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<TITLE>FORM S-1</TITLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">As filed with the Securities and Exchange
Commission on December&nbsp;8, 2004.</FONT></B>
</DIV>

<DIV align="right">
<B><FONT size="2">Registration
No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B>
</DIV>

<DIV align="left">
<HR size="4" noshade color="#000000" style="margin-top: -5px">
</DIV>

<DIV align="left">
<HR size="1" noshade color="#000000" style="margin-top: -10px">
</DIV>

<P align="center">
<B><FONT size="4">SECURITIES AND EXCHANGE COMMISSION</FONT></B>

<DIV align="center">
<B>Washington,&nbsp;D.C. 20549</B>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><FONT size="5">FORM S-1</FONT></B>

<DIV align="center">
<B>REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933</B>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><FONT size="5">Consolidated Communications Illinois Holdings,
Inc.</FONT></B>

<DIV align="center">
<I><FONT size="2">(Exact name of registrant as specified in its
charter)</FONT></I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="34%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="28%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B><FONT size="2">Delaware</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">4813</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">02-0636095</FONT></B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <I><FONT size="2">(State or other jurisdiction of<BR>
    incorporation or organization)</FONT></I></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <I><FONT size="2">(Primary Standard Industrial<BR>
    Classification Code Number)</FONT></I></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <I><FONT size="2">(I.R.S. Employer<BR>
    Identification No.)</FONT></I></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><FONT size="2">121 South 17th Street</FONT></B>

<DIV align="center">
<B><FONT size="2">Mattoon, Illinois 61938-3987</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(217)&nbsp;235-3311</FONT></B>
</DIV>

<DIV align="center">
<I><FONT size="2">(Address, including zip code, and telephone
number,</FONT></I>
</DIV>

<DIV align="center">
<I><FONT size="2">including area code, of registrant&#146;s
principal executive offices)</FONT></I>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><FONT size="2">Steven L. Childers</FONT></B>

<DIV align="center">
<B><FONT size="2">Chief Financial Officer</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">121 South 17th Street</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Mattoon, Illinois 61938-3987</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(217)&nbsp;235-3311</FONT></B>
</DIV>

<DIV align="center">
<I><FONT size="2">(Name, address, including zip code, and
telephone number,</FONT></I>
</DIV>

<DIV align="center">
<I><FONT size="2">including area code, of agent for
service)</FONT></I>
</DIV>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="center">
<B><I><FONT size="2">Copies to:</FONT></I></B>

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<TR>
    <TD width="53%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B><FONT size="2">Alexander A. Gendzier,&nbsp;Esq.<BR>
    King&nbsp;&#38; Spalding LLP<BR>
    1185 Avenue of the Americas<BR>
    New York, New York 10036<BR>
    (212) 556-2100</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">Gary&nbsp;A. Brooks,&nbsp;Esq.<BR>
    Cahill Gordon&nbsp;&#38; Reindel LLP<BR>
    80 Pine Street<BR>
    New York, New York 10005<BR>
    (212) 701-3000</FONT></B></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Approximate date of commencement of proposed
sale to the public:</FONT></B><FONT size="2"> As soon as
practicable after this registration statement becomes effective.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant
to Rule&nbsp;415 under the Securities Act of 1933, check the
following box.&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If this Form is filed to register additional
securities for an offering pursuant to Rule&nbsp;462(b) under
the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If this Form is a post-effective amendment filed
pursuant to Rule&nbsp;462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same offering.&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If this Form is a post-effective amendment filed
pursuant to Rule&nbsp;462(d) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same offering.&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If delivery of the prospectus is expected to be
made pursuant to Rule&nbsp;434, check the following
box.&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="center">
<B><FONT size="2">CALCULATION OF REGISTRATION FEE</FONT></B>

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<TR>
    <TD width="57%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="17%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="20%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Proposed Maximum</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Title of Class of</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Aggregate</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Amount of</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Securities to be Registered</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Offering Price(1)(2)</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Registration Fee</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;A Common Stock, $0.01&nbsp;par value
    per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">$400,000,000
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">$50,680
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes shares to be sold upon exercise of
    underwriters&#146; over-allotment option.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Estimated solely for the purpose of calculating
    the registration fee in accordance with Rule&nbsp;457(o) under
    the Securities Act.
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<HR size="1" width="26%" align="center" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further
amendment which specifically states that this registration
statement shall thereafter become effective in accordance with
Section&nbsp;8(a) of the Securities Act of 1933 or until this
registration statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to said
Section&nbsp;8(a), may determine.</FONT></B>

<P align="left">
<HR size="1" noshade color="#000000" style="margin-top: -2px">

<DIV align="left">
<HR size="4" noshade color="#000000" style="margin-top: -10px">
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" border="1" cellpadding="5"><TR><TD>
<FONT size="2" color="#E8112D">The information in this
prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.</FONT><FONT size="2"> <BR>
</FONT>
</TD></TR></TABLE>

<P align="center">
<FONT size="2" color="#E8112D">SUBJECT TO COMPLETION, DATED
DECEMBER&nbsp;8, 2004
</FONT>

<P align="center">
<FONT size="4">Shares
</FONT>

<P align="center">
<IMG src="y69344y6934400.gif" alt="(CONSOLIDATED COMMUNICATIONS LOGO)">

<P align="center">
<FONT size="4">Class&nbsp;A Common Stock
</FONT>

<P align="center">
<HR size="1" width="22%" align="center" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This is an initial public offering of shares of
Class&nbsp;A common stock of Consolidated Communications
Holdings, Inc. Of
the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock to be sold in the
offering, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
are being sold by us
and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
are being sold by the selling stockholders identified in this
prospectus. We will not receive any of the proceeds from the
shares of Class&nbsp;A common stock sold by the selling
stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to this offering, there has been no public
market for our Class&nbsp;A common stock. The initial public
offering price of our Class&nbsp;A common stock is expected to
be between
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. We will apply to list our Class&nbsp;A common stock on
the New&nbsp;York Stock Exchange under the trading symbol
&#147;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#148;.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following this offering, we will have two classes
of authorized common stock, Class&nbsp;A common stock and
Class&nbsp;B common stock. The rights of the holders of
Class&nbsp;A common stock and Class&nbsp;B common stock are
identical, except with respect to voting and conversion. Each
share of Class&nbsp;A common stock is entitled to one vote per
share. Each share of Class&nbsp;B common stock is entitled to
ten votes per share and is convertible voluntarily at any time
and automatically in connection with certain transfers into one
share of Class&nbsp;A common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriters have an option to purchase a
maximum
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares from the selling stockholders to cover over-allotments of
shares, if any.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Investing in our Class&nbsp;A common stock
involves risks. See &#147;Risk Factors&#148; beginning on
page&nbsp;16.</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Underwriting</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Proceeds to</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Discounts and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Proceeds to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Selling</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Public</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Commissions</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Us</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stockholders</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Delivery of the shares of Class&nbsp;A common
stock will be made on or
about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal
offense.
</FONT>

<P align="center">
<B><FONT size="4">Credit Suisse First Boston</FONT></B>

<P align="center">
<FONT size="2">The date of this prospectus
is &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005
</FONT>

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<P><HR noshade><P>

<P align="center">
<B><FONT size="2">TABLE OF CONTENTS</FONT></B>

<DIV align="left">
<!-- TOC -->
</DIV>

<DIV align="left">
<A name="tocpage"></A>
</DIV>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#101'>SHORTHAND REFERENCES</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">ii</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#102'>FORWARD-LOOKING
    STATEMENTS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">ii</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#103'>MARKET AND INDUSTRY DATA</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">iii</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#104'>WHERE YOU CAN FIND MORE
    INFORMATION</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">iv</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#105'>SUMMARY</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#106'>RISK FACTORS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#107'>USE OF PROCEEDS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#108'>DIVIDEND POLICY AND
    RESTRICTIONS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#109'>CAPITALIZATION</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#110'>DILUTION</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#111'>SELECTED HISTORICAL AND
    OTHER FINANCIAL DATA&nbsp;&#151; CCI HOLDINGS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#112'>SELECTED HISTORICAL AND
    OTHER FINANCIAL DATA&nbsp;&#151; CCI TEXAS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#113'>MANAGEMENT&#146;S DISCUSSION
    AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS&nbsp;&#151; CCI HOLDINGS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#114'>MANAGEMENT&#146;S DISCUSSION
    AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS&nbsp;&#151; CCI TEXAS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#115'>BUSINESS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#116'>REGULATION</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#117'>MANAGEMENT</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#118'>PRINCIPAL AND SELLING
    STOCKHOLDERS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">123</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#119'>CERTAIN RELATIONSHIPS AND
    RELATED PARTY TRANSACTIONS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#120'>DESCRIPTION OF
    INDEBTEDNESS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#121'>DESCRIPTION OF CAPITAL
    STOCK</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#122'>SHARES ELIGIBLE FOR FUTURE
    SALE</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#123'>MATERIAL U.S. FEDERAL INCOME
    TAX CONSIDERATIONS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">146</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#124'>UNDERWRITING</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#125'>NOTICE TO CANADIAN
    RESIDENTS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">152</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#126'>VALIDITY OF THE CLASS&nbsp;A
    COMMON STOCK</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">153</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#127'>EXPERTS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">153</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#128'>INDEX TO UNAUDITED PRO FORMA
    FINANCIAL STATEMENTS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">P-1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#129'>INDEX TO FINANCIAL
    STATEMENTS</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y69344exv23w1.htm">CONSENT OF ERNST & YOUNG LLP</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y69344exv23w2.htm">CONSENT OF DELOITTE & TOUCHE LLP</A></FONT></TD></TR>
</TABLE>
</CENTER>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center">
<HR size="1" width="22%" align="center" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">You should rely only on the information
contained in this document or to which we have referred you. We
have not authorized anyone to provide you with information that
is different. This document may only be used where it is legal
to sell these securities. The information in this document may
only be accurate on the date of this document.</FONT></B>

