12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Consolidated Communications, Inc. is the primary obligor under the unsecured Senior Notes it issued on May 30, 2012. We and the following of our subsidiaries: Consolidated Communications Enterprise Services, Inc., Consolidated Communications Services Company, Consolidated Communications of Fort Bend Company, Consolidated Communications of Texas Company, Consolidated Communications of Pennsylvania Company, LLC, SureWest Communications, Inc., SureWest Broadband, SureWest Communications, SureWest Long Distance, SureWest Telephone, SureWest TeleVideo, SureWest Kansas, Inc., SureWest Kansas Holdings, Inc., SureWest Fiber Ventures, LLC, SureWest Kansas Connections, LLC, SureWest Kansas Licenses, LLC, SureWest Kansas Operations, LLC and SureWest Kansas Purchasing, LLC, have jointly and severally guaranteed the Senior Notes. All of the subsidiary guarantors are 100% direct or indirect wholly owned subsidiaries of the parent, and all guarantees are full, unconditional and joint and several with respect to principal, interest and liquidated damages, if any. As such, we present condensed consolidating balance sheets as of June 30, 2013 and December 31, 2012, condensed consolidating statements of operations for the quarters and six-month periods ended June 30, 2013 and 2012 and condensed consolidating statements of cash flows for the six months ended June 30, 2013 and 2012 for each of Consolidated Communications Holdings, Inc. (Parent), Consolidated Communications, Inc. (Subsidiary Issuer), guarantor subsidiaries and other non-guarantor subsidiaries with any consolidating adjustments. See Note 6 for more information regarding our Senior Notes.

Condensed Consolidating Balance Sheet

(amounts in thousands)

	June 30, 2013
	Parent			Subsidiary Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-		$	-		$	2,166		$	1,354		$	-		$	3,520
Accounts receivable, net	-			251			48,397			7,879			-			56,527
Income taxes receivable	23,665			(6,087		)	(10,631		)	(4,993		)	-			1,954
Deferred income taxes	(51		)	(310		)	8,969			376			-			8,984
Prepaid expenses and other current assets	-			-			13,410			351			-			13,761
Assets of discontinued operations	-			-			714			-			-			714
Total current assets	23,614			(6,146		)	63,025			4,967			-			85,460

Property, plant and equipment, net	-			-			843,732			51,865			-			895,597

Intangibles and other assets:
Investments	-			3,645			108,140			15			-			111,800
Investments in subsidiaries	1,010,284			258,563			11,755			-			(1,280,602		)	-
Goodwill	-			-			537,265			66,181			-			603,446
Other intangible assets	-			-			35,907			9,087			-			44,994
Deferred debt issuance costs, net and other assets	-			10,975			5,017			-			-			15,992
Total assets	$	1,033,898		$	267,037		$	1,604,841		$	132,115		$	(1,280,602	)	$	1,757,289

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	-		$	169		$	7,461		$	-		$	-		$	7,630
Advance billings and customer deposits	-			-			24,085			2,400			-			26,485
Dividends payable	15,538			-			-			-			-			15,538
Accrued compensation	36			-			17,652			1,757			-			19,445
Accrued expense	2			3,169			28,760			1,824			-			33,755
Current portion of long term debt and capital lease obligations	-			9,240			550			59			-			9,849
Current portion of derivative liability	-			371			-			-			-			371
Liabilities of discontinued operations	-			-			254			-			-			254
Total current liabilities	15,576			12,949			78,762			6,040			-			113,327

Long-term debt and capital lease obligations	-			1,209,599			3,959			846			-			1,214,404
Advances due to/from affiliates, net	898,338			(1,966,776		)	1,098,173			(29,735		)	-			-
Deferred income taxes	(2,358		)	(1,799		)	135,406			9,071			-			140,320
Pension and postretirement benefit obligations	-			-			122,091			27,581			-			149,672
Other long-term liabilities	131			2,779			9,794			285			-			12,989
Total liabilities	911,687			(743,248		)	1,448,185			14,088			-			1,630,712

Shareholders’ equity:
Common Stock	401			-			17,411			30,000			(47,411		)	401
Other shareholders’ equity	121,810			1,010,285			134,878			88,027			(1,233,191		)	121,809
Total Consolidated Communications Holdings, Inc. shareholders’ equity	122,211			1,010,285			152,289			118,027			(1,280,602		)	122,210
Noncontrolling interest	-			-			4,367			-			-			4,367
Total shareholders’ equity	122,211			1,010,285			156,656			118,027			(1,280,602		)	126,577
Total liabilities and shareholders’ equity	$	1,033,898		$	267,037		$	1,604,841		$	132,115		$	(1,280,602	)	$	1,757,289

Condensed Consolidating Balance Sheet

(amounts in thousands)

