CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

The Securities and Exchange Commission (“SEC”) encourages companies to disclose
forward-looking information so that investors can better understand a company’s
future prospects and make informed investment decisions. Certain statements in
this Quarterly Report on Form 10-Q, including those which relate 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
communications markets, are forward-looking statements and are made pursuant to
the safe harbor provisions of the 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 our actual results
to differ materially from those expressed or implied by these forward-looking
statements including the impact of the ongoing novel coronavirus (“COVID-19”)
pandemic and our response to it. 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. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements of Consolidated Communications
Holdings, Inc.
and its subsidiaries (“Consolidated,” the “Company,” “we” or
“our”) to be different from those expressed or implied in the forward-looking
statements. 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 our 2021
Annual Report on Form 10-K filed with the SEC and in Item 1A – “Risk Factors” of
this report. Furthermore, undue reliance should not be placed on
forward-looking statements, which speak only as of the date they are made.

Except as required under federal securities laws or the rules and regulations
of the SEC, we disclaim any intention or obligation to update or revise publicly
any forward-looking statements. Management’s Discussion and Analysis (“MD&A”)
should be read in conjunction with our unaudited condensed consolidated
financial statements and accompanying notes to the financial statements
(“Notes”) as of and for the quarter ended March 31, 2022 included in Item 1 of
Part I of this Quarterly Report on Form 10-Q.

Throughout this MD&A, we refer to certain measures that are not measures 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 22-state service area. We operate an advanced fiber network spanning
approximately 54,200 fiber route miles across many rural areas and metro
communities. We offer residential high-speed Internet, video, phone and home
security services as well as multi-service residential and small business
bundles. Our business product suite includes: data and Internet solutions,
voice, data center services, security services, managed and IT services, and an
expanded suite of cloud services. We provide wholesale solutions to wireless
and wireline carriers and other service providers including data, voice, network
connections and custom fiber builds and last mile connections.

We generate the majority of our consolidated operating revenues primarily from
monthly subscriptions to our broadband, data and transport services
(collectively “broadband services”) marketed to residential and business
customers. As consumer demands for bandwidth continue to increase, our focus is
on expanding our fiber broadband services and upgrading data speeds in order to
offer a highly competitive fiber product. Our investment in more competitive
broadband speeds is critical to our long-term success. Our strategic investment
with Searchlight Capital Partners L.P. (“Searchlight”) combined with the
refinancing of our capital structure, as described below, has provided us with
additional capital that has


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enabled us to accelerate our fiber expansion plans and provided significant
benefits to our consumer, commercial and carrier customers. With this strategic
investment, we intend to enhance our fiber infrastructure and accelerate our
investments in high-growth and competitive areas. By leveraging our existing
dense core fiber network and an accelerated build plan, we expect to be able to
significantly increase data speeds, expand our multi-Gig coverage and
strategically extend our network across our strong existing commercial and
carrier footprint to attract more on-net and near-net opportunities. As part of
our fiber expansion plan, we plan to upgrade approximately 1.6 million passings
to fiber over five years across select service areas to enable multi-Gig capable
services to these homes and small businesses including more than 1 million
passings within our northern New England service areas.

Our fiber build plan includes the upgrade of 400,000 homes and small businesses
in 2022. During the quarter ended March 31, 2022, we upgraded approximately
83,700 passings and added approximately 7,700 consumer fiber Gig-capable
subscribers. During the year ended December 31, 2021, we upgraded approximately
330,000 passings. In our northern New England service areas, approximately 20%
of the homes we serve were 1 Gig capable as of March 31, 2022 compared to 7%
during the same period in 2021. As of March 31, 2022, approximately 34% of the
homes we serve in all other markets had availability to broadband speeds of up
to 1 Gbps compared to 20% during the same period in 2021. In November 2021, we
launched Fidium Fiber, our new Gigabit consumer fiber internet product available
in select northern New England markets, reinforcing our broadband-first
strategy. We expect to launch Fidium Fiber in other regions in 2022.

As we continue to increase broadband speeds, we believe that we will also be
able to simultaneously expand the array of services and content offerings that
our network provides. We continue to focus on expanding our commercial and
carrier product offerings including broadband and our 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. Additionally, we are continuously enhancing our suite of
managed and cloud services by adding new functionality and support, which
increases efficiency and enables greater scalability and reliability for
businesses. We anticipate future momentum in commercial and carrier services as
these products gain traction as well as from the demand from customers for
additional bandwidth and data-based services.

However, operating revenues continue to be impacted by the industry-wide trend
of declines in voice services, access lines and related network access
revenue. Many customers are choosing to subscribe to alternative communication
services, and competition for these subscribers continues to increase. Total
voice connections decreased 9% as of March 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 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 21% as of March 31, 2022 compared to 2021. 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.