<P align="center">
<B><FONT size="2">Dealer Prospectus Delivery
Obligation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Until &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005 (25&nbsp;days after commencement of this offering), all
dealers selling shares of our Class&nbsp;A common stock, whether
or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers&#146;
obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or
subscriptions.</FONT></B>

<P align="center"><FONT size="2">i
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='101'></A>
</DIV>

<!-- link1 "SHORTHAND REFERENCES" -->

<P align="center">
<B><FONT size="2">SHORTHAND REFERENCES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In this prospectus, we use the following terms
for ease of reference, unless stated otherwise or it is
otherwise evident from the context:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">&#147;CCI Holdings&#148;, &#147;our
    company&#148;, &#147;we&#148;, &#147;us&#148; and
    &#147;our&#148; each refer to Consolidated Communications
    Holdings, Inc. and its subsidiaries on a consolidated basis;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">&#147;CCI Illinois&#148; refers to CCI and its
    subsidiaries on a consolidated basis;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">&#147;CCI Texas&#148; refers to Texas Holdings
    and its subsidiaries on a consolidated basis;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">&#147;CCI&#148; refers to Consolidated
    Communications, Inc., a wholly owned subsidiary of CCI Holdings
    and its consolidated subsidiaries;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">&#147;CCV&#148; refers to Consolidated
    Communications Ventures Company, a wholly owned subsidiary of
    Texas Holdings; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">&#147;common stock&#148; refers collectively to
    our Class&nbsp;A common stock and Class&nbsp;B common stock.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On April&nbsp;14, 2004, we acquired through our
wholly owned subsidiary Consolidated Communications Acquisition
Texas, Inc., which we refer to as &#147;Texas Holdings&#148;,
all of the capital stock of TXU Communications Ventures Company,
which we refer to as &#147;TXUCV&#148;. After the acquisition,
TXUCV was renamed CCV. In connection with this offering and the
related transactions, we plan to effect a plan of reorganization
as summarized under &#147;Summary&nbsp;&#151; CCI&nbsp;Holdings
Reorganization&#148;. Upon completion of the reorganization and
in connection with this offering and the related transactions,
we will amend and restate our certificate of incorporation to,
among other things, change our name from Consolidated
Communications Illinois Holdings, Inc. to Consolidated
Communications Holdings, Inc. Throughout this prospectus, unless
the context otherwise requires, we have assumed that the
foregoing reorganization and name change have been completed.
Please see our organizational charts under
&#147;Summary&nbsp;&#151; Our Current Organizational
Structure&#148; and &#147;&#151;&nbsp;Post Offering
Organizational Structure&#148; for an illustration of our
current organizational structure as well as our organizational
structure upon completion of this offering and the related
transactions.
</FONT>

<DIV align="left">
<A name='102'></A>
</DIV>

<!-- link1 "FORWARD-LOOKING STATEMENTS" -->

<P align="center">
<B><FONT size="2">FORWARD-LOOKING STATEMENTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any statements contained in this prospectus that
are not statements of historical fact, including statements
about our beliefs and expectations, are forward-looking
statements and should be evaluated as such. The words
&#147;anticipates&#148;, &#147;believes&#148;,
&#147;expects&#148;, &#147;intends&#148;, &#147;plans&#148;,
&#147;estimates&#148;, &#147;targets&#148;,
&#147;projects&#148;, &#147;should&#148;, &#147;may&#148;,
&#147;will&#148; and similar words and expressions are intended
to identify forward-looking statements. These forward-looking
statements are contained throughout this prospectus, for example
in &#147;Summary&#148;, &#147;Risk Factors&#148;, &#147;Dividend
Policy and Restrictions&#148;, &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of
Operations&nbsp;&#151; CCI Holdings and CCI Texas&#148;,
&#147;Business&#148;, &#147;Regulation&#148; and the unaudited
pro forma condensed consolidated financial statements and the
related notes. Such forward-looking statements reflect, among
other things, our current expectations, plans and strategies,
and anticipated financial results, all of which are subject to
known and unknown risks, uncertainties and factors that may
cause our actual results to differ materially from those
expressed or implied by these forward-looking statements. Many
of these risks are beyond our ability to control or predict.
These forward-looking statements are subject to risks,
uncertainties and assumptions, regarding, among other things:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the effect of our current and future indebtedness
    and our dividend policy on our ability to pursue growth
    opportunities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">our substantial amount of debt and our need for a
    significant amount of cash to service and repay our debt and pay
    dividends;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">ii
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">restrictive covenants in the indenture governing
    our 9&nbsp;3/4% senior notes due 2012, or the senior notes, and
    the amended and restated credit facilities to be entered into in
    connection with this offering and the related transactions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">competition in our industry;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">our ability to successfully adapt to new
    technologies, respond effectively to customer requirements or
    provide new services;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the acquisition of TXUCV and any other
    acquisitions we make;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">the economic conditions of our service areas in
    Illinois and Texas;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">system failures;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">loss of major customers and the risks of
    government contracts;
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the ability to obtain and maintain necessary
    rights-of-way for our network;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">dependence on third party vendors for our
    information and billing systems;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">dependence on third party vendors for our
    information and billing systems;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our ability to attract and retain qualified
    management and other personnel;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the expense and administrative workload
    associated with being a public company with listed securities;
    and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">extensive government legislation and regulations
    that apply to us and the telecommunications industry.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their
entirety by the cautionary statements contained throughout this
prospectus. Because of these risks, uncertainties and
assumptions, you should not place undue reliance on these
forward-looking statements. Furthermore, forward-looking
statements speak only as of the date they are made. We do not
undertake any obligation to update or review any forward-looking
information, whether as a result of new information, future
events or otherwise. The safe harbor provided by the Private
Securities Litigation Reform Act of 1995 does not apply to any
forward-looking statements made in connection with this offering.
</FONT>

<DIV align="left">
<A name='103'></A>
</DIV>

<!-- link1 "MARKET AND INDUSTRY DATA" -->

<P align="center">
<B><FONT size="2">MARKET AND INDUSTRY DATA</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Market and industry data and other information
used throughout this prospectus are based on independent
industry publications, government publications, publicly
available information, reports by market research firms or other
published independent sources. Some data is also based on
estimates of our management, which are derived from their review
of internal surveys and industry knowledge. Although we believe
these sources are reliable, we have not independently verified
the information, and we cannot guarantee its accuracy or
completeness.
</FONT>

<P align="center"><FONT size="2">iii
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='104'></A>
</DIV>

<!-- link1 "WHERE YOU CAN FIND MORE INFORMATION" -->

<P align="center">
<B><FONT size="2">WHERE YOU CAN FIND MORE INFORMATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have filed a registration statement on
Form&nbsp;S-1 with the SEC regarding this offering. This
prospectus, which is part of the registration statement, does
not contain all of the information included in the registration
statement, and you should refer to the registration statement
and its exhibits to read that information. As a result of the
effectiveness of the registration statement, we are subject to
the informational reporting requirements of the Securities
Exchange Act of 1934, as amended, and, under that Exchange Act,
we will file reports, proxy statements and other information
with the SEC. You may read and copy the registration statement,
the related exhibits and the reports, proxy statements and other
information we file with the SEC at the SEC&#146;s public
reference facilities maintained by the SEC at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. You can also
request copies of those documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the
public reference rooms. The SEC also maintains an Internet site
that contains reports, proxy and information statements and
other information regarding issuers that file with the SEC. The
site&#146;s Internet address is www.sec.gov.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You may also request a copy of these filings, at
no cost, by writing or telephoning us at:
</FONT>

<P align="center">
<FONT size="2">Consolidated Communications Holdings, Inc.
</FONT>

<DIV align="center">
<FONT size="2">121 South 17th Street
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">Mattoon, Illinois 61938-3987
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">Attention: Secretary
</FONT>
</DIV>

<DIV align="center">
<FONT size="2">Telephone: (217)&nbsp;235-3311
</FONT>
</DIV>

<P align="center"><FONT size="2">iv
</FONT>

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<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left">
<FONT size="2"> <A name='105'></A>
</FONT>
</DIV>

