary housing, travel and relocation
expenses, and other out-of-pocket costs associated with your new hire.
It should be emphasized that we are an employment-at-will employer. This means that we, or you,
may terminate our employment relationship at any time, for any reason. Notwithstanding the foregoing,
the Company will enter into an Employment Security Agreement with you in the form provided to you
by the Company within five (5) days following your start date (the “ESA”). The ESA will provide you
with certain benefits upon termination, including severance benefits upon termination without cause or
for good reason, either before or following a change-in-control transaction. For purposes of Section
3(b)(i)(C) of the ESA, your “primary work site” will be Conroe, Texas and/or your residence, as agreed
to by the Chief Executive Officer. Please note that as a named executive officer of Consolidated
Communications, this employment offer and the terms of your compensation remain contingent upon
the final approval of our Board of Directors.
A critical component of our vision, mission and values is people and the relationships we create. This is
represented by “People Make the Difference” and we believe you will make a difference in our ability to
grow our business. We feel that you will accelerate and better ensure our success as we bring the
promise of fiber based broadband connectivity to the communities we serve.
I am excited about your interest in joining us at Consolidated Communications and feel that you will
make a significant contribution to our success in growing the business.
Please acknowledge acceptance of this offer by signing below.
Sincerely,
/s/ Bob Udell
Bob Udell
President and Chief Executive Officer
I accept the employment offer, and its terms, contained in this letter. I have received no promises
other than those contained in this letter.
/s/ Fred Graffam
Fred Graffam
November 18, 2022
Date
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 21.1
Name
Berkshire Cable Corp.
Berkshire Cellular, Inc.
Berkshire New York Access, Inc.
Berkshire Telephone Corporation
C&E Communications, Ltd.
Chautauqua & Erie Communications, Inc.
Chautauqua and Erie Telephone Corporation
Clio Parent, LLC
Clio Subsidiary, LLC
Consolidated Communications of Comerco Company
Consolidated Communications Enterprise Services, Inc.
Consolidated Communications Finance III Co.
Consolidated Communications of California Company
Consolidated Communications of Central Illinois Company
Consolidated Communications of Colorado Company
Consolidated Communications of Florida Company
Consolidated Communications of Illinois Company
Consolidated Communications of Kansas Company
Consolidated Communications of Maine Company
Consolidated Communications of Minnesota Company
Consolidated Communications of Missouri Company
Consolidated Communications of New York Company, LLC
Consolidated Communications of Northern New England Company, LLC
Consolidated Communications of Northland Company
Consolidated Communications of Ohio Company, LLC
Consolidated Communications of Oklahoma Company
Consolidated Communications of Pennsylvania Company, LLC
Consolidated Communications of Texas Company
Consolidated Communications of Vermont Company, LLC
Consolidated Communications of Washington Company, LLC
Consolidated Communications, Inc.
East Texas Fiber Line Incorporated (63% ownership)
FairPoint Business Services LLC
St. Joe Communications, Inc.
Taconic Technology Corp.
Taconic Telcom Corp.
Taconic Telephone Corp.
State of Incorporation
New York
New York
New York
New York
New York
New York
New York
Delaware
Delaware
Washington
Delaware
Delaware
California
Illinois
Delaware
Florida
Illinois
Kansas
Maine
Minnesota
Missouri
Delaware
Delaware
Delaware
Delaware
Oklahoma
Delaware
Texas
Delaware
Delaware
Illinois
Texas
Delaware
Florida
New York
New York
New York
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,
(vii)
Registration Statement (Form S-8 No. 333-228199) pertaining to the Consolidated Communications
Holdings, Inc. 2005 Long-Term Incentive Plan, and
(viii) Registration Statement (Form S-8 No. 333-268623) pertaining to the Consolidated Communications
Holdings, Inc. restricted stock agreement with Fred A. Graffam III, and
(ix)
Registration Statement (Form S-8 No. 333-270202) pertaining to the Consolidated Communications
Holdings, Inc. 2005 Long-Term Incentive Plan;
of our reports dated March 3, 2023, 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, 2022.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 3, 2023
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 3, 2023
/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, Fred A. Graffam III, 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 3, 2023
/s/ Fred A. Graffam III
Fred A. Graffam III
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 Fred A. Graffam III, 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, 2022 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 3, 2023
/s/ Fred A. Graffam III
Fred A. Graffam III
Chief Financial Officer
(Principal Financial Officer and Chief Accounting Officer)
March 3, 2023
The foregoing certifications are not deemed filed with the Securities and Exchange Commission for purposes of Section
18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are not to be incorporated by reference
into any filing of Consolidated Communications Holdings, Inc. under the Securities Act of 1933, as amended, or the
Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language contained
in such filing.
SHAREHOLDER INFORMATION
STOCK MARKET
NASDAQ: CNSL
CNSL TRANSFER AGENT
Please direct all account inquiries regarding
your stock ownership to our transfer agent:
Computershare Trust Company, N.A.
P.O. Box 43006
Providence, RI 02940-3006
Phone (within U.S.): 866.697.5701
Phone (International): 781.575.4061
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.
NASDAQ: CNSL
www.consolidated.com