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, SureWest Long Distance, SureWest Telephone, SureWest TeleVideo, SureWest Kansas, Inc., SureWest Fiber Ventures, LLC, have jointly and severally guaranteed the Senior Notes. All of the subsidiary guarantors are our 100% direct or indirect wholly owned subsidiaries, 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 March 31, 2014 and December 31, 2013, and condensed consolidating statements of operations and cash flows for the quarters ended March 31, 2014 and 2013 for each of the Company (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)


	March 31, 2014
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-	$	1,851	$	2,250	$	2,728	$	-	$	6,829
Accounts receivable, net	-		122		44,039		8,207		-		52,368
Income taxes receivable	19,308		-		-		-		(14,619)		4,689
Deferred income taxes	(61)		(7)		7,533		495				7,960
Prepaid expenses and other current assets	-		-		13,621		530		-		14,151
Total current assets	19,247		1,966		67,443		11,960		(14,619)		85,997

Property, plant and equipment, net	-		-		825,064		50,403		-		875,467

Intangibles and other assets:
Investments	-		3,765		108,820		-		-		112,585
Investments in subsidiaries	1,126,932		353,737		12,393		-		(1,493,062)		-
Goodwill	-		-		537,265		66,181		-		603,446
Other intangible assets	-		-		28,541		9,087		-		37,628
Deferred debt issuance costs, net and other assets	-		13,181		4,710		-		-		17,891
Total assets	$	1,146,179	$	372,649	$	1,584,236	$	137,631	$	(1,507,681)	$	1,733,014

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	-	$	-	$	7,775	$	-	$	-	$	7,775
Advance billings and customer deposits	-		-		24,168		2,359		-		26,527
Dividends payable	15,607		-		-		-		-		15,607
Accrued compensation	-		-		15,606		1,727		-		17,333
Accrued interest	-		12,114		6		4		-		12,124
Accrued expense	43		-		29,292		1,673		-		31,008
Income tax payable	-		4,265		7,681		2,673		(14,619)		-
Current portion of long term debt and capital
lease obligations	-		9,100		605		68		-		9,773
Current portion of derivative liability	-		694		-		-		-		694
Total current liabilities	15,650		26,173		85,133		8,504		(14,619)		120,841

Long-term debt and capital lease obligations	-		1,200,580		3,499		794		-		1,204,873
Advances due to/from affiliates, net	1,010,493		(1,981,985)		1,013,048		(41,556)		-		-
Deferred income taxes	(21,598)		(778)		184,143		18,256				180,023
Pension and postretirement benefit obligations	-		-		58,604		12,462		-		71,066
Other long-term liabilities	26		1,727		7,970		277		-		10,000
Total liabilities	1,004,571		(754,283)		1,352,397		(1,263)		(14,619)		1,586,803

Shareholders’ equity:
Common Stock	403		-		17,411		30,000		(47,411)		403
Other shareholders’ equity	141,205		1,126,932		209,825		108,894		(1,445,651)		141,205
Total Consolidated Communications Holdings, Inc. shareholders’ equity	141,608		1,126,932		227,236		138,894		(1,493,062)		141,608
Noncontrolling interest	-		-		4,603		-		-		4,603
Total shareholders’ equity	141,608		1,126,932		231,839		138,894		(1,493,062)		146,211
Total liabilities and shareholders’ equity	$	1,146,179	$	372,649	$	1,584,236	$	137,631	$	(1,507,681)	$	1,733,014

Condensed Consolidating Balance Sheet

(amounts in thousands)


	December 31, 2013
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-	$	86	$	2,366	$	3,099	$			-	$	5,551
Accounts receivable, net	-		502		44,521		7,010		-				52,033
Income taxes receivable	9,346		-		370		80		-				9,796
Deferred income taxes	(61)		(7)		7,533		495		-				7,960
Prepaid expenses and other current assets	-		-		11,862		518		-				12,380
Total current assets	9,285		581		66,652		11,202		-				87,720

Property, plant and equipment, net	-		-		834,199		51,163		-				885,362

Intangibles and other assets:
Investments	-		3,729		109,370		-		-				113,099
Investments in subsidiaries	1,101,039		335,659		12,130		-		(1,448,828)				-
Goodwill	-		-		537,265		66,181		-				603,446
Other intangible assets	-		-		30,997		9,087		-				40,084
Deferred debt issuance costs, net and other assets	-		13,620		4,047		-		-				17,667
Total assets	$	1,110,324	$	353,589	$	1,594,660	$	137,633	$		(1,448,828)		$	1,747,378