	December 31, 2012
	Parent			Subsidiary Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-		$	6,577		$	8,530	$	2,747		$	-		$	17,854
Accounts receivable, net	19			457			49,483		7,998			-			57,957
Income taxes receivable	4,258			-			7,886		(124		)	-			12,020
Deferred income taxes	(51		)	(310		)	8,969		376			-			8,984
Prepaid expenses and other current assets	-			-			10,855		414			-			11,269
Assets of discontinued operations	-			-			1,772		-			-			1,772
Total current assets	4,226			6,724			87,495		11,411			-			109,856

Property, plant and equipment, net	-			-			855,158		52,514			-			907,672

Intangibles and other assets:
Investments	-			3,641			106,094		15			-			109,750
Investments in subsidiaries	958,199			219,955			11,234		-			(1,189,388		)	-
Goodwill	-			-			537,265		66,181			-			603,446
Other intangible assets	-			-			40,443		9,087			-			49,530
Deferred debt issuance costs, net and other assets	-			12,788			1,012		-			-			13,800
Total assets	$	962,425		$	243,108		$	1,638,701	$	139,208		$	(1,189,388	)	$	1,794,054

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	-		$	-		$	14,954	$	-		$	-		$	14,954
Advance billings and customer deposits	-			-			25,131		2,523			-			27,654
Dividends payable	15,463			-			-		-			-			15,463
Accrued compensation	36			-			19,863		2,013			-			21,912
Accrued expense	235			3,373			39,673		3,944			-			47,225
Current portion of long term debt and capital lease obligations	-			9,242			300		54			-			9,596
Current portion of derivative liability	-			3,164			-		-			-			3,164
Liabilities of discontinued operations	-			-			4,209		-			-			4,209
Total current liabilities	15,734			15,779			104,130		8,534			-			144,177

Long-term debt and capital lease obligations	-			1,203,760			3,611		877			-			1,208,248
Advances due to/from affiliates, net	817,119			(1,934,977		)	1,137,157		(19,299		)	-			-
Deferred income taxes	(2,357		)	(3,571		)	135,117		8,879			-			138,068
Pension and postretirement benefit obligations	-			-			125,706		31,004			-			156,710
Other long-term liabilities	-			3,919			6,587		240			-			10,746
Total liabilities	830,496			(715,090		)	1,512,308		30,235			-			1,657,949
Shareholders’ equity:
Common Stock	399			-			17,411		30,000			(47,411		)	399
Other shareholders’ equity	131,530			958,198			104,807		78,973			(1,141,977		)	131,531
Total Consolidated Communications Holdings, Inc. shareholders’ equity	131,929			958,198			122,218		108,973			(1,189,388		)	131,930
Noncontrolling interest	-			-			4,175		-			-			4,175
Total shareholders’ equity	131,929			958,198			126,393		108,973			(1,189,388		)	136,105
Total liabilities and shareholders’ equity	$	962,425		$	243,108		$	1,638,701	$	139,208		$	(1,189,388	)	$	1,794,054

Condensed Consolidating Statements of Operations

(amounts in thousands)

	Quarter Ended June 30, 2013
	Parent				Subsidiary Issuer			Guarantors				Non-Guarantors				Eliminations				Consolidated
Net revenues	$		-		$	(19	)	$		137,547		$	17,360			$		(3,568	)	$	151,320
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)	-				-			55,481				3,733				(3,272			)	55,942
Selling, general and administrative expenses	741				62			28,371				4,666				(296			)	33,544
Financing and other transaction costs	178				-			-				-				-				178
Depreciation and amortization	-				-			32,487				2,222				-				34,709
Operating income (loss)	(919			)	(81		)	21,208				6,739				-				26,947
Other income (expense):
Interest expense, net of interest income	(13			)	(20,672		)	(19			)	7				-				(20,697		)
Intercompany interest income (expense)	(28,334			)	34,262			(6,250			)	322				-				-
Investment income	-				42			8,651				-				-				8,693
Equity in earnings of subsidiaries, net	27,859				19,266			245				-				(47,370			)	-
Other, net	(18			)	-			100				-				-				82
Income (loss) from continuing operations before income taxes	(1,425			)	32,817			23,935				7,068				(47,370			)	15,025
Income tax expense (benefit)	(10,619			)	4,958			8,572				2,554				-				5,465
Income (loss) from continuing operations	9,194				27,859			15,363				4,514				(47,370			)	9,560
Discontinued operations, net of tax	-				-			(272			)	-				-				(272		)
Net income (loss)	9,194				27,859			15,091				4,514				(47,370			)	9,288
Less: net income attributable to noncontrolling interest	-				-			94				-				-				94
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$		9,194		$	27,859		$		14,997		$	4,514			$		(47,370	)	$	9,194