<!-- link1 "SUMMARY" -->

<P align="center">
<B><FONT size="2">SUMMARY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">This summary highlights some of the
information contained elsewhere in this prospectus. It may not
include all the information that is important to you. You should
read the entire prospectus carefully, including the more
detailed information in the financial statements and the related
notes included elsewhere in this prospectus. See &#147;Risk
Factors&#148; for factors that you should consider before
investing in our Class&nbsp;A common stock and
&#147;Forward-Looking Statements&#148; for information relating
to statements contained in this prospectus that are not
historical facts.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">CCI Holdings is a holding company with no
income from operations or assets except for the capital stock of
CCI and Texas Holdings. CCI was formed for the sole purpose of
acquiring Illinois Consolidated Telephone Company, or ICTC, and
the related businesses on December&nbsp;31, 2002. We believe the
operations of ICTC and the related businesses prior to
December&nbsp;31, 2002 represent the predecessor of CCI
Holdings. Texas Holdings is a holding company with no income
from operations or assets except for the capital stock of CCV.
Texas Holdings was formed for the sole purpose of acquiring
TXUCV on April&nbsp;14, 2004, which was subsequently renamed
CCV. Texas Holdings operates its business through, and receives
all of its income from, CCV and its subsidiaries.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">CCI Holdings, the issuer in this offering, is
presently a wholly owned subsidiary of Homebase Acquisition,
LLC, a Delaware limited liability company, or Homebase, which is
itself wholly owned by our existing stockholders. Prior to the
consummation of this offering, we plan to effect a
reorganization pursuant to which (1)&nbsp;our sister subsidiary
Consolidated Communications Texas Holdings, Inc. will merge with
and into CCI Holdings and (2)&nbsp;Homebase will merge with and
into CCI Holdings, in each case, with CCI Holdings being the
company surviving the merger. See &#147;Summary&nbsp;&#151; Our
Current Organizational Structure&#148; and
&#147;&#151;&nbsp;Post-Offering Organizational
Structure&#148;.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Throughout this prospectus, unless the context
otherwise requires or we specifically state otherwise, we are
presenting all financial and other information on a pro forma
basis for:</FONT></I>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I><FONT size="2">&#149;&nbsp;</FONT></I></TD>
    <TD align="left">
    <I><FONT size="2">the acquisition of TXUCV;</FONT></I></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I><FONT size="2">&#149;&nbsp;</FONT></I></TD>
    <TD align="left">
    <I><FONT size="2">the reorganization described above and
    described more fully under &#147;Certain Relationships and
    Related Party Transactions&nbsp;&#151; Reorganization
    Agreement&#148;;</FONT></I></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I><FONT size="2">&#149;&nbsp;</FONT></I></TD>
    <TD align="left">
    <I><FONT size="2">the issuance of our Class&nbsp;A common stock
    in this offering;</FONT></I></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I><FONT size="2">&#149;&nbsp;</FONT></I></TD>
    <TD align="left">
    <I><FONT size="2">the expected amendment and restatement of our
    existing credit facilities described under &#147;Description of
    Indebtedness&nbsp;&#151; Amended and Restated Credit
    Facilities&#148;;</FONT></I></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I><FONT size="2">&#149;&nbsp;</FONT></I></TD>
    <TD align="left">
    <I><FONT size="2">the application of proceeds from this
    offering, proceeds from the amendment and restatement of our
    existing credit facilities and cash on hand as described under
    &#147;Use of Proceeds&#148;;</FONT></I></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I><FONT size="2">&#149;&nbsp;</FONT></I></TD>
    <TD align="left">
    <I><FONT size="2">the payment of fees and expenses relating to
    this offering and the related transactions; and</FONT></I></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><I><FONT size="2">&#149;&nbsp;</FONT></I></TD>
    <TD align="left">
    <I><FONT size="2">the termination of professional service fee
    agreements with certain affiliates of the existing equity
    investors.</FONT></I></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">The Company</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are an established rural local exchange
company that provides communications services to residential and
business customers in Illinois and in Texas. As of
September&nbsp;30, 2004, we were the 16th largest local
telephone company in the United States, based on industry
sources, with approximately 257,726 local access lines and
approximately 24,385 digital subscriber lines, or DSL lines, in
service. Our main sources of revenues are our local telephone
businesses in Illinois and Texas, which offer an array of
services, including local dial tone, custom calling features,
private line services, long distance, dial-up and high-speed
Internet access, carrier access and billing and collection
services. We also operate a number of complementary businesses.
In Illinois, we provide additional services such as telephone
services to county jails and state prisons, operator and
national directory assistance and telemarketing and order
fulfillment
</FONT>
</DIV>

<P align="center"><FONT size="2">1
</FONT>
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<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left">
<FONT size="2">services. In Texas, we publish telephone
directories and offer wholesale transport services on a fiber
optic network.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of the subsidiaries through which we operate
our local telephone businesses is classified as a rural
telephone company, commonly referred to as an RLEC, under the
Telecommunications Act of 1996, or the Telecommunications Act.
Our RLECs are ICTC, Consolidated Communications of Fort Bend
Company and Consolidated Communications of Texas Company. RLECs
are typically characterized by stable operating results and
consistently strong cash flow and operate in generally
supportive regulatory environments. In addition, because our
RLECs primarily provide service in rural areas, competition for
local telephone service has been limited due to the generally
unfavorable economics of constructing and operating competitive
systems in these areas.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We had $327.1&nbsp;million and
$244.9&nbsp;million of revenues for the year ended
December&nbsp;31, 2003 and for the nine months ended
September&nbsp;30, 2004, respectively. We had a
$9.5&nbsp;million net loss for the year ended December&nbsp;31,
2003 and $8.5&nbsp;million of net income for the nine months
ended September&nbsp;30, 2004, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We operate our business in two segments, which we
refer to as Telephone Operations and Other Operations.
</FONT>

<P align="left">
<B><FONT size="2">Telephone Operations</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Illinois</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Illinois Telephone Operations consist of
local telephone, long distance and data and Internet services
and serves residential and business customers in central
Illinois. As of September&nbsp;30, 2004, our Illinois Telephone
Operations had approximately:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">88,254 local access lines in service, of which
    approximately 64% served residential customers and 36% served
    business customers;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">61% long distance penetration of its local access
    lines;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">8,038 dial-up Internet customers; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">10,109 DSL lines, which represented an
    approximately 11.5% penetration of total local access lines.
    Approximately 90% of our Telephone Operations&#146; total local
    access lines in Illinois, excluding local access lines already
    served by other high speed connections, are DSL-capable.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">In 2003, our Illinois Telephone Operations
generated $90.3&nbsp;million of revenues and $28.2&nbsp;million
of cash flows from operating activities on a historical basis.
For the nine months ended September&nbsp;30, 2004, our Telephone
Operations in Illinois generated $71.9&nbsp;million of revenues
and $17.6&nbsp;million of cash flows from operating activities
on a historical basis.
</FONT>

<P align="left">
<B><I><FONT size="2">Texas</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Texas Telephone Operations serve residential
and business customers in east Texas and rural and suburban
areas surrounding Houston. As of September&nbsp;30, 2004, our
Texas Telephone Operations had approximately:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">169,472 local access lines in service, of which
    approximately 67% served residential customers and 33% served
    business customers;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">39% long distance penetration of local access
    lines;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">14,971 dial-up Internet customers; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">14,276 DSL lines, which represented an
    approximately 8.4% penetration of total local access lines.
    Approximately 90% of our total local access lines, excluding
    local access lines already served by other high speed
    connections, are DSL-capable.
    </FONT></TD>
</TR>

</TABLE>
</DIV>

<P align="center"><FONT size="2">2
</FONT>

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<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Texas Telephone Operations also include the
following complementary businesses:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><FONT size="2">Directory
    Publishing</FONT></B><FONT size="2">&nbsp;&#151; sells directory
    advertising and publishes yellow and white pages directories in
    and around Consolidated Communications of Fort Bend
    Company&#146;s and Consolidated Communications of Texas
    Company&#146;s, which we refer to as our Texas RLECs, service
    areas. The three directories are each published once per year
    and have a combined circulation in excess of 400,000.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><FONT size="2">Transport
    Services</FONT></B><FONT size="2">&nbsp;&#151; provides
    connectivity to customers within Texas over a fiber optic
    transport network consisting of approximately 2,500 route-miles
    of fiber. This transport network supports our long distance,
    Internet access and data services in Texas and provides
    bandwidth on a wholesale basis to third party customers,
    including national long distance and wireless carriers.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">In 2003, our Texas Telephone Operations generated
$194.8&nbsp;million of revenues and $75.1&nbsp;million of cash
flows from operating activities on an historical basis. For the
nine months ended September&nbsp;30, 2004, our Texas Telephone
Operations generated $143.1&nbsp;million of revenues and
$46.1&nbsp;million of cash flows from operating activities on an
historical basis.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Other Operations</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Other Operations consist of the following
complementary businesses:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><FONT size="2">Public
    Services</FONT></B><FONT size="2">&nbsp;&#151; provides local
    and long distance service and automated collect calling from
    county jails and state prisons in Illinois;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><FONT size="2">Operator
    Services</FONT></B><FONT size="2">&nbsp;&#151; offers both live
    and automated local and long distance operator assistance and
    national directory assistance on a wholesale and retail basis;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><FONT size="2">Market
    Response</FONT></B><FONT size="2">&nbsp;&#151; provides
    telemarketing and order fulfillment services to customers
    nationwide;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><FONT size="2">Business
    Systems</FONT></B><FONT size="2">&nbsp;&#151; sells, installs
    and maintains telecommunications equipment and wiring to
    residential and business customers in and around our Illinois
    service area; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><FONT size="2">Mobile
    Services</FONT></B><FONT size="2">&nbsp;&#151; provides one-way
    messaging service to residential and business customers.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">In 2003, our Other Operations generated
$42.0&nbsp;million of revenues and $0.7&nbsp;million of cash
flows from operating activities on a historical basis. For the
nine months ended September&nbsp;30, 2004, our Other Operations
generated $29.9&nbsp;million of revenues and $1.9&nbsp;million
of cash flows from operating activities on a historical basis.
</FONT>

<P align="center">
<B><FONT size="2">Our Strengths</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe our strengths include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">consistently strong cash flows;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">favorable regulatory environment;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">attractive markets and limited competition;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">technologically advanced network;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">broad service offerings and service bundles; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">experienced management team with proven track
    record.
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">Business Strategy</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our current business strategy includes:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">improving operating efficiency and maintaining
    capital expenditure discipline;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">increasing revenues per customer;
    </FONT></TD>
</TR>