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	-	$	-	$	4,885	$	-	$			-	$	4,885
Advance billings and customer deposits	-		-		23,699		2,235		-				25,934
Dividends payable	15,520		-		-		-		-				15,520
Accrued compensation	-		-		20,447		1,805		-				22,252
Accrued interest	-		3,514		6		4		-				3,524
Accrued expense	224		875		32,703		1,371		-				35,173
Current portion of long term debt and capital
lease obligations	-		9,100		586		65		-				9,751
Current portion of derivative liability	-		660		-		-		-				660
Total current liabilities	15,744		14,149		82,326		5,480		-				117,699

Long-term debt and capital lease obligations	-		1,207,663		3,659		812		-				1,212,134
Advances due to/from affiliates, net	968,319		(1,970,192)		1,037,969		(36,096)		-				-
Deferred income taxes	(21,598)		(1,029)		184,209		18,277		-				179,859
Pension and postretirement benefit obligations	-		-		61,053		14,701		-				75,754
Other long-term liabilities	25		1,960		7,328		280		-				9,593
Total liabilities	962,490		(747,449)		1,376,544		3,454		-				1,595,039
Shareholders’ equity:
Common Stock	401		-		17,411		30,000		(47,411)				401
Other shareholders’ equity	147,433		1,101,038		196,200		104,179		(1,401,417)				147,433
Total Consolidated Communications Holdings, Inc. shareholders’ equity	147,834		1,101,038		213,611		134,179		(1,448,828)				147,834
Noncontrolling interest	-		-		4,505		-		-				4,505
Total shareholders’ equity	147,834		1,101,038		218,116		134,179		(1,448,828)				152,339
Total liabilities and shareholders’ equity	$	1,110,324	$	353,589	$	1,594,660	$	137,633	$	(1,448,828)			$	1,747,378

Condensed Consolidating Statements of Operations

(amounts in thousands)

	Quarter Ended March 31, 2014
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	-	$	69	$	136,255	$	16,758	$	(3,434)	$	149,648
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)	-		-		55,252		3,304		(3,256)		55,300
Selling, general and administrative expenses	877		39		27,631		4,495		(178)		32,864
Depreciation and amortization	-		-		33,647		1,895		-		35,542
Operating income (loss)	(877)		30		19,725		7,064		-		25,942
Other income (expense):
Interest expense, net of interest income	(2)		(19,820)		(2)		(7)		-		(19,831)
Intercompany interest income (expense)	(26,380)		31,425		(5,496)		451		-		-
Investment income	-		36		8,300		-		-		8,336
Equity in earnings of subsidiaries, net	25,621		18,215		263		-		(44,099)		-
Other, net	-		-		(899)		(4)		-		(903)
Income (loss) from continuing operations before income taxes	(1,638)		29,886		21,891		7,504		(44,099)		13,544
Income tax expense (benefit)	(9,962)		4,265		8,066		2,753		-		5,122
Income (loss) from continuing operations	8,324		25,621		13,825		4,751		(44,099)		8,422
Discontinued operations, net of tax	-		-				-		-		-
Net income (loss)	8,324		25,621		13,825		4,751		(44,099)		8,422
Less: net income attributable to noncontrolling interest	-		-		98		-		-		98
Net income (loss) attributable to Consolidated Communications Holdings, Inc.	$	8,324	$	25,621	$	13,727	$	4,751	$	(44,099)	$	8,324

Total comprehensive income (loss) attributable to common shareholders	$	8,324	$	26,029	$	13,653	$	4,689	$	(44,099)	$	8,596