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Recent Developments

Searchlight Investment

On September 13, 2020, we entered into an investment agreement (the “Investment
Agreement”) with an affiliate of Searchlight. In connection with the Investment
Agreement, affiliates of Searchlight have invested an aggregate of $425.0
million
in the Company. The investment commitment was structured in two stages.

In the first stage of the transaction, which was completed on October 2, 2020,
Searchlight invested $350.0 million in the Company in exchange for 6,352,842
shares, or approximately 8%, of the Company’s common stock and a contingent
payment right (“CPR”) that was convertible, upon the receipt of certain
regulatory and shareholder approvals, into an additional 17,870,012 shares, or
16.9%, of the Company’s common stock. In addition, Searchlight received the
right to an unsecured subordinated note with an aggregate principal amount of
approximately $395.5 million (the “Note”), which, 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 March 31, 2022 and December 31, 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.

Divestitures

On September 22, 2021, we entered into a definitive agreement to sell
substantially all of the assets of our non-core, rural ILEC business located in
Ohio, Consolidated Communications of Ohio Company (“CCOC”). 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. The sale was
completed on January 31, 2022 for approximately $26.0 million in cash, subject
to a customary working capital adjustment. As of December 31, 2021, the assets
and liabilities to be disposed of were classified as held for sale in the
condensed consolidated balance sheet and consisted primarily of allocated
goodwill of $16.3 million and property, plant and equipment of $9.5 million. In
connection with the classification as assets held for sale, we recognized an
impairment loss of $5.7 million during the quarter ended September 30, 2021.
During the quarter ended March 31, 2022, we recognized an additional loss on the
sale of $0.5 million, which is included in selling, general and administrative
expense in the condensed consolidated statement of operations. We intend to use
the proceeds from the asset sale to further our fiber expansion plans.

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”) for estimated cash consideration of approximately $90.4
million
, subject to certain working capital and other purchase price
adjustments. The Kansas City operations provide data, voice and video services
to customers within the Kansas City metropolitan area and surrounding counties
and includes approximately 19,000 consumer customers and 1,900 commercial
customers. The transaction is expected to close in the second half of 2022 and
is subject to the receipt of all customary regulatory approvals and the
satisfaction of other closing


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conditions. At March 31, 2022, the assets and liabilities to be disposed of
were classified as held for sale in the condensed consolidated balance sheet and
consisted primarily of allocated goodwill of $83.7 million and property, plant
and equipment of $132.4 million. In connection with the expected sale, the
carrying value of the net assets to be sold was reduced to their estimated fair
value of approximately $89.3 million and we recognized an impairment loss of
$126.5 million during the quarter ended March 31, 2022. The asset sales align
with our strategic asset review and focus on our core broadband regions.

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Results of Operations

The following tables reflect our financial results on a consolidated basis and
key operating metrics as of and for the quarters ended March 31, 2022 and 2021.


                                 Financial Data

                                                    Quarter Ended March 31,
                                                                       $           %
(In millions, except for percentages)      2022         2021        Change      Change
Operating Revenues
Consumer:
Broadband (Data and VoIP)                $    65.9    $    65.8    $     0.1          0 %
Voice services                                37.5         40.4        (2.9)        (7)
Video services                                14.4         16.8        (2.4)       (14)
                                             117.8        123.0        (5.2)        (4)
Commercial:
Data services (includes VoIP)                 57.9         57.0          0.9          2
Voice services                                36.3         39.8        (3.5)        (9)
Other                                         11.6          9.3          2.3         25
                                             105.8        106.1        (0.3)        (0)
Carrier:
Data and transport services                   33.5         33.3          0.2          1
Voice services                                 3.8          4.5        (0.7)       (16)
Other                                          0.4          0.4            -          -
                                              37.7         38.2        (0.5)        (1)

Subsidies                                      6.6         17.4       (10.8)       (62)
Network access                                26.2         31.6        (5.4)       (17)
Other products and services                    6.2          8.5        (2.3)       (27)
Total operating revenues                     300.3        324.8       (24.5)        (8)

Operating Expenses
Cost of services and products
(exclusive of depreciation and
amortization)                                135.9        144.0        (8.1)        (6)
Selling, general and administrative
costs                                         73.3         66.9          6.4         10
Loss on impairment of assets held for
sale                                         126.5            -        126.5        100
Depreciation and amortization                 72.4         75.6        (3.2)        (4)
Total operating expenses                     408.1        286.5        121.6         42
Income (loss) from operations              (107.8)         38.3      (146.1)      (381)
Interest expense, net                       (29.5)       (48.4)       (18.9)       (39)
Loss on extinguishment of debt                   -       (12.0)         12.0        100
Change in fair value of contingent
payment rights                                   -       (57.6)         57.6        100
Other income, net                             11.4         12.3        (0.9)        (7)
Income tax benefit                          (10.3)        (5.3)        (5.0)       (94)
Net loss                                   (115.6)       (62.1)       (53.5)       (86)
Dividends on Series A preferred stock          9.6            -          9.6        100
Net income attributable to
noncontrolling interest                        0.1            -          0.1        100
Net loss attributable to common
shareholders                             $ (125.3)    $  (62.1)    $  (63.2)      (102)

Adjusted EBITDA (1)                      $   107.2    $   126.6    $  (19.4)       (15) %

(1) A non-GAAP measure. See the “Non-GAAP Measures” section below for additional

    information and reconciliation to the most directly comparable GAAP measure.