</TABLE>
</DIV>

<P align="center"><FONT size="2">3
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">continuing to provide high quality service; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">pursuing selective acquisitions.
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">TXUCV Acquisition and Integration</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On April&nbsp;14, 2004, through our indirect
wholly owned subsidiary Texas Holdings, we acquired all of the
capital stock of TXUCV for $527.0&nbsp;million in cash, subject
to adjustment for, among other things, our assumption of $2.8
million of capital leases and for TXUCV&#146;s working capital
on the closing date. On August&nbsp;10, 2004, we made an
additional cash payment of $5.1&nbsp;million as a result of the
final working capital adjustment. Promptly following the TXUCV
acquisition, an integration project management team started
integrating CCI Texas&#146; and CCI Illinois&#146; operations.
Our objective is to improve our cash flows by reducing
individual company costs through centralization, standardization
and the sharing of best practices.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently expect to incur approximately
$14&nbsp;million in operating expenses associated with the
integration and restructuring process in 2004 and 2005. Of the
$14&nbsp;million, approximately $11&nbsp;million relates to
integration and approximately $3&nbsp;million relates to
restructuring. As of September&nbsp;30, 2004, $2.3&nbsp;million
had been spent on integration. These one-time integration and
restructuring costs will be in addition to certain ongoing
expenses we expect to incur to expand certain administrative
functions, such as those relating to SEC reporting and
compliance, and do not take into account other potential cost
savings and expenses of the TXUCV acquisition. Approximately
$5.2&nbsp;million in severance expenses were incurred in
connection with the separation of approximately 70&nbsp;TXUCV
employees at the closing of the TXUCV acquisition. The full year
impact of the cost savings of the headcount reduction is
currently expected to be approximately $8.0&nbsp;million. We do
not expect to incur costs relating to the TXUCV integration
after 2005.
</FONT>

<P align="center">
<B><FONT size="2">Amended and Restated Credit
Facilities</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Concurrently with the closing of this offering,
we expect to amend and restate our existing credit facilities.
We currently expect that the amended and restated credit
facilities will provide financing of $419.6&nbsp;million,
consisting of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an increased $389.6&nbsp;million term loan&nbsp;C
    facility maturing on October 14, 2011; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a $30.0&nbsp;million revolving credit facility
    maturing on April&nbsp;14, 2010.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The amended and restated credit facilities have
not yet been agreed upon, and the descriptions set forth in this
prospectus represent our current expectations regarding the
terms of these facilities. The definitive terms of the amended
and restated credit facilities could differ from those described
in this prospectus, and those differences could be material.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to repay in full the
$118.7&nbsp;million of debt under our term loan&nbsp;A facility
(plus any revolving debt, which we anticipate will be zero) upon
consummation of the amendment and restatement. Upon the closing
of the amended and restated credit facilities and such
repayment, we expect to have a total of $389.6&nbsp;million
outstanding under the term loan&nbsp;C facility and no debt
outstanding under the revolving credit facility.
</FONT>

<P align="center">
<B><FONT size="2">CCI Holdings Reorganization</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Holdings, the issuer in this offering, is
presently a wholly owned subsidiary of Homebase. Prior to the
consummation of this offering, and subject to obtaining the
prior approval of the Illinois Commerce Commission, or ICC, we
plan to effect a reorganization pursuant to which (1)&nbsp;our
sister subsidiary Consolidated Communications Texas Holdings,
Inc. will merge with and into CCI Holdings and (2)&nbsp;Homebase
will then merge with and into CCI Holdings, in each case, with
CCI Holdings being the entity surviving the merger. See
&#147;Summary&nbsp;&#151; Our Current Organizational
Structure&#148; and &#147;&#151; Post-Offering Organizational
Structure&#148;.
</FONT>
</DIV>

<P align="center"><FONT size="2">4
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After giving effect to the offering and the
related transactions:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Central Illinois Telephone, LLC, an entity
    affiliated with our chairman Richard Lumpkin, and its
    affiliates, or Central Illinois Telephone, will receive from
    Homebase &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
    shares of our Class&nbsp;B common stock,
    representing &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
    of the voting power of our outstanding common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Providence Equity Partners&nbsp;IV, L.P. and its
    affiliates, or Providence Equity, will receive from
    Homebase &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
    shares of our Class&nbsp;A common stock,
    representing &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
    of the voting power of our outstanding common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Spectrum Equity Investors&nbsp;IV, L.P. and its
    affiliates, or Spectrum Equity, will receive from
    Homebase &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
    shares of our Class&nbsp;A common stock,
    representing &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
    of the voting power of our outstanding common stock; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our management stockholders will
    receive &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
    restricted shares of our Class&nbsp;A common stock,
    representing &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
    of the voting power of our outstanding common stock.
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">Our Existing Equity Investors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Currently, all of our capital stock is owned by
Homebase. All of Homebase&#146;s outstanding preferred equity
interests and 90.0% of Homebase&#146;s common equity interests
are currently owned in equal amounts by Central Illinois
Telephone, Providence Equity, and Spectrum Equity. The remainder
of Homebase&#146;s equity interests are owned by members of our
management. In connection with our reorganization, Homebase will
merge with and into CCI Holdings and our existing stockholders
will receive from Homebase shares of our common stock
representing 100% of our outstanding common stock. We refer to
Central Illinois Telephone, Providence Equity and Spectrum
Equity, which are the selling stockholders in this offering, as
our existing equity investors and to our existing equity
investors and management who will receive shares of our common
stock in the reorganization collectively as our existing common
stockholders.
</FONT>

<P align="center">
<B><FONT size="2">Use of Proceeds</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We estimate that we will receive net proceeds
from this offering of approximately $81.5&nbsp;million, after
deducting underwriting discounts and commissions and other
offering-related expenses. We will use the net proceeds from
this offering, together with additional borrowings under the
amended and restated credit facilities and approximately
$47.7&nbsp;million of cash on hand, to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">repay in full outstanding borrowings under our
    term loan&nbsp;A facility, together with accrued but unpaid
    interest through the closing date of this offering;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">redeem&nbsp;35.0% of the aggregate principal
    amount of our senior notes, which will include the payment of
    the associated redemption premium of 9.75% of the principal
    amount to be redeemed, together with accrued but unpaid interest
    through the date of redemption;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">pre-fund expected integration and restructuring
    costs for 2005 relating to the TXUCV acquisition; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">pay fees and expenses associated with the
    repayment of the term loan&nbsp;A facility and entering into the
    amended and restated credit facilities.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will not receive any of the proceeds from the
selling stockholders&#146; sale of shares of Class&nbsp;A common
stock in the offering. The closing of this offering is
conditioned on the closing of the reorganization, which requires
the prior approval of the ICC, and the entering into, and
borrowing under, the amended and restated credit facilities.
</FONT>
</DIV>

<P align="center"><FONT size="2">5
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table lists the estimated sources
and uses of funds from this offering and the related
transactions. The actual amounts on the date that this offering
and the related transactions close may vary.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="37%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Sources</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Uses</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="12"></TD>
</TR>

<TR>
    <TD colspan="12" align="center" nowrap><B><FONT size="1">(dollars in millions)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Repayment of term loan&nbsp;A facility(2)(3)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Offering proceeds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">90.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Senior notes redemption(3)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase in term loan C facility(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Redemption premium
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Fees and expenses(4)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Pre-funding integration
    and<BR>&nbsp;&nbsp;restructuring costs
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total sources
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">213.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">213.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes $7.5&nbsp;million of cash that will be
    used to pre-fund expected integration and restructuring costs
    for 2005 relating to the TXUCV acquisition.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We expect that our existing credit facilities
    will be amended and restated to, among other things, repay the
    term loan&nbsp;A facility and to increase the amount of
    borrowings available under our existing term loan&nbsp;C
    facility, which is expected to mature on October&nbsp;14, 2011.
    See &#147;Description of Indebtedness&nbsp;&#151; Amended and
    Restated Credit Facilities&#148;.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Excludes accrued but unpaid interest on the term
    loan&nbsp;A facility and the senior notes to be redeemed,
    respectively, through the closing date of this offering.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Transaction fees and expenses include estimated
    underwriting discounts and commissions, commitment and financing
    fees payable in connection with the amended and restated credit
    facilities, and legal, accounting, advisory and other costs
    payable in connection with this offering and the related
    transactions.
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">Recent Developments</FONT></B>

<P align="left">
<B><FONT size="2">Introduction of Digital Video Service in
Illinois</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In late 2003, we commenced the network
improvements needed to support the introduction of an
all-digital video service that is functionally similar to a
digital cable television offering in our Illinois markets of
Mattoon, Charleston and Effingham. We have since completed the
initial capital investments necessary to provide these services
in these Illinois markets and have begun to test market this
product. Other than the success-based provision of set-top
boxes, we do not anticipate having to make any material capital
upgrades to our network infrastructure in connection with our
introduction of digital video services in these markets. We
expect that these services, when introduced, will be available
to approximately 78% of our residential customers in these
markets, which represent approximately 27% of all of our
Illinois residential customers.
</FONT>

<P align="left">
<B><FONT size="2">In-House Production of Illinois Telephone
Directories</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the 1997 acquisition of our predecessor
by McLeodUSA, we sold advertising and published our own
telephone directories in our Illinois markets. Subsequent to
McLeodUSA&#146;s acquisition, these operations were provided
internally by McLeodUSA&#146;s directory publishing operations,
which were subsequently sold to Yellow Book USA in 2002. Since
2002, Yellow Book has published our phone directories in
Illinois and served as our sales agent pursuant to a
five&nbsp;year agreement entered into in connection with the
Yellow Book USA transaction.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the TXUCV acquisition, we
acquired a directory sales and publishing group, which currently
publishes the telephone directories for our Texas markets. We
intend to have this group publish directories for our Illinois
markets as well. As such, we notified Yellow Book on
November&nbsp;8, 2004 of our intention to terminate our
directory publishing agreement. We expect to begin publishing
telephone directories for our Illinois markets beginning in the
third quarter of 2005.
</FONT>
</DIV>

<P align="center"><FONT size="2">6
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<P align="center">
<B><FONT size="2">Our Current Organizational Structure</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following chart illustrates our current
organizational structure:
</FONT>