Total comprehensive income (loss) attributable to common shareholders	$		9,194		$	28,578		$		15,315		$	4,670			$		(47,370	)	$	10,387

	Quarter Ended June 30, 2012
	Parent				Subsidiary Issuer			Guarantors				Non-Guarantors				Eliminations				Consolidated
Net revenues	$	-			$	16		$	72,954			$		17,121		$	(3,534		)	$	86,557
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)	-				-			31,627				3,926				(3,534			)	32,019
Selling, general and administrative expenses	636				26			14,364				4,095				-				19,121
Financing and other transaction costs	139				423			-				-				-				562
Depreciation and amortization	-				-			18,164				3,544				-				21,708
Operating income (loss)	(775			)	(433		)	8,799				5,556				-				13,147
Other income (expense):
Interest expense, net of interest income	(20			)	(16,563		)	(288			)	(22			)	-				(16,893		)
Intercompany interest income (expense)	(11,357			)	20,249			(9,021			)	129				-				-
Investment income	-				62			6,700				-				-				6,762
Equity in earnings of subsidiaries, net	10,647				8,621			326				-				(19,594			)	-
Other, net	-				-			195				(10			)	-				185
Income (loss) from continuing operations before income taxes	(1,505			)	11,936			6,711				5,653				(19,594			)	3,201
Income tax expense (benefit)	(4,291			)	1,289			1,878				2,004				-				880
Income (loss) from continuing operations	2,786				10,647			4,833				3,649				(19,594			)	2,321
Discontinued operations, net of tax	-				-			585				-				-				585
Net income (loss)	2,786				10,647			5,418				3,649				(19,594			)	2,906
Less: net income attributable to noncontrolling interest	-				-			120				-				-				120
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	2,786			$	10,647		$	5,298			$		3,649		$	(19,594		)	$	2,786

Total comprehensive income (loss) attributable to common shareholders	$	2,786			$	11,228		$	5,595			$		3,800		$	(19,594		)	$	3,815

Condensed Consolidating Statements of Operations

(amounts in thousands)

	Six Months Ended June 30, 2013
	Parent			Subsidiary Issuer				Guarantors				Non-Guarantors			Eliminations			Consolidated
Net revenues	$	-		$		(26	)	$		275,602		$	34,388		$	(7,116	)	$		302,848
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)	-			-				110,342				7,177			(6,525		)	110,994
Selling, general and administrative expenses	1,689			93				56,084				9,395			(591		)	66,670
Financing and other transaction costs	357			-				-				-			-			357
Depreciation and amortization	-			-				65,069				4,481			-			69,550
Operating income (loss)	(2,046		)	(119			)	44,107				13,335			-			55,277
Other income (expense):
Interest expense, net of interest income	(7		)	(45,169			)	(129			)	8			-			(45,297			)
Intercompany interest income (expense)	(48,767		)	61,870				(13,579			)	476			-			-
Investment income	-			5				17,472				-			-			17,477
Equity in earnings of subsidiaries, net	48,159			37,659				521				-			(86,339		)	-
Other, net	(18		)	-				2				(9		)	-			(25			)
Income (loss) from continuing operations before income taxes	(2,679		)	54,246				48,394				13,810			(86,339		)	27,432
Income tax expense (benefit)	(18,656		)	6,087				18,515				5,068			-			11,014
Income (loss) from continuing operations	15,977			48,159				29,879				8,742			(86,339		)	16,418
Discontinued operations, net of tax	-			-				(248			)	-			-			(248			)
Net income (loss)	15,977			48,159				29,631				8,742			(86,339		)	16,170
Less: net income attributable to noncontrolling interest	-			-				193				-			-			193
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	15,977		$		48,159		$		29,438		$	8,742		$	(86,339	)	$		15,977

Total comprehensive income (loss) attributable to common shareholders	$	15,977		$		51,136		$		30,074		$	9,054		$	(86,339	)	$		19,902