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                            Key Operating Statistics

                                           As of March 31,
                               2022       2021       Change     % Change
Consumer customers            507,767    545,061    (37,294)         (7) %

Fiber Gig+ capable             93,812     74,495      19,317          26
DSL/Copper                    286,338    323,507    (37,169)        (11)
Consumer data connections     380,150    398,002    (17,852)         (4)

Consumer voice connections    316,634    362,384    (45,750)        (13)
Video connections              58,812     73,986    (15,174)        (21)


Operating Revenues

Consumer

Broadband Services

Broadband services include revenues from residential customers for subscriptions
to our VoIP and data products. We offer high-speed Internet access at speeds of
up to 1 Gbps, depending on the network facilities that are available, the level
of service selected and the location. Our VoIP digital phone service is also
available in certain markets as an alternative to the traditional telephone
line.

Broadband services revenues increased $0.1 million or $0.6 million excluding the
sale of COCC during the quarter ended March 31, 2022 compared to the same period
in 2021 despite a decrease in data and VoIP connections of 4% and 7%,
respectively, primarily as a result of price increases as well as growth in
fiber Internet services.

Voice Services

We offer several different basic local phone service packages and long-distance
calling plans, including unlimited flat-rate calling plans. The plans include
options for voicemail and other custom calling features such as caller ID, call
forwarding and call waiting. Voice services revenues decreased $2.9 million or
$2.7 million excluding the sale of CCOC during the quarter ended March 31, 2022
compared to the same period in 2021 primarily due to a 13% decline in access
lines. 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.

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 other in-demand streaming TV
services, which provide endless entertainment options.

Video services revenues decreased $2.4 million or $2.1 million excluding the
sale of CCOC during the quarter ended March 31, 2022 compared to the same period
in 2021 primarily due to a 23% decrease in connections as consumers are choosing
to subscribe to alternative video services such as over-the-top streaming
services.


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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 and VoIP phone services, which range from basic service plans to virtual
hosted systems. In addition to Internet and VoIP services, we also offer a
variety of commercial data connectivity services in select markets including
Ethernet services; private line data services; software defined wide area
network (“SD-WAN”) and multi-protocol label switching. Our networking services
include point-to-point and multi-point deployments from 2.5 Mbps to 10 Gbps to
accommodate the growth patterns of our business customers. We offer a suite of
cloud-based services, which includes a hosted unified communications solution
that replaces the customer’s on-site phone systems and data networks, managed
network security services and data protection services. Data center and
disaster recovery solutions provide a reliable and local colocation option for
commercial customers.

Data services revenues increased $0.9 million during the quarter ended March 31,
2022
compared to the same period in 2021 primarily due to continued growth in
dedicated Internet access and SD-WAN services.

Voice Services

Voice services include basic local phone and long-distance service packages for
business customers. The plans include options for voicemail, conference calling,
linking multiple office locations and other custom calling features such as
caller ID, call forwarding, speed dialing and call waiting. Services can be
charged at a fixed monthly rate, a measured rate or can be bundled with selected
services at a discounted rate. Voice services revenues decreased $3.5 million
during the quarter ended March 31, 2022 compared to the same period in 2021
primarily due to a 10% decline in access lines as 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. Other services revenues increased $2.3 million during the
quarter ended March 31, 2022 compared to the same period in 2021 primarily due
to an increase in business systems 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 services revenues increased $0.2 million
during the quarter ended March 31, 2022 compared to the same period in 2021
primarily due to growth in Ethernet and dark fiber services, which was offset in
part by a decline in cellular backhaul as a result of price compression and 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 $0.7 million during the quarter
ended March 31, 2022 compared to the same period in 2021 as customers continue
to choose alternative technology solutions.

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Other

Other services revenues include conduit and other asset lease revenue as well as
other miscellaneous revenue. Other services revenues were flat during the
quarter ended March 31, 2022 compared to the same period in 2021.

Subsidies

Subsidies consist of both federal and state subsidies, which are designed to
promote widely available, quality broadband services at affordable prices with
higher data speeds in rural areas. Subsidies revenues decreased $10.8 million
during the quarter ended March 31, 2022 compared to the same period in 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. 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 $5.4 million during the quarter ended March
31, 2022
compared to the same period in 2021 primarily due to a decrease in the
Federal Universal Service Fund Contribution Factor during the first quarter of
2022 as well as the continuing decline in interstate rates, minutes of use,
voice connections and carrier circuits.