<P align="center">
<IMG src="y69344y6934401.gif" alt="FLOW CHART">
</DIV>

<P align="center"><FONT size="2">7
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<P align="center">
<B><FONT size="2">Post-Offering Organizational
Structure</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following chart illustrates our
organizational structure upon completion of this offering and
the related transactions:
</FONT>

<P align="center">
<IMG src="y69344y6934402.gif" alt="FLOW CHART">
</DIV>

<P align="center"><FONT size="2">8
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<P align="center">
<B><FONT size="2">The Offering</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Shares of Class&nbsp;A common stock offered by us
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Shares of Class&nbsp;A common stock offered by
    the selling stockholders
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Shares of Class&nbsp;A common stock to be
    outstanding following the offering
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Shares of Class&nbsp;B common stock to be
    outstanding following the offering
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares.
    Each share of Class&nbsp;B common stock is entitled to ten votes
    per share and is convertible voluntarily at any time and
    automatically in connection with certain transfers into one
    share of Class&nbsp;A common stock.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Total shares of common stock to be outstanding
    following the offering
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Dividends
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Our board of directors has adopted a dividend
    policy, effective upon the closing of this offering, which
    reflects an intention to distribute as regular quarterly
    dividends to our stockholders a substantial portion of the cash
    generated by our business in excess of various cash needs and
    other possible uses. These expected cash needs include interest
    and principal payments on our indebtedness, capital
    expenditures, integration, restructuring and related costs of
    the TXUCV acquisition in 2004 and 2005, incremental costs
    associated with being a public company, taxes and certain other
    costs.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">In accordance with our dividend policy, we
    currently intend to pay an initial dividend of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share on or
    about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2005 and to continue to pay quarterly dividends at an annual
    rate of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share for the first full year following the closing of this
    offering, subject to our board of directors&#146; decision to
    declare these dividends and various restrictions on our ability
    to do so. We are not required to pay dividends, and our
    stockholders will not be guaranteed, or have contractual or
    other rights, to receive dividends. Our board of directors may
    decide, in its discretion, at any time, to decrease the amount
    of dividends, otherwise modify or repeal the dividend policy or
    discontinue entirely the payment of dividends.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Our ability to pay dividends will be restricted
    by current and future agreements governing our debt, including
    the amended and restated credit facilities, the indenture
    governing our senior notes and by Delaware law and may be
    limited by state regulatory authorities.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Our existing credit facilities currently do not
    permit us to pay the dividends contemplated in this prospectus.
    As such, concurrently with the closing of this offering, we
    intend to enter into the amended and restated credit facilities
    to enable us to pay dividends, subject to the satisfaction of
    certain financial covenants, conditions and other restrictions.
    The specific terms of these covenants, conditions and other
    restrictions, however, have
    </FONT></TD>
</TR>

</TABLE>
</DIV>

<P align="center"><FONT size="2">9
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">not yet been agreed upon. Once finalized, the
    specific terms of these covenants, conditions and other
    restrictions will be contained in the amended and restated
    credit agreement to be filed as an exhibit to the registration
    statement of which this prospectus forms a part. For the twelve
    months ended September&nbsp;30, 2004, we expect we would have
    generated cash available to pay dividends of $63.1&nbsp;million
    under the amended and restated credit facilities (based on our
    expectation of the terms of these facilities). The amount of
    dividends we are able to pay in the future under the amended and
    restated credit facilities will increase or decrease based upon,
    among other things, our cumulative Bank EBITDA and our needs for
    Available Cash, as each of these terms are defined under
    &#147;Description of Indebtedness&nbsp;&#151; Amended and
    Restated Credit Facilities.&#148; For a more complete
    description of the expected terms of the amended and restated
    credit facilities see &#147;Description of
    Indebtedness&nbsp;&#151; Amended and Restated Credit
    Facilities.&#148;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">The indenture also restricts the amount of
    dividends we may pay. As of September&nbsp;30, 2004, we would
    have been permitted to pay dividends of $111.0&nbsp;million
    under the general formula under the restricted payments covenant
    of the indenture, commonly referred to as the build-up amount.
    In addition, for the twelve months ended September&nbsp;30,
    2004, without giving effect to an $81.5&nbsp;million increase in
    the buildup amount as a consequence of this offering, we would
    have generated $72.6&nbsp;million of capacity under the buildup
    amount provision of the indenture. The build-up amount will
    increase or decrease depending upon, among other things, our
    consolidated EBITDA (as defined in the indenture), our
    consolidated interest expense, the net proceeds of the sale of
    capital stock and the amount of restricted payments we may make
    from time to time, including, among other things, the payment of
    cash dividends. Regardless of whether we could make any
    restricted payments under the build-up amount referred to above,
    we may, following the first public equity offering that results
    in a public market (which includes this offering), pay dividends
    on our capital stock of up to 6.0% per year of the cash proceeds
    (net of underwriters&#146; fees, discounts or commissions paid
    by us) of such first public equity offering subject to specified
    conditions, including that the amount of dividends are included
    in the calculation of the amount of restricted payments we have
    made under the build-up amount. Based on this provision and
    after giving effect to this offering and the related
    transactions, we expect that we would be able to pay
    approximately $5.0&nbsp;million annually in dividends. For a
    more complete description of the indenture see &#147;Description
    of Indebtedness&nbsp;&#151; Senior Notes&#148;.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Under Delaware law, our board of directors may
    not authorize payment of a dividend unless it is either paid out
    of our surplus, as calculated in accordance with Delaware
    General Corporation Law, or the DGCL, or if we do not have a
    surplus, it is paid out of our net profits for the fiscal year
    in which the dividend is declared and/or the preceding fiscal
    year.
    </FONT></TD>
</TR>

</TABLE>
</DIV>

<P align="center"><FONT size="2">10
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">The ICC and the Texas Public Utilities
    Commission, or PUCT, could require our Illinois and Texas RLECs
    to make minimum amounts of capital expenditures and could limit
    the amount of cash available to transfer from our RLECs to us.
    At the moment, there are no such restrictions in place. But, in
    connection with the ICC&#146;s review of the reorganization, the
    ICC could impose various conditions as part of its approval of
    the reorganization, including restrictions on cash transfers
    from our Illinois RLEC to us and other requirements. See
    &#147;Dividend Policy and Restrictions&nbsp;&#151; Restrictions
    on Payment of Dividends&nbsp;&#151; State Regulatory
    Requirements&#148;.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">See &#147;Risk Factors&nbsp;&#151; Risks Relating
    to Our Class&nbsp;A Common Stock&nbsp;&#151; You may not receive
    any dividends, and there are several risks relating to our
    paying, and the restrictions on our ability to pay,
    dividends,&#148; &#147;&#151;&nbsp;Our dividend policy may limit
    our ability to pursue growth opportunities&#148; and
    &#147;Dividend Policy and Restrictions&#148;.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Listing
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">We will apply to have our Class&nbsp;A common
    stock listed on the New York Stock Exchange under the trading
    symbol
    &#147;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#148;.
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">General Information About This
Prospectus</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Throughout this prospectus, unless the context
otherwise requires or we specifically state otherwise, we have
assumed the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">no exercise by the underwriters of their
    over-allotment option described on the cover of this prospectus
    and the &#147;Underwriting&#148; section;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the initial offering price shall be
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    the midpoint of the estimated price range shown of the cover
    page of this prospectus; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">we refer to this offering, the refinancing of our
    existing credit facilities, the reorganization, the redemption
    of our senior notes and the related transactions collectively as
    this offering and the related transactions.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left">
<A name='106'></A>
</DIV>

<!-- link1 "Risk Factors" -->

<P align="center">
<B><FONT size="2">Risk Factors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Investing in our Class&nbsp;A common stock
involves substantial risks. See &#147;Risk Factors&#148;
immediately following this summary for a discussion of certain
risks relating to an investment in our Class&nbsp;A common stock.
</FONT>

<P align="center">
<B><FONT size="2">Information About Us</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our principal executive office is located at 121
South 17th Street, Mattoon, Illinois 61938-3987. Our telephone
number at that address is (217)&nbsp;235-3311, and our website
address is www.consolidated.com. Information on our website is
not deemed to be a part of this prospectus.
</FONT>
</DIV>

<P align="center"><FONT size="2">11
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<P align="center">
<B><FONT size="2">Summary Consolidated Pro Forma Financial and
Other Data</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The consolidated pro forma statement of
operations data, other consolidated pro forma financial data and
consolidated pro forma financial data summarized below have been
derived from the unaudited pro forma condensed consolidated
financial statements of CCI&nbsp;Holdings. The unaudited pro
forma condensed consolidated financial statements of CCI
Holdings have been prepared to give pro forma effect to the
TXUCV acquisition and this offering and the related transactions
as if they had occurred on the first day of the period
presented. The consolidated balance sheet data as of and for the
nine months ended September&nbsp;30, 2004 summarized below have
been derived from the financial statements of CCI&nbsp;Holdings.
The other consolidated data referred to below are approximations
as of the end of the indicated periods. You should read the
information summarized below in conjunction with
&#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations&nbsp;&#151;
CCI&nbsp;Holdings&#148; and &#147;&#151;&nbsp;CCI Texas&#148;,
the unaudited pro forma condensed consolidated financial
statements of CCI&nbsp;Holdings and the related notes and the
financial statements of each of CCI&nbsp;Holdings and TXUCV and
the related notes included elsewhere in this prospectus.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="41%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Consolidated Pro Forma Statement of Operations
    Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">327,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,932</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,154</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">124,072</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring, asset impairment and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill impairment charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,581</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,039</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(35,374</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,331</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">225</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income/(loss) before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(61</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,475</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,408</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,371</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,729</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income/(loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,469</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,104</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Other Consolidated Pro Forma Financial
    Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Telephone Operations revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">285,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">217,661</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">215,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Operations revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,048</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Operating revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">327,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">EBITDA(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,795</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges included in EBITDA(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(225</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,273</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unusual items included in EBITDA(b)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,956</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>
</DIV>

