December 4, 2015
Securities and Exchange Commission
Division of Corporation of Finance
100 F Street, NE
Washington, D.C. 20549
Mail Stop 3720
Attention: Larry Spirgel
Assistant Director
Re: Consolidated Communications Holdings, Inc.
Form 10-K for Fiscal Year Ended December 31, 2014
Filed March 2, 2015
File No. 0-51446
Ladies and Gentlemen:
This letter sets forth the responses of Consolidated Communications Holdings, Inc. (“Consolidated” or the “Company”) to the comments contained in your letter, dated November 23, 2015, relating to the above-captioned Form 10-K. Your comments are set forth in bold/italicized text below, and the Company responses are set forth in plain text immediately beneath each comment.
Form 10-K for the Fiscal Year ended December 31, 2014
Property, Plant and Equipment, page F-9
1. We note that “Network and outside plant facilities” appear to be at least 38% of your total assets and you depreciate them over 3 - 50 years. Since network and outside plant facility depreciation is significant to your consolidated statement of income, please consider disclosing more detail regarding the depreciation period for each type of significant asset(s). For example, it is not clear what portion of these assets is amortized over 50 versus 3 years.
The Company has historically presented “Network and outside plant facilities” as a single line in its property plant and equipment disclosure, which has been consistent with many of our peers. Based on your suggestion, we will present the components of “Network and outside plant facilities” as two separate lines entitled “Central office switching and transmission” and “Outside plant cable, wire and fiber facilities”. The following is our proposed property, plant and equipment table for disclosure purposes beginning with the Company’s 2015 Form 10-K:
Securities and Exchange Commission
December 4, 2015
(In thousands) |
| December 31, |
| December 31, |
| Estimated |
| ||
Land and buildings |
| $ | 116,523 |
| $ | 98,663 |
| 18-40 years |
|
Central office switching and transmission |
| 724,275 |
| 633,081 |
| 3-25 years |
| ||
Outside plant cable, wire and fiber facilities |
| 1,130,700 |
| 910,109 |
| 3-50 years |
| ||
Furniture, fixtures and equipment |
| 136,682 |
| 99,578 |
| 3-15 years |
| ||
Assets under capital lease |
| 11,510 |
| 11,169 |
| 3-11 years |
| ||
Total plant in service |
| 2,119,690 |
| 1,752,600 |
|
|
| ||
Less: accumulated depreciation and amortization |
| (1,025,665 | ) | (899,926 | ) |
|
| ||
Plant in service |
| 1,094,025 |
| 852,674 |
|
|
| ||
Construction in progress |
| 28,233 |
| 23,586 |
|
|
| ||
Construction inventory |
| 13,075 |
| 9,102 |
|
|
| ||
Totals |
| $ | 1,135,333 |
| $ | 885,362 |
|
|
|
As noted in the table above, the “Central office switching and transmission” and “Outside plant cable, wire and fiber facilities” categories consist of assets with estimated useful lives of 3 to 25 years and 3 to 50 years, respectively. The Company’s growth strategy has been through the acquisition of other telecommunication providers. As discussed more fully in our Form 10-K, we acquired SureWest Communications in 2012 and Enventis Corporation in 2014. In connection with the accounting for these two recent acquisitions, the acquired assets were revalued and new remaining useful lives were assigned to the depreciable assets. In all cases, the remaining useful lives assigned to these acquired depreciable assets are much shorter than that of a newly acquired asset, which directly impacts the lower end of the range for each asset category. For newly acquired assets in the “Outside plant cable, wire and fiber facilities” category, the estimated useful lives would range from 17 to 50 years. For newly acquired assets in the “Central office switching and transmission” category, the estimated useful lives would range from 3 to 25 years, with a majority of this category ranging from 5 to 25 years due to the underlying technology of the equipment.
We believe that the additional information included in the revised property, plant and equipment disclosure provide the reader of the financial statements the detail needed to assess the Company’s depreciation expense relating to these categories.
Securities and Exchange Commission
December 4, 2015
4. Investments, page F-19
2. We note that your investment income represents a significant portion of your income before income taxes. You disclosed on page 6 that your investment income consists of five cellular partnerships accounted for under the equity method. Further we note that you have included the financial statements of two of those partnerships in accordance with Rule 3-09 of Regulation S-X. It appears to us that other investees might be significant at the 20% level. Please provide us with the composition of the investment income line item for all periods presented. Also please provide us the significant test calculation for Pennsylvania RSA No. 6 (I) Limited Partnership for all periods presented.