Other Products and Services

Other products and services include revenues from telephone directory
publishing, video advertising, billing and support services and other
miscellaneous revenues. We have entered into numerous Public Private Partnership
agreements with several towns in New Hampshire to build new FTTP Internet
networks. The new town networks provide broadband speeds of up to 1 Gbps to
residential and commercial customers. Public Private Partnerships are a key
component of Consolidated’s commitment to expand rural broadband access.

Other products and services revenues decreased $2.3 million during the quarter
ended March 31, 2022 compared to the same period in 2021 primarily due to fewer
Public Private Partnership construction projects during the first quarter of
2022.

Operating Expenses

Cost of Services and Products

Cost of services and products decreased $8.1 million during the quarter ended
March 31, 2022 compared to the same period in 2021. Access expense decreased
related to fiber costs for the Public Private Partnership agreements, as
described above. Video programming costs decreased as a result of a 21% decline
in video connections. In addition, required contributions to the Federal
Universal Service Fund
(“USF”) decreased in 2022 as a result of a reduction in
the annual funding rate.

Selling, General and Administrative Costs

Selling, general and administrative costs increased $6.4 million during the
quarter ended March 31, 2022 compared to the same period in 2021. Advertising
expense increased from additional advertising to promote our new fiber broadband
speeds. Employee labor costs and noncash stock compensation expense also
increased from the prior year period. However, property and real estate taxes
decreased primarily due to settlements received during the quarter ended March
31, 2022
.


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Depreciation and Amortization

Depreciation and amortization expense decreased $3.2 million during the quarter
ended March 31, 2022 compared to the same period in 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 the sale
of the Ohio assets and the classification of the Kansas City assets as held for
sale in 2022. These declines in depreciation and amortization expense were
offset in part by ongoing capital expenditures related to success-based capital
projects for consumer and commercial services as well as the fiber network
expansion and customer service improvements.

Reclassifications

Certain amounts in our 2021 condensed consolidated financial statements have
been reclassified to conform to the 2022 presentation, which consisted primarily
of the reclassification 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 Telecommunications Act
of 1996, federal and state regulators share responsibility for implementing and
enforcing statutes and regulations designed to encourage competition and to
preserve and advance widely available, quality telephone service at affordable
prices.

At the federal level, the FCC generally exercises jurisdiction over facilities
and services of local exchange carriers, such as our rural telephone companies,
to the extent they are used to provide, originate or terminate interstate or
international communications. The FCC has the authority to condition, modify,
cancel, terminate or revoke our operating authority for failure to comply with
applicable federal laws or FCC rules, regulations and policies. Fines or
penalties also may be imposed for any of these violations.

State regulatory commissions generally exercise jurisdiction over carriers’
facilities and services to the extent they are used to provide, originate or
terminate intrastate communications. In particular, state regulatory agencies
have substantial oversight over interconnection and network access by
competitors of our rural telephone companies. In addition, municipalities and
other local government agencies regulate the public rights-of-way necessary to
install and operate networks. State regulators can sanction our rural telephone
companies or revoke our certifications if we violate relevant laws or
regulations.

FCC Matters

In general, telecommunications service in rural areas is costlier to provide
than service in urban areas. The lower customer density means that switching and
other facilities serve fewer customers and loops are typically longer, requiring
greater expenditures per customer to build and maintain. By supporting the
high-cost of operations in rural markets, USF subsidies promote widely
available, quality telephone service at affordable prices in rural areas.

Our annual support through the FCC‘s Connect America Fund (“CAF”) Phase II
funding was $48.1 million through 2021. The specific obligations associated
with CAF Phase II funding included the obligation to serve approximately 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 their August 2019 Open Commission Meeting.
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terrestrial broadband as a bridge to rural 5G networks by providing a
significant weight advantage to traditional broadband providers. Funding will
occur in two phases with the first phase auctioning $16.0 billion and the second
phase auctioning $4.4 billion, each to be distributed over 10 years. The minimum
speed required to receive funding is 25 Mbps downstream and 3 Mbps upstream. CAF
Phase II funding was extended through December 31, 2021 for price cap holding
companies. The FCC issued the final census block groups with locations and
reserve price. We filed the RDOF short form application on July 14, 2020 and
were listed as a qualified bidder by the FCC on October 13, 2020 and
participated in the auction. The auction began on October 29, 2020 and ended on
November 24, 2020. Consolidated won 246 census block groups serving in seven
states. The bids we won are at the 1 Gbps downstream and 500 Mbps upstream speed
tier to approximately 27,000 locations at an annual funding level of
$5.9 million, which resulted in a reduction of approximately $42.2 million in
annual support as of January 1, 2022 through December 31, 2031. Consolidated
filed its long form application with supporting documents on January 29, 2021
and received final FCC approval on December 14, 2021. Consolidated began
receiving RDOF funding in January 2022.

The annual FCC price cap filing was made on June 16, 2021 and became effective
on July 1, 2021. The net impact is a decrease of approximately $3.3 million in
network access and CAF ICC support funding for the July 2021 through June 2022
tariff period.