	Six Months Ended June 30, 2012
	Parent			Subsidiary Issuer				Guarantors				Non-Guarantors			Eliminations			Consolidated
Net revenues	$	-		$	23			$	145,799			$	34,230		$	(7,044	)	$	173,008
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)	-			-				62,625				7,492			(7,044		)	63,073
Selling, general and administrative expenses	1,170			56				28,466				8,112			-			37,804
Financing and other transaction costs	818			4,566				-				-			-			5,384
Depreciation and amortization	-			-				36,457				7,225			-			43,682
Operating income (loss)	(1,988		)	(4,599			)	18,251				11,401			-			23,065
Other income (expense):
Interest expense, net of interest income	(20		)	(30,865			)	(567			)	(41		)	-			(31,493			)
Intercompany interest income (expense)	(22,249		)	40,330				(18,273			)	192			-			-
Investment income	-			124				13,099				5			-			13,228
Equity in earnings of subsidiaries, net	19,883			16,987				663				-			(37,533		)	-
Other, net	-			1				208				(10		)	-			199
Income (loss) from continuing operations before income taxes	(4,374		)	21,978				13,381				11,547			(37,533		)	4,999
Income tax expense (benefit)	(8,919		)	2,095				4,161				4,164			-			1,501
Income (loss) from continuing operations	4,545			19,883				9,220				7,383			(37,533		)	3,498
Discontinued operations, net of tax	-			-				1,292				-			-			1,292
Net income (loss)	4,545			19,883				10,512				7,383			(37,533		)	4,790
Less: net income attributable to noncontrolling interest	-			-				245				-			-			245
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	4,545		$	19,883			$	10,267			$	7,383		$	(37,533	)	$	4,545

Total comprehensive income (loss) attributable to common shareholders	$	4,545		$	21,467			$	10,862			$	7,685		$	(37,533	)	$	7,026

Condensed Consolidating Statements of Cash Flows

(amounts in thousands)

	Six Months Ended June 30, 2013
	Parent				Subsidiary Issuer				Guarantors			Non-Guarantors			Consolidated
Net cash (used in) provided by continuing operations	$		(50,234	)	$		19,842		$	84,919		$	12,819		$		67,346
Net cash used in discontinued operations	-				-				(3,097		)	-			(3,097			)
Net cash (used in) provided by operating activities	(50,234			)	19,842				81,822			12,819			64,249

Cash flows from investing activities:
Purchases of property, plant and equipment	-				-				(48,856		)	(3,767		)	(52,623			)
Other	-				-				(98		)	17			(81			)
Net cash used in continuing operations	-				-				(48,954		)	(3,750		)	(52,704			)
Net cash used in discontinued operations									(48		)	-			(48			)
Net cash used in investing activities	-				-				(49,002		)	(3,750		)	(52,752			)

Cash flows from financing activities:
Proceeds from issuance of long-term debt	-				49,000				-			-			49,000
Payment of capital lease obligation	-				-				(198		)	(26		)	(224			)
Payment on long-term debt	-				(43,620			)	-			-			(43,620			)
Dividends on common stock	(30,987			)	-				-			-			(30,987			)
Transactions with affiliates, net	81,221				(31,799			)	(38,986		)	(10,436		)	-
Net cash provided by (used in) financing activities	50,234				(26,419			)	(39,184		)	(10,462		)	(25,831			)
Decrease in cash and cash equivalents	-				(6,577			)	(6,364		)	(1,393		)	(14,334			)
Cash and cash equivalents at beginning of period	-				6,577				8,530			2,747			17,854
Cash and cash equivalents at end of period	$		-		$		-		$	2,166		$	1,354		$		3,520

	Six Months Ended June 30, 2012
	Parent				Subsidiary Issuer				Guarantors			Non-Guarantors			Consolidated
Net cash (used in) provided by continuing operations	$	(23,796		)	$	15,344			$	42,710		$	14,970		$	49,228
Net cash provided by discontinued operations	-				-				912			-			912
Net cash (used in) provided by operating activities	(23,796			)	15,344				43,622			14,970			50,140

Cash flows from investing activities:
Purchases of property, plant and equipment	-				-				(17,186		)	(3,529		)	(20,715			)
Restricted cash for acquisition of SureWest	-				(298,035			)	-			-			(298,035			)
Other	(314			)	-				12			16			(286			)
Net cash used in continuing operations	(314			)	(298,035			)	(17,174		)	(3,513		)	(319,036			)
Net cash used in discontinued operations	-				-				(97		)	-			(97			)
Net cash used in investing activities	(314			)	(298,035			)	(17,271		)	(3,513		)	(319,133			)

Cash flows from financing activities:
Proceeds on bond offering	-				298,055				-			-			298,055
Restriced cash on bond offering	-				(17,047			)	-			-			(17,047			)
Payment of capital lease obligation	-				-				(70		)	(22		)	(92			)
Payment on long-term debt	-				(4,400			)	-			-			(4,400			)
Payment of financing costs	-				(5,070			)	-			-			(5,070			)
Dividends on common stock	(23,173			)	-				-			-			(23,173			)
Transactions with affiliates, net	47,283				(9,367			)	(26,258		)	(11,658		)	-
Net cash provided by (used in) financing activities	24,110				262,171				(26,328		)	(11,680		)	248,273
(Decrease) increase in cash and cash equivalents	-				(20,520			)	23			(223		)	(20,720			)
Cash and cash equivalents at beginning of period	-				103,369				80			2,255			105,704
Cash and cash equivalents at end of period	$	-			$	82,849			$	103		$	2,032		$	84,984