<P align="center"><FONT size="2">12
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="38%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Other Consolidated Data (as of end of
    period):</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Local access lines in service
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Residential
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">175,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">177,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">170,933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Business
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,206</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,793</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total local access lines
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">262,529</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">264,267</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">257,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">DSL subscribers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,619</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Consolidated Pro Forma Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,793</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,801</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="67%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">As of September 30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Actual</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As Adjusted(2)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Consolidated Balance Sheet Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,521</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net plant, property &#38; equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">350,291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">350,291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,051,718</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,014,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total long-term debt (including current portion)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">633,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">520,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Redeemable preferred shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">201,126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; equity (deficit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,138</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">EBITDA is defined as net earnings (loss) before
    interest expenses, income taxes, depreciation and amortization
    as adjusted to give effect to the TXUCV acquisition and this
    offering and related transactions consistent with the unaudited
    pro forma condensed consolidated financial statements of CCI
    Holdings. We believe that net income is the most directly
    comparable financial measure to EBITDA under generally accepted
    accounting principles, or GAAP. We present EBITDA for several
    reasons. Management believes that EBITDA is useful as a means to
    evaluate our ability to pay our estimated cash needs and pay
    dividends. In addition, we have historically presented EBITDA to
    investors because it is frequently used by investors, securities
    analysts and other interested parties in the evaluation of
    companies in our industry, and we believe that presenting it
    here provides a measure of consistency in our financial
    reporting. EBITDA is also a component of restrictive covenants
    and financial ratios contained in the agreements governing our
    debt (and that we expect will be contained in our amended and
    restated credit facilities), which require us to maintain
    compliance with these covenants and which limit certain
    activities, such as our ability to incur debt and to pay
    dividends. The definitions in these covenants and ratios are
    based on EBITDA after giving effect to specified charges. As a
    result, we believe that the presentation of EBITDA as
    supplemented by these other items provides important additional
    information to investors. See &#147;Management&#146;s Discussion
    and Analysis of Results of Operations and Financial
    Condition&nbsp;&#151; CCI Holdings&nbsp;&#151; Liquidity and
    Capital Resources&nbsp;&#151; Debt and Capital
    Leases&nbsp;&#151; Covenant Compliance&#148;. In addition,
    EBITDA provides our board of directors meaningful information to
    determine, with other data, assumptions and considerations, our
    dividend policy and our ability to pay dividends under the
    restrictive covenants in the agreements governing our debt. For
    a more complete description of our dividend policy and the
    factors, assumptions and considerations relating to it, see
    &#147;Dividend Policy and Restrictions&#148;.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">EBITDA is a non-GAAP financial measure.
Accordingly, it should not be construed as an alternative to net
income (loss), cash flows from operations or net cash from
operating or investing activities as defined by GAAP and is not
on its own necessarily indicative of cash available to fund our
cash needs
</FONT>
</DIV>

<P align="center"><FONT size="2">13
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left">
<FONT size="2">as determined in accordance with GAAP. In
addition, not all companies use identical calculations, and this
presentation of EBITDA may not be comparable to other similarly
titled measures of other companies.
</FONT>
</DIV>

<P align="left">
<FONT size="2">The following table illustrates our calculation
of EBITDA, the reconciliation of EBITDA to net income on the
bases described above (which management believes is the most
nearly equivalent GAAP measure).
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="35%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Income (Loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,469</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,104</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income Taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,408</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,371</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,729</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest Expense, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,331</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and Amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">EBITDA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,795</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(a)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Non-cash charges are further detailed in the
    following table:
    </FONT></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="38%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months&nbsp;Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill impairment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and asset impairment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(806</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(225</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,273</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(225</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,273</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(b)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Unusual items are further detailed in the
    following table:
    </FONT></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="38%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months&nbsp;Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retention bonuses(i)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,717</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">259</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Severance costs(ii)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,707</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TXUCV sales due diligence and transaction
    costs(iii)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,408</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,729</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Integration costs(iv)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,956</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(i)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">During 2003 and the nine months ended
    September&nbsp;30, 2004, TXUCV paid retention bonuses to keep
    key employees to run its day-to-day business operations while it
    was being prepared for sale. Other than retention costs payable
    in connection with the TXUCV acquisition, we do not expect to
    incur such charges in the future.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(ii)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">During 2003, TXUCV incurred $4.4&nbsp;million in
    severance costs as a result of employee terminations. Severance
    costs incurred in the nine months ended September&nbsp;30, 2004
    were $5.7&nbsp;million, primarily driven by employee
    terminations associated with the TXUCV acquisition. For a
    summary of future integration and restructuring costs, see
    note&nbsp;(d) below.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(iii)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">During 2003, TXUCV incurred $1.4&nbsp;million in
    financial and legal costs in connection with TXU Corp. having
    prepared TXUCV for sale and the related sales process. We do not
    expect to incur such charges in the future. For the nine months
    ended September&nbsp;30, 2004, TXUCV incurred $2.2&nbsp;million
    in costs associated with the sale of the company and we incurred
    $0.5&nbsp;million associated with the sale of TXUCV.
    </FONT></TD>
</TR>

</TABLE>
</DIV>

<P align="center"><FONT size="2">14
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(iv)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We currently expect to incur approximately
    $14&nbsp;million in operating expenses associated with the TXUCV
    integration and restructuring process in 2004 and 2005. Of the
    $14&nbsp;million, approximately $11&nbsp;million relates to
    integration and approximately $3&nbsp;million relates to
    restructuring. As of September&nbsp;30, 2004, we had spent
    $2.3&nbsp;million on integration. In connection with this
    offering and the related transactions, we will pre-fund
    $7.5&nbsp;million of expected integration and restructuring
    expenses for 2005 with cash from our balance sheet. We do not
    expect that the pre-funding of these estimated expenses will
    change any of our expected cash plans or otherwise effect our
    expected working capital requirements. These one-time
    integration and restructuring costs will be in addition to
    certain ongoing costs we expect to incur to expand certain
    administrative functions, such as those relating to SEC
    reporting and compliance, and do not take into account other
    potential cost savings and expenses of the TXUCV integration. We
    do not expect to incur any significant costs relating to the
    TXUCV acquisition after 2005.
    </FONT></TD>
</TR>

</TABLE>
<P>

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    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">As adjusted to give effect to this offering and
    the related transactions as if they occurred on
    September&nbsp;30, 2004.
    </FONT></TD>
</TR>

</TABLE>
</DIV>

<P align="center"><FONT size="2">15
</FONT>

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<DIV align="left">
<A name='106'></A>
</DIV>

<!-- link1 "RISK FACTORS" -->

<P align="center">
<B><FONT size="2">RISK FACTORS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">You should carefully consider the following
factors in addition to the other information contained in this
prospectus before investing in our Class&nbsp;A common
stock.</FONT></I>

<P align="center">
<B><FONT size="2">Risks Relating to Our Class&nbsp;A Common
Stock</FONT></B>

<DIV>&nbsp;</DIV>

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    <TD></TD>
    <TD>
    <B><I><FONT size="2">You may not receive dividends, and there
    are several risks relating to our paying, and the restrictions
    on our ability to pay, dividends.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There are several risks relating to our paying,
and the restrictions on our ability to pay, dividends, including
the following:
</FONT>
<P>

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    <TD width="1%"></TD>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We are not required to pay dividends, and our
    stockholders will not be guaranteed, or have contractual or
    other rights, to receive dividends. Our board of directors may
    decide, in its discretion, at any time, to decrease the amount
    of dividends, otherwise modify or repeal the dividend policy or
    discontinue entirely the payment of dividends. Our board could
    depart from or change our dividend policy, for example, if it
    were to determine that we had insufficient cash to take
    advantage of other opportunities with attractive rates of return.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We might not generate sufficient cash from
    operations in the future to pay dividends in the intended
    amounts or at all. Our ability to pay dividends, and our board
    of directors&#146; determination to keep the dividend policy,
    will depend on numerous factors, including the following:
    </FONT></TD>
</TR>

</TABLE>
<P>

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    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
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<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the state of our business, the environment in
    which we operate and the various risks we face, including, but
    not limited to, competition, technological change, changes in
    our industry, regulatory and other risks summarized in this
    prospectus;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">changes in the factors, assumptions and other
    considerations made by our board of directors in reviewing and
    adopting the dividend policy, as described under &#147;Dividend
    Policy and Restrictions&#148;;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our future results of operations, financial
    condition, liquidity needs and capital resources;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our various expected cash needs, including
    interest and principal payments on our indebtedness, capital
    expenditures, integration and restructuring costs associated
    with TXUCV acquisition, incremental costs associated with being
    a public company, taxes and certain other costs;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">potential sources of liquidity, including
    borrowing under our revolving credit facility or possible asset
    sales.
    </FONT></TD>
</TR>

</TABLE>
<P>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">If our estimated cash available to pay dividends
    for the first year following the closing of the offering were to
    fall below our expectations, our assumptions as to estimated
    cash needs are too low or if other applicable assumptions were
    to prove incorrect, we may need to:
    </FONT></TD>
</TR>