State Matters

Texas

The Texas Universal Service Fund (“TUSF”) is administered by the National
Exchange Carrier Association
(“NECA”). The Texas Public Utilities Regulatory
Act directs the Public Utilities Commission of Texas (“PUCT”) to adopt and
enforce rules requiring local exchange carriers to contribute to a state
universal service fund that helps telecommunications providers offer basic local
telecommunications service at reasonable rates in high-cost rural areas. The
TUSF is also used to reimburse telecommunications providers for revenues lost by
providing lifeline service. Our Texas rural telephone companies receive
disbursements from this fund.

Our Texas Incumbent Local Exchange Carriers (“ILECs”) have historically received
support from two state funds, the small and rural incumbent local exchange
company plan High Cost Fund (“HCF”) and the High Cost Assistance Fund (“HCAF”).

In December 2020, the PUCT announced a TUSF funding shortfall and would be
reducing all funded carriers support by 64% beginning January 15, 2021. The
Texas Telephone Association
(“TTA”), which Consolidated is a member, and the
Texas Statewide Telephone Cooperative, Inc. (“TSTCI”), filed a lawsuit seeking
to overturn the PUCT decision as well as a temporary injunction on the funding
reduction. On June 7, 2021, the court ruled in favor of the PUCT. The TTA and
TSTCI filed a notice to appeal on July 2, 2021. We filed our brief on September
18, 2021
, along with a Motion to Expedite. The motion to expedite was granted.

We expect a ruling in late second quarter or early third quarter of 2022. The
potential impact is a reduction in support of approximately $4.0 million
annually.

American Rescue Plan Act Funding

President Biden signed the American Rescue Plan Act of 2021 (“ARPA”) on March
11, 2021
. States have been allocated federal funds to be utilized for capital
infrastructure, including broadband deployment, and are in various stages of
implementation. We are working with the states and municipalities to
participate in this broadband grant program.

COVID-19

On March 13, 2020, the FCC issued a pledge to Keep America Connected through May
13, 2020
, which was later extended to June 30, 2020. The pledge asked all
communications providers to not terminate service to any residential or small
business customers because of their inability to pay their bills due to the
disruptions caused by the coronavirus pandemic; to waive any late fees that any
residential or small business customers incur because of their economic
circumstances related to the coronavirus pandemic; and to open their Wi-Fi
hotspots to any American who needs them. Consolidated signed on to the pledge
through June 30, 2020. Several states took the FCC pledge a step further by not
allowing any carrier to disconnect service within their state during the
Governors’ declared state of emergency, which Consolidated also


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supported. Most state moratoriums on disconnections have expired; however,
certain states such as Washington and New York were extended to July 31, 2021
and December 31, 2021, respectively.

In February 2021, the FCC created the Emergency Broadband Benefit Program
(“EBB”), a temporary program to help low income households stay connected during
the COVID-19 pandemic by providing broadband service discounts for eligible
households. Consolidated is a participant in this program. The EBB ended
December 31, 2021. EBB recipients fully enrolled as of December 31, 2021
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 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 funding March
1, 2022
. Consolidated is participating in this program.

Infrastructure Investment and Jobs Act

The Infrastructure Investment and Jobs Act (the “Infrastructure Act”) passed on
March 31, 2021 included $65.0 billion toward broadband. The broadband internet
portion of the Infrastructure Act is aimed at increasing internet coverage for
more universal access, including for rural, low-income, and tribal communities.

65% of this funding is set aside specifically for underserved communities.
Additionally, this measure is designed to help make internet access more
affordable and increase digital literacy.

The Infrastructure Act set aside $42.5 billion for Broadband Equity, Access and
Deployment grants. The National Telecommunications and Information
Administration
administers the grant program and is in the process of soliciting
comments before issuing final rules.

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 $18.9 million during the
quarter ended March 31, 2022 compared to the same period in 2021. During the
quarter ended March 31, 2021, we recognized interest expense, including
amortized costs, of $10.2 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. Interest expense on our
outstanding term loan also decreased during the quarter ended March 31, 2022 due
a reduction in the annual interest rate as part of the refinancing of our credit
agreement in April 2021, as described in the “Liquidity and Capital Resources”
section below.


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Gain on Extinguishment of Debt

As described in the “Liquidity and Capital Resources” section below, we incurred
a loss on the extinguishment of debt of $12.0 million in connection with the
repayment of $397.0 million of outstanding term loans under our credit agreement
during the quarter ended March 31, 2021.

Change in Fair Value of Contingent Payment Rights

We were required to measure our contingent payment rights at fair value until
they were converted into shares of the Company’s common stock. During the
quarter ended March 31, 2021, we recognized a loss of $57.6 million on the
increase in the fair value of the contingent payment right issued to
Searchlight.

Other Income

Other income decreased $0.9 million during the quarter ended March 31, 2022
compared to the same period in 2021. Investment income decreased $1.3 million
during the quarter ended March 31, 2022 from our wireless partnership interests.