	Quarter Ended March 31, 2013
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Eliminations		Consolidated
Net revenues	$	-	$	(7)	$	138,055	$	17,028	$	(3,548)	$	151,528
Operating expenses:
Cost of services and products (exclusive of depreciation and amortization)	-		-		54,861		3,444		(3,253)		55,052
Selling, general and administrative expenses	1,127		31		27,713		4,729		(295)		33,305
Depreciation and amortization	-		-		32,582		2,259		-		34,841
Operating income (loss)	(1,127)		(38)		22,899		6,596		-		28,330
Other income (expense):
Interest expense, net of interest income	6		(24,497)		(110)		1		-		(24,600)
Intercompany interest income (expense)	(20,433)		27,608		(7,329)		154		-		-
Investment income	-		(37)		8,821		-		-		8,784
Equity in earnings of subsidiaries, net	20,300		18,393		276		-		(38,969)		-
Other, net	-		-		(98)		(9)		-		(107)
Income (loss) from continuing operations before income taxes	(1,254)		21,429		24,459		6,742		(38,969)		12,407
Income tax expense (benefit)	(8,037)		1,129		9,943		2,514		-		5,549
Income (loss) from continuing operations	6,783		20,300		14,516		4,228		(38,969)		6,858
Discontinued operations, net of tax	-		-		24		-		-		24
Net income (loss)	6,783		20,300		14,540		4,228		(38,969)		6,882
Less: net income attributable to noncontrolling interest	-		-		99		-		-		99
Net income (loss) attributable to Consolidated
Communications Holdings, Inc.	$	6,783	$	20,300	$	14,441	$	4,228	$	(38,969)	$	6,783

Total comprehensive income (loss) attributable to common shareholders	$	6,783	$	22,558	$	14,759	$	4,384	$	(38,969)	$	9,515

Condensed Consolidating Statements of Cash Flows

(amounts in thousands)

	Three Months Ended March 31, 2014
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Consolidated
Net cash (used in) provided by continuing operations	$	(26,654)	$	20,833	$	48,063	$	6,152	$	48,394
Net cash used in discontinued operations	-		-		-		-		-
Net cash (used in) provided by operating activities	(26,654)		20,833		48,063		6,152		48,394

Cash flows from investing activities:
Purchases of property, plant and equipment	-		-		(24,316)		(1,089)		(25,405)
Proceeds from sale of assets	-		-		1,200		41		1,241
Other	-		-		-		-		-
Net cash used in continuing operations	-		-		(23,116)		(1,048)		(24,164)
Net cash provided by discontinued operations			-		-		-		-
Net cash used in investing activities	-		-		(23,116)		(1,048)		(24,164)

Cash flows from financing activities:
Proceeds from issuance of long-term debt	-		10,000		-		-		10,000
Payment of capital lease obligation	-		-		(142)		(15)		(157)
Payment on long-term debt	-		(17,275)		-		-		(17,275)
Dividends on common stock	(15,520)		-		-		-		(15,520)
Transactions with affiliates, net	42,174		(11,793)		(24,921)		(5,460)		-
Net cash provided by (used in) financing activities	26,654		(19,068)		(25,063)		(5,475)		(22,952)
Increase (decrease) in cash and cash equivalents	-		1,765		(116)		(371)		1,278
Cash and cash equivalents at beginning of period	-		86		2,366		3,099		5,551
Cash and cash equivalents at end of period	$	-	$	1,851	$	2,250	$	2,728	$	6,829

	Three Months Ended March 31, 2013
	Parent		Subsidiary Issuer		Guarantors		Non-Guarantors		Consolidated
Net cash (used in) provided by continuing operations	$	(20,835)	$	14,062	$	37,499	$	6,997	$	37,723
Net cash provided by discontinued operations	-		-		(1,531)		-		(1,531)
Net cash (used in) provided by operating activities	(20,835)		14,062		35,968		6,997		36,192

Cash flows from investing activities:
Purchases of property, plant and equipment	-		-		(25,371)		(2,135)		(27,506)
Proceeds from sale of assets	-		-		4		17		21
Other	-		-		(84)		-		(84)
Net cash used in continuing operations	-		-		(25,451)		(2,118)		(27,569)
Net cash used in discontinued operations	-		-		(11)		-		(11)
Net cash used in investing activities	-		-		(25,462)		(2,118)		(27,580)

Cash flows from financing activities:
Proceeds from issuance of long-term debt	-		13,000		-		-		13,000
Payment of capital lease obligation	-		-		(73)		(12)		(85)
Payment on long-term debt	-		(15,310)		-		-		(15,310)
Dividends on common stock	(15,447)		-		-		-		(15,447)
Transactions with affiliates, net	36,282		(14,935)		(15,748)		(5,599)		-
Net cash provided by (used in) financing activities	20,835		(17,245)		(15,821)		(5,611)		(17,842)
(Decrease) increase in cash and cash equivalents	-		(3,183)		(5,315)		(732)		(9,230)
Cash and cash equivalents at beginning of period	-		6,577		8,530		2,747		17,854
Cash and cash equivalents at end of period	$	-	$	3,394	$	3,215	$	2,015	$	8,624