</TABLE>
<P>

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    <TD width="1%"></TD>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">either reduce or eliminate dividends;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">fund dividends by incurring additional debt (to
    the extent we were permitted to do so under the agreements
    governing our then existing debt), which would increase our
    leverage, debt repayment obligations and interest expense and
    decrease our interest coverage, resulting in, among other
    things, reducing our capacity to incur debt for other purposes
    (including to fund future dividend payments);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">amend the terms of our amended and restated
    credit facilities or indenture to permit us to pay dividends or
    make other payments if we are otherwise not permitted to do so;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">fund dividends from future issuances of equity
    securities, which could be dilutive to our stockholders and
    negatively effect the price of our Class&nbsp;A common stock;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">16
</FONT>
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<P>

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    <TD width="5%"></TD>
    <TD width="1%"></TD>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">fund dividends from other sources, such as such
    as by asset sales or by working capital, which would leave us
    with less cash available for other purposes;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">reduce other expected uses of cash, such as
    capital expenditures or TXUCV integration and restructuring
    costs, which could limit our ability to grow or delay our
    integration of the TXUCV acquisition.
    </FONT></TD>
</TR>

</TABLE>
<P>

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    <TD width="5%"></TD>
    <TD width="95%"></TD>
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    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">We cannot assure you that our actual cash
    available to pay dividends will in fact equal or exceed the
    amount necessary to pay dividends. Over time, our capital and
    other cash needs will invariably be subject to uncertainties,
    which could affect whether we pay dividends and the level of any
    dividends we may pay in the future. In addition, to the extent
    that we would seek to raise additional cash from additional debt
    incurrence or equity security issuances, we cannot assure you
    that such financing will be available on reasonable terms or at
    all. Each of the results listed above could negatively affect
    our results of operations, financial condition, liquidity and
    ability to maintain and expand our business.
    </FONT></TD>
</TR>

</TABLE>
<P>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our ability to pay dividends will be restricted
    by current and future agreements governing our debt, including
    the amended and restated credit facilities and the indenture and
    by Delaware law and may be limited by state regulatory
    authorities.
    </FONT></TD>
</TR>

</TABLE>
<P>

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    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our indenture restricts and our amended and
    restated credit facilities are expected to restrict our ability
    to pay dividends. As of September&nbsp;30, 2004, we would have
    generated cash available to pay dividends of $63.1&nbsp;million
    under the amended and restated credit facilities (based on our
    expectation of the terms of these facilities) and $111.0 under
    the indenture&#146;s build-up amount and approximately $5.0
    annually under the indenture&#146;s exception that applies
    following a public equity offering (which includes this
    offering). See &#147;Description of Indebtedness&nbsp;&#151;
    Amended and Restated Credit Facilities&#148; and
    &#147;&#151;&nbsp;Senior Notes&#148;.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Under Delaware law, our board of directors may
    not authorize payment of a dividend unless it is either paid out
    of our surplus, as calculated in accordance with the DGCL, or if
    we do not have a surplus, it is paid out of our net profits for
    the fiscal year in which the dividend is declared and/or the
    preceding fiscal year.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The ICC and the PUCT could require our Illinois
    and Texas RLECs to make minimum amounts of capital expenditures
    and could limit the amount of cash available to transfer from
    our RLECs to us. At the moment, there are no such restrictions
    in place. In connection with the ICC review of the
    reorganization, however, the ICC could impose various conditions
    as part of its approval of the reorganization, including
    restrictions on cash transfers from our Illinois RLEC to us. See
    &#147;Dividend Policy and Restrictions&nbsp;&#151; Restrictions
    on Payment of Dividends&nbsp;&#151; State Regulatory
    Requirements&#148;.
    </FONT></TD>
</TR>

</TABLE>
<P>

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    <TD width="1%"></TD>
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<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">As a holding company we have no direct operations
    and our principal assets are the equity interests we hold in our
    respective subsidiaries. In addition, our subsidiaries are
    legally distinct from us and have no obligation to transfer
    funds to us. As a result, we are dependent on the results of
    operations of our subsidiaries and their ability to transfer
    funds to us to meet our obligations and to pay dividends.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The reduction or elimination of dividends would
likely have a negative affect on the market price of our
Class&nbsp;A common stock. See &#147;Dividend Policy and
Restrictions&#148;.
</FONT>

<P align="left">
<B><I><FONT size="2">Our dividend policy may limit our ability
to pursue growth opportunities.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that our dividend policy will limit,
but not preclude, our ability to grow. If we continue paying
dividends at the level currently anticipated under our dividend
policy, we may not retain a sufficient amount of cash, and may
need to seek financing, to fund a material expansion of our
business, including any significant acquisitions or to pursue
growth opportunities requiring capital expenditures
significantly beyond our current expectations. The risks
relating to funding any dividends, or other cash needs as a
result of paying dividends, are summarized in the preceding risk
factor. In addition, because we expect a significant portion of
cash available will be distributed to the holders of our
Class&nbsp;A common stock under
</FONT>

<P align="center"><FONT size="2">17
</FONT>

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<DIV align="left">
<FONT size="2">our dividend policy, our ability to pursue any
material expansion of our business will depend more than it
otherwise would on our ability to obtain third party financing.
We cannot assure you that such financing will be available to us
on reasonable terms or at all.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Before this offering, there has been no
public market for our Class&nbsp;A common stock. This may cause
volatility in the trading price of our Class&nbsp;A common
stock, which could negatively affect the value of your
investment.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Before this offering, there has been no public
market for our Class&nbsp;A common stock. The initial public
offering price of our Class&nbsp;A common stock has been
determined by negotiations between us and the underwriters and
may not be indicative of the market price for our Class&nbsp;A
common stock after this offering. It is possible that an active
trading market for our Class&nbsp;A common stock will not
develop or be sustained after the offering. Even if a trading
market develops, the market price of our Class&nbsp;A common
stock may fluctuate widely as a result of various factors, such
as period-to-period fluctuations in our operating results, sales
of our Class&nbsp;A common stock by principal stockholders,
developments in the telecommunications industry, the failure of
securities analysts to cover our Class&nbsp;A common stock after
this offering or changes in financial estimates by analysts,
competitive factors, regulatory developments, economic and other
external factors. Also, securities markets worldwide experience
significant price and volume fluctuations. This market
volatility, as well as general economic or market conditions,
and market conditions affecting the stock of telecommunications
companies in particular, could reduce the market price of our
Class&nbsp;A common stock in spite of our operating performance.
You may be unable to resell your shares of our Class&nbsp;A
common stock at or above the initial public offering price.
</FONT>

<P align="left">
<B><I><FONT size="2">Future sales, or the perception of future
sales, of a substantial amount of our Class&nbsp;A common stock
may depress the price of the shares of our Class&nbsp;A common
stock.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Future sales, or the perception or the
availability for sale in the public market, of substantial
amounts of our Class&nbsp;A common stock could adversely affect
the prevailing market price of our Class&nbsp;A common stock and
could impair our ability to raise capital through future sales
of equity securities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon consummation of this offering, there will
be &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock outstanding. The shares of Class&nbsp;A common
stock sold by our existing equity investors in this offering
will be freely transferable without restriction or further
registration under the Securities Act of 1933, as amended, or
the Securities Act. The
remaining &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock owned by our existing equity investors will be
restricted securities within the meaning of Rule&nbsp;144 under
the Securities Act but will be eligible for resale subject to
applicable volume, manner of sale, holding period and other
limitations of Rule&nbsp;144. We, our officers and directors and
our existing equity investors have agreed to a
&#147;lock-up&#148;, meaning that, subject to specified
exceptions, neither we nor they will sell any shares or engage
in any hedging transactions without the prior consent of the
representative of the underwriters for 180&nbsp;days after the
date of this prospectus. Following the expiration of this
180-day lock-up period, all of
these &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock will be eligible for future sale, subject to
the applicable volume, manner of sale, holding period and other
limitations of Rule&nbsp;144. Finally, our existing equity
investors have certain registration rights with respect to the
common stock that they will retain following this offering. See
&#147;Shares Eligible for Future Sale&#148; for a discussion of
the shares of common stock that may be sold into the public
market in the future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may issue shares of our Class&nbsp;A common
stock, or other securities, from time to time as consideration
for future acquisitions and investments. In the event any such
acquisition or investment is significant, the number of shares
of our Class&nbsp;A common stock, or the number or aggregate
principal amount, as the case may be, of other securities that
we may issue may in turn be significant. We may also grant
registration rights covering those shares or other securities in
connection with any such acquisitions and investments.
</FONT>