Pension and post-retirement expense decreased $0.3 million during the quarter
ended March 31, 2022. See Note 13 to the condensed consolidated financial
statements for a more detailed discussion regarding our pension and
post-retirement plans.

Income Taxes

Income taxes decreased $5.0 million during the quarter ended March 31, 2022
compared to the same period in 2021. Our effective tax rate was 8.2% and 7.9%
for the quarters ended March 31, 2022 and 2021, respectively. On March 2, 2022,
we entered into a definitive agreement to sell substantially all the assets of
our Kansas City operations. As a result, we recorded an increase to our current
tax expense of $20.1 million related to the $83.7 million impairment loss of
noncash goodwill that is not deductible for tax purposes. The transaction to
sell substantially all of the assets of our non-core, rural ILEC business
located in Ohio (the “Ohio transaction”) closed on January 31, 2022. As a
result, we recorded an increase to our current tax expense of $3.8 million
related to $16.3 million of noncash goodwill included in the sale that is not
deductible for tax purposes. 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 to our current tax expense
of $12.2 million for the quarter ended March 31, 2021. Exclusive of the discrete
permanent income tax impact related to the Kansas City, Ohio and Searchlight
transactions, our effective tax rate for the quarter ended March 31, 2022 and
2021 would have been approximately 27.2% and 26.0%, respectively. The effective
tax rate differed from the federal and state statutory rates primarily due to
permanent income tax differences related to the Kansas City, Ohio, and
Searchlight transactions, recurring permanent 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 and adjusted EBITDA to evaluate
operating performance and to facilitate the comparison of our historical results
and trends. These financial measures are not measures of financial performance
under US GAAP and should not be considered in isolation or as a substitute for
net income as a measure of performance and net cash provided by operating
activities as a measure of liquidity. They are not, on their own, necessarily
indicative of cash available to fund cash needs as determined in accordance with
GAAP. The calculation of these non-GAAP measures may not be comparable to
similarly titled measures used by other companies. Reconciliations of these
non-GAAP measures to the most directly comparable financial measures presented
in accordance with GAAP are provided below.

EBITDA is defined as net earnings before interest expense, income taxes and
depreciation and amortization. Adjusted EBITDA is comprised of EBITDA, adjusted
for certain items as permitted or required under our credit facility as
described in the reconciliations below. These measures are a common measure of
operating performance in the telecommunications industry and are useful, with
other data, as a means to evaluate our ability to fund our estimated uses of
cash.


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The following table is a reconciliation of net income (loss) to adjusted EBITDA
for the quarters ended March 31, 2022 and 2021:

                                                           Quarter Ended
                                                             March 31,
(In thousands, unaudited)                               2022           2021
Net loss                                             $ (115,549)    $ (62,083)
Add (subtract):
Interest expense, net of interest income                  29,515        48,415
Income tax benefit                                      (10,303)       (5,300)
Depreciation and amortization                             72,350        75,611
EBITDA                                                  (23,987)        56,643

Adjustments to EBITDA:
Other, net (1)                                           (5,722)      (10,409)
Investment distributions (2)                               8,216         9,377
Loss on extinguishment of debt                                 -        11,980
Loss on impairment                                       126,490             -
Change in fair value of contingent payment rights              -        57,588
Non-cash, stock-based compensation                         2,199         1,450
Adjusted EBITDA                                      $   107,196    $  126,629


Includes the equity earnings from our investments, dividend income, income
(1) attributable to noncontrolling interests in subsidiaries, acquisition and

transaction related costs including integration and severance, non-cash

pension and post-retirement benefits and certain other miscellaneous items.

(2) Includes all cash dividends and other cash distributions received from our

investments.

Liquidity and Capital Resources

Outlook and Overview

Our operating requirements have historically been funded from cash flows
generated from our business and borrowings under our credit facilities. We
expect that our future operating requirements will continue to be funded from
cash flows from operating activities, existing cash and cash equivalents and, if
needed, 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 invest in future
business opportunities.

The following table summarizes our cash flows:


                                          Three Months Ended March 31,
(In thousands)                              2022                2021
Cash flows provided by (used in):
Operating activities                   $        81,560     $       98,490
Investing activities                         (104,569)           (74,738)
Financing activities                           (2,455)            145,829

Change in cash and cash equivalents $ (25,464) $ 169,581

Cash Flows Provided by Operating Activities

Net cash provided by operating activities was $81.6 million during the
three-month period ended March 31, 2022, a decrease of $16.9 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. Cash distributions received from our wireless


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partnerships also decreased $1.2 million in 2022. These reductions in cash
provided by operating activities were offset in part by a decrease in cash paid
for interest of $11.4 million in 2022 compared to 2021.

Cash Flows Used In Investing Activities

Net cash used in investing activities was $104.6 million during the three-month
period ended March 31, 2022 and consisted primarily of cash used for capital
expenditures, the purchase and maturity of short-term investments and proceeds
received from business dispositions.