As noted in the Company’s 2014 Form 10-K on page 6 and in more detail in the investments footnote on page F-19, the Company holds ownership interests in five cellular limited partnerships. The Company’s holdings in GTE Mobilnet of South Texas Limited Partnership (“GTE Mobilnet of South Texas”) and Pittsburgh SMSA Limited Partnership (“Pittsburgh SMSA”) are accounted for using the cost method. The Company’s holdings in GTE Mobilnet of Texas RSA #17 Limited Partnership (“GTE Mobilnet of Texas RSA #17”), Pennsylvania RSA 6(I) Limited Partnership (“Pennsylvania RSA 6(I)”) and Pennsylvania RSA 6(II) Limited Partnership (“Pennsylvania RSA 6(II)”) are accounted for using the equity method.
As requested, the composition of the Company’s investment income for all periods presented in the Company’s 2014 Form 10-K are as follows:
(In thousands) |
| 2014 |
| 2013 |
| 2012 |
| |||
GTE Mobilnet of Texas RSA #17 |
| $ | 7,299 |
| $ | 7,826 |
| $ | 4,908 |
|
Pennsylvania RSA 6(I) |
| 3,964 |
| 3,911 |
| 3,558 |
| |||
Pennsylvania RSA 6(II) |
| 8,480 |
| 8,964 |
| 7,755 |
| |||
GTE Mobilnet of South Texas |
| 6,552 |
| 8,073 |
| 5,616 |
| |||
Pittsburgh SMSA |
| 8,208 |
| 8,820 |
| 8,460 |
| |||
Other |
| 13 |
| 101 |
| 370 |
| |||
|
| $ | 34,516 |
| $ | 37,695 |
| $ | 30,667 |
|
In accordance with Rule 3-09 of Regulation S-X, the separate financial statements for GTE Mobilnet of Texas RSA #17 and Pennsylvania RSA 6(II) were included in the Company’s 2014 Form 10-K as income from these partnerships exceeded 20% of the Company’s income from continuing operations before income taxes. As requested the following is the Company’s significance test under Rule 3-09 of Regulation S-X for Pennsylvania RSA No. 6(I) for all periods presented in the Company’s 2014 Form 10-K:
Investment test:
(In thousands) |
| 2014 |
| 2013 |
| 2012 |
| |||
Total Company assets |
| $ | 2,220,265 |
| $ | 1,747,378 |
| $ | 1,793,487 |
|
Less: Equity method investments |
| (61,092 | ) | (61,204 | ) | (57,852 | ) | |||
|
| $ | 2,159,173 |
| $ | 1,686,174 |
| $ | 1,735,635 |
|
|
|
|
|
|
|
|
| |||
Investment in Pennsylvania RSA 6(I) |
| $ | 7,451 |
| $ | 7,696 |
| $ | 7,286 |
|
|
|
|
|
|
|
|
| |||
Percentage of investment to total Company assets net of equity method investments |
| 0.3 | % | 0.5 | % | 0.4 | % |
Securities and Exchange Commission
December 4, 2015
Income test:
(In thousands) |
| 2014 |
| 2013 |
| 2012(1) |
| |||
Income from continuing operations before income taxes |
| $ | 28,415 |
| $ | 47,476 |
| $ | 28,427 |
|
|
|
|
|
|
|
|
| |||
Income from Pennsylvania RSA 6(I) |
| $ | 3,964 |
| $ | 3,911 |
| $ | 3,558 |
|
|
|
|
|
|
|
|
| |||
Percentage of Pennsylvania RSA 6(I) income to income from continuing operations before income taxes |
| 14.0 | % | 8.2 | % | 12.5 | % |
(1) For the year ended December 31, 2012, the Company’s income from continuing operations before income taxes was at least 10 percent lower than the average of the income for the last five fiscal years. Therefore, the average income for the last five fiscal years was used in the income test calculation for the year ended December 31, 2012 as set forth in Rule 1-02(w) of Regulation S-X.
As noted above, under Rule 3-09 of Regulation S-X, Pennsylvania RSA 6(I) did not trigger any of the thresholds by greater than 20% to require the inclusion of their audited financial statements for any of the periods presented in the Company’s 2014 Form 10-K.
* * *
Consolidated acknowledges that we are responsible for the adequacy and accuracy of the disclosure in our filings. In addition, the Company acknowledges that the Staff’s comments or changes to disclosure in response to the Staff’s comments do not foreclose the Commission from taking any action with respect to filings and that the Company may not assert the Staff’s comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
If you have any questions regarding this letter, please do not hesitate to call me at (217) 235-4440.
| Sincerely, |
|
|
|
|
| Steven L. Childers |
| Chief Financial Officer |