<P align="center"><FONT size="2">18
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Our organizational documents could limit or
delay another party&#146;s ability to acquire us and, therefore,
could deprive our investors of the opportunity to obtain a
takeover premium for their shares.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A number of provisions in our amended and
restated certificate of incorporation and bylaws will make it
difficult for another company to acquire us. These provisions
include the following:
</FONT>
<P>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We will have two classes of common stock. Central
    Illinois Telephone, an entity controlled by our chairman Richard
    Lumpkin, will own all of our Class B common stock, which will
    have ten votes per share and which will represent
    approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
    of the voting power of our outstanding capital stock upon the
    closing of this offering.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our amended and restated certificate of
    incorporation will authorize the issuance of preferred stock
    without stockholder approval upon such terms as the board of
    directors may determine.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We are also subject to laws that may have a
    similar effect. For example, federal and Illinois
    telecommunications laws and regulations generally prohibit a
    direct or indirect transfer of control over our business without
    prior regulatory approval. Similarly, section 203 of the DGCL,
    prohibits us from engaging in a business combination with an
    interested stockholder for a period of three years from the date
    the person became an interested stockholder unless certain
    conditions are met.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">As a result of the foregoing, it will be
difficult for another company to acquire us and, therefore,
could limit the price that possible investors might be willing
to pay in the future for shares of our common stock. In
addition, the rights of our common stockholders will be subject
to, and may be adversely affected by, the rights of holders of
any class or series of preferred stock that may be issued in the
future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">The concentration of the voting power of
our common stock ownership with Central Illinois Telephone will
limit your ability to influence corporate matters.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because Central Illinois Telephone will own
shares of Class&nbsp;B common stock having a majority of the
voting power of our outstanding common stock, it will be able to
decide all matters requiring stockholder approval, including the
ability to
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">elect a majority of the members of our board of
    directors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">enter into significant corporate transactions,
    such as a merger or other sale of our company or its assets, or
    to prevent any such transaction;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">enter into acquisitions that increase our amount
    of indebtedness or sell revenue-generating assets;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">determine our corporate and management policies;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">amend our organizational documents; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">control of all matters submitted to our
    stockholders for approval.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">This concentrated control will limit your ability
to influence corporate matters and, as a result, we may take
actions that our stockholders do not view as beneficial. As a
result, the market price of our Class&nbsp;A common stock could
be adversely affected.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Our existing equity investors may have
conflicts of interests with you or us in the
future.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our existing equity investors may make
investments in companies and may from time to time acquire and
hold interests in businesses that compete directly or indirectly
with us. These other investments may:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">create competing financial demands on our equity
    investors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">create potential conflicts of interest; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">require efforts consistent with applicable law to
    keep the other businesses separate from our operations.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Our existing equity investors may also pursue
acquisition opportunities that may be complementary to our
business, and as a result, those acquisition opportunities may
not be available to us. Furthermore, our
</FONT>

<P align="center"><FONT size="2">19
</FONT>

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<DIV align="left">
<FONT size="2">equity investors also may have an interest in
pursuing acquisitions, divestitures, financings or other
transactions that, in their judgment, could enhance their equity
investment, even though such transactions might involve risks to
our common stockholders. In addition, our equity investors
rights&#146; to vote or dispose of equity interests in our
company is not subject to restrictions in favor of our company
other than as may be required by applicable law, although
certain transfers of shares of our Class&nbsp;B common stock
will result in the automatic conversion of such shares into
Class&nbsp;A common stock.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">If you purchase shares of our Class&nbsp;A
common stock, you will experience immediate and substantial
dilution.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Investors purchasing Class&nbsp;A common stock in
the offering will experience immediate and substantial dilution
in the net tangible book value of their shares. At the initial
public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, dilution to new investors will be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. If we sell additional shares of Class&nbsp;A common stock
or securities convertible into shares of Class&nbsp;A common
stock in the future, you may suffer further dilution of your
equity investment. See &#147;Dilution&#148;.
</FONT>

<P align="left">
<B><I><FONT size="2">We expect that our income tax liability
will increase in the future as a result of the use of, and any
limitation on, our net operating losses.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that our income tax liability will
increase in the future as a result of the use of, and any
limitation on, our net operating losses. At such time as our net
operating loss has been fully used, our cash tax liability will
increase and may impact our ability to pay dividends. Our tax
liability may also be affected by limitations on the use of our
NOLs under Section&nbsp;382 of the Internal Revenue Code by
reason of this offering and earlier ownership changes. See
note&nbsp;(4) to the tables in &#147;Dividend Policy and
Restrictions.&#148;
</FONT>

<P align="center">
<B><FONT size="2">Risks Relating to Our Indebtedness and Our
Capital Structure</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We have a substantial amount of debt
    outstanding and may incur additional indebtedness in the future,
    which could restrict our ability to pay dividends.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have a significant amount of debt outstanding.
As of September&nbsp;30, 2004, we would have had
$520.9&nbsp;million of debt outstanding and $267.5&nbsp;million
of stockholders equity. Our ability to make distributions, pay
dividends or make other payments will be subject to applicable
law and contractual restrictions contained in the indenture or
to be contained in the amended and restated credit facilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The degree to which we are leveraged could have
important consequences for you, including the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">requiring us to dedicate a substantial portion of
    our cash flow from operations to make payments on our debt,
    thereby reducing funds available for operations, future business
    opportunities and other purposes and/or dividends on our common
    stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">limiting our flexibility in planning for, or
    reacting to, changes in our business and the industry in which
    we operate;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">making it more difficult for us to satisfy our
    debt and other obligations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">limiting our ability to borrow additional funds,
    or to sell assets to raise funds, if needed, for working
    capital, capital expenditures, acquisitions or other purposes;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">increasing our vulnerability to general adverse
    economic and industry conditions, including changes in interest
    rates;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">placing us at a competitive disadvantage compared
    to our competitors that have less debt.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">20
</FONT>

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<P align="left">
<FONT size="2">We cannot assure you that we will generate
sufficient revenues to service and repay our debt and have
sufficient funds left over to achieve or sustain profitability
in our operations, meet our working capital and capital
expenditure needs, compete successfully in our markets or pay
dividends to our stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subject to the restrictions in the indenture or
to be contained in the amended and restated credit facilities,
we may be able to incur additional debt. Although the indenture
contains and the amended and restated credit facilities will
contain restrictions on our ability to incur additional debt,
these restrictions are subject to a number of important
exceptions. If we incur additional debt, the risks associated
with our substantial leverage, including our ability to service
our debt, would likely increase.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">We will require a significant amount of
    cash to service and repay our debt and to pay dividends on our
    common stock, and our ability to generate cash depends on many
    factors beyond our control.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our ability to make payments on and repay our
debt and to pay dividends on our Class&nbsp;A common stock will
depend on our ability to generate cash in the future, which will
depend on many factors beyond our control. We cannot assure you
that:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our business will generate sufficient cash flow
    from operations to service and repay our debt, pay dividends on
    our common stock and to fund working capital and planned capital
    expenditures;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">future borrowings will be available under the
    amended and restated credit facilities or any future credit
    facilities in an amount sufficient to enable us to repay our
    debt and pay dividends on our common stock;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">we will be able to refinance any of our debt on
    commercially reasonable terms or at all.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we cannot generate sufficient cash from our
operations to meet our debt service and repayment obligations,
we may need to reduce or delay capital expenditures, the
development of our business generally and any acquisitions. If
for any reason we are unable to meet our debt service and
repayment obligations, we would be in default under the terms of
the agreements governing our debt, which would allow the lenders
under the amended and restated credit facilities to declare all
borrowings outstanding to be due and payable, which would in
turn trigger an event of default under the indenture. If the
amounts outstanding under the amended and restated credit
facilities or our senior notes were to be accelerated, we cannot
assure you that our assets would be sufficient to repay in full
the money owed to the lenders or to our other debt holders.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">The indenture contains, and the amended and
    restated credit facilities will contain, covenants that limit
    the discretion of our management in operating our business and
    could prevent us from capitalizing on business opportunities and
    taking other corporate actions.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The indenture imposes and the amended and
restated credit facilities will impose significant operating and
financial restrictions on us. These restrictions limit or
restrict, among other things, our ability and the ability of our
subsidiaries that are restricted by these agreements to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">incur additional debt and issue preferred stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">make restricted payments, including paying
    dividends on, redeeming, repurchasing or retiring our capital
    stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">make investments and prepay or redeem debt;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">enter into agreements restricting our
    subsidiaries&#146; ability to pay dividends, make loans or
    transfer assets to us;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">create liens;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">sell or otherwise dispose of assets, including
    capital stock of subsidiaries;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">engage in transactions with affiliates;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">21
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">engage in sale and leaseback transactions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">make capital expenditures;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">engage in business other than telecommunications
    businesses;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">consolidate or merge.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, the amended and restated credit
facilities will require, and any future credit facilities may
require, us to comply with specified financial ratios, including
ratios regarding interest coverage, total leverage, senior
secured leverage and fixed charge coverage. Our ability to
comply with these ratios may be affected by events beyond our
control. The restrictions contained in the indenture and to be
contained in the amended and restated credit facilities will:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">limit our ability to plan for or react to market
    conditions, meet capital needs or otherwise restrict our
    activities or business plans;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">adversely affect our ability to finance our
    operations, enter into acquisitions or to engage in other
    business activities that would be in our interest.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">In the event of a default under the amended and
restated credit facilities, the lenders could foreclose on the
assets and capital stock pledged to them.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A breach of any of the covenants contained in the
amended and restated credit facilities, or in any future credit
facilities, or our inability to comply with the financial ratios
could result in an event of default, which would allow the
lenders to declare all borrowings outstanding to be due and
payable, which would in turn trigger an event of default under
the indenture governing our senior notes. If the amounts
outstanding under the amended and restated credit facilities or
our senior notes were to be accelerated, we cannot assure you
that our assets would be sufficient to repay in full the money
owed to the lenders or to our other debt holders.
</FONT>

<P align="left">
<B><I><FONT size="2">We may not be able to refinance our senior
notes or our amended and restated credit facilities at maturity
on favorable terms or at all.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our senior notes mature in 2012 and we expect
that our amended and restated credit facilities will mature in
full in 2011. We may not be able to refinance our senior notes
or renew or refinance the amended and restated credit
facilities, or any renewal or refinancing may occur on less
favorable terms. If we are unable to refinance or renew our
senior notes or our amended and restated credit facilities, our
failure to repay all amounts due on the maturity date would
cause a default under the indenture or the amended and restated
credit facilities. In addition, our interest expense may
increase significantly if we refinance our senior notes or our
amended and restated credit facilities on terms that are less
favorable to us than the terms of our senior notes or the
expected terms of our amended and restated credit facilities,
which could impair our ability to pay dividends.
</FONT>

<P align="center">
<B><FONT size="2">Risk Factors Relating to Our
Business</FONT></B>

<P align="left">
<B><I><FONT size="2">We are subject to competition that may
adversely impact us.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The telecommunications industry has been, and we
believe will continue to be, characterized by several trends,
including the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">substantial regulatory change due