Capital expenditures continue to be our primary recurring investing activity and
were $156.5 million and $76.0 million during the three-month periods ended March
31, 2022
and 2021, respectively. Capital expenditures for 2022 are expected to
be $475.0 million to $495.0 million, which will be used to support success-based
capital projects for commercial, carrier and consumer initiatives and for our
planned fiber projects and broadband network expansion, which will include the
upgrade in 2022 of approximately 400,000 fiber passings. We expect to continue
to invest in the enhancement and expansion of our fiber network in order to
retain and acquire more customers through a broader set of products and an
expanded network footprint.

During the three months ended March 31, 2022, we received proceeds from the
maturity and sale of investments of $65.8 million, which was offset by the
purchase of $40.0 million in short-term investments consisting primarily of
held-to-maturity debt securities with original maturities of three to twelve
months.

During the three months ended March 31, 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 of $26.0 million.

Cash Flows Used In Financing Activities

Net cash used in financing activities consists primarily of our proceeds from
and principal payments on long-term borrowings.

Long-term Debt

Credit Agreement

On October 2, 2020, the Company, through certain of its wholly-owned
subsidiaries, entered into a Credit Agreement with various financial
institutions (as amended, the “Credit Agreement”) to replace the Company’s
previous credit agreement in its entirety. The Credit Agreement consisted of
term loans in an original 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 Initial 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 of
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”), comprise a single class
of term loans under the Credit Agreement.


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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 quarter ended March
31, 2021
.

On April 5, 2021, the Company, entered into a second amendment to the Credit
Agreement (the “Second Amendment”) to refinance the outstanding Term Loans of
$999.9 million. The terms and conditions of the Credit Agreement remain
substantially similar and unchanged except with respect to the interest rate
applicable to the Term Loans and certain other provisions. As a result of the
Second Amendment, the interest rate of the Term Loans was reduced to 3.50% plus
LIBOR subject to a 0.75% LIBOR floor. The maturity date of the Term Loans of
October 2, 2027 remained unchanged.

The revolving credit facility has a maturity date of October 2, 2025 and an
applicable margin (at our election) of 4.00% for LIBOR-based borrowings or 3.00%
for alternate base rate borrowings, with a 0.25% reduction in each case if the
consolidated first lien leverage ratio, as defined in the Credit Agreement, does
not exceed 3.20 to 1.00. At March 31, 2022 and December 31, 2021, there were no
borrowings outstanding under the revolving credit facility. Stand-by letters of
credit of $25.1 million were outstanding under our revolving credit facility as
of March 31, 2022. The stand-by letters of credit are renewable annually and
reduce the borrowing availability under the revolving credit facility. As of
March 31, 2022, $224.9 million was available for borrowing under the revolving
credit facility.

The weighted-average interest rate on outstanding borrowings under our credit
facility was 4.25% as of March 31, 2022 and December 31, 2021. 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 as of the end of any fiscal quarter is
greater than 5.85:1.00. As of March 31, 2022, our consolidated first lien
leverage ratio under the Credit Agreement was 4.21:1.00. As of March 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 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 offerings of the Senior Notes
have not been registered under the Securities Act of 1933, as amended or any
state securities laws.


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Senior Notes Covenant Compliance

Subject to certain exceptions and qualifications, the indentures 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 indentures also contain customary events of default. As of
March 31, 2022, the Company was in compliance with all terms, conditions and
covenants under the indentures governing the Senior Notes.

Finance Leases

We lease certain facilities and equipment under various finance leases which
expire between 2022 and 2040. As of March 31, 2022, the present value of the
minimum remaining lease commitments was approximately $25.7 million, of which
$8.4 million was due and payable within the next twelve months. The leases
require total remaining rental payments of $28.5 million as of March 31, 2022.

Sufficiency of Cash Resources

The following table sets forth selected information regarding our financial
condition.


                                                        March 31,      December 31,
(In thousands, except for ratio)                           2022            2021

Cash and cash equivalents and short-term investments $ 159,938 $ 210,436
Working capital

                                            134,531           142,270
Current ratio                                                 1.44              1.50


Our net working capital declined $7.7 million as of March 31, 2022 compared to
December 31, 2021. Cash, cash equivalents and short-term investments decreased
$50.5 million primarily as a result of capital expenditures for the fiber build
plan. Working capital was also reduced by an increase in accrued interest of
$17.2 million at March 31, 2022 related to the timing of the semi-annual
interest payments for our Senior Notes. However, working capital included net
assets classified as held for sale of $89.3 million at March 31, 2022 related to
the pending sale of substantially all of the assets of our Kansas City
operations compared to net assets held for sale of $26.0 million at December 31,
2021
for the ILEC business located in Ohio.

Our most significant use of funds for the remainder of 2022 is expected to be
for: (i) interest payments on our indebtedness of between $105.0 million and
$109.0 million; and (ii) capital expenditures of between $317.0 million and
$337.0 million. The recent refinancing of our capital structure combined with
the Searchlight investment provides us the capital and financial flexibility to
fund our accelerated fiber network expansion and growth plans. In the future,
our ability to use cash may be limited by our other expected uses of cash and
our ability to incur additional debt will be limited by our existing and future
debt agreements.

We are closely monitoring the ongoing impact on our business of the novel strain
of coronavirus (“COVID-19”) and its variants. We are taking precautions to
ensure the safety of our employees, customers and business partners, while
assuring business continuity and reliable service and support to our customers.

While we have not seen a material adverse impact to our financial results from
COVID-19 to date, if the pandemic worsens or new variants of the virus become
more dominant and were to cause significant negative impacts to economic
conditions, our results of operations, financial condition and liquidity could
be materially and adversely impacted.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act
(“CARES Act”) was enacted by the U.S. government as an emergency economic
stimulus package that includes spending and tax breaks to strengthen the US
economy and fund a nationwide effort to curtail the economic effects of
COVID-19. The CARES Act included, among other things, deferral of certain
employer payroll tax payments. 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


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the remaining 50% by December 31, 2022. The portion of the taxes deferred until
2021 were paid during the third quarter of 2021.

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 and cash flow. 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. Due to the
uncertainty and unpredictability related to the potential impacts of the
COVID-19 pandemic on our business, we will continue to closely manage our cash
and monitor liquidity.

To the extent that our business plans or projections change or prove to be
inaccurate, we may require additional financing or require financing sooner than
we currently anticipate. Sources of additional financing may include commercial
bank borrowings, other strategic debt financing, sales of nonstrategic assets,
vendor financing or the private or public sales of equity and debt securities.

There can be no assurance that we will be able to generate sufficient cash
flows from operations in the future, that anticipated revenue growth will be
realized or that future borrowings or equity issuances will be available in
amounts sufficient to provide adequate sources of cash to fund our expected uses
of cash. Failure to obtain adequate financing, if necessary, could require us to
significantly reduce our operations or level of capital expenditures which could
have a material adverse effect on our financial condition and the results of
operations. In addition, the COVID-19 pandemic has caused a disruption in the
capital markets, which could make obtaining additional financing more difficult
and we may not be able to obtain financing on favorable terms or at all.

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 are
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 March 31, 2022, we had approximately $6.5 million of these bonds
outstanding.

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 as described in the Note 13 to the Condensed Consolidated
Financial Statements, included in this report in Part I – Item 1 “Financial
Statements”. 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 estimate the long-term
rate of return on assets will be 6.00%. The Pension Plans invest in marketable
equity securities which are exposed to changes in the financial markets.
COVID-19 has also impacted the financial markets, which could significantly
impact the returns on our plan assets. If the financial markets experience a
sustained 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.

In 2022, we expect to make contributions totaling approximately $20.5 million to
our Pension Plans and $8.2 million to our other post-retirement benefit plans.
As of March 31, 2022, we have contributed $4.6 million and $1.8 million to our
Pension Plans and our other post-retirement benefit plans, respectively. Our
contribution amounts meet the minimum


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funding requirements as set forth in employee benefit and tax laws. ARPA, which
was signed into law in March 2021, included changes to the employer funding
requirements and is designed to reduce the amounts of required contributions as
a relief. We have elected not to reduce our required pension contributions to
the minimum funding requirements under ARPA and our expected contributions for
2022 are based on historical minimum funding requirements in order to increase
the Pension Plan’s funded status.

Income Taxes

The timing of cash payments for income taxes, which is governed by the Internal
Revenue Service and other taxing jurisdictions, will differ from the timing of
recording tax expense and deferred income taxes, which are reported in
accordance with GAAP. For example, tax laws in effect regarding accelerated or
“bonus” depreciation for tax reporting resulted in less cash payments than the
GAAP tax expense. Acceleration of tax deductions could eventually result in
situations where cash payments will exceed GAAP tax expense.

Regulatory Matters

In 2020, the FCC adopted an order establishing the RDOF, the next phase of the
CAF program, which resulted in a reduction of approximately $42.2 million in the
annual support we receive as of January 1, 2022 through December 31, 2031.

Critical Accounting Estimates

Our condensed consolidated financial statements and accompanying notes are
prepared in accordance with US GAAP. Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses. These estimates and assumptions are
affected by management’s application of accounting policies. Our judgments are
based on historical experience and on 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. For a full discussion of our
accounting estimates and assumptions that we have identified as critical in the
preparation of our condensed consolidated financial statements, refer to our
2021 Annual Report on Form 10-K filed with the SEC.

Recent Accounting Pronouncements

For information regarding the impact of certain recent accounting
pronouncements, see Note 1 “Summary of Significant Accounting Policies” to the
Condensed Consolidated Financial Statements, included in this report in Part I –
Item 1 “Financial Statements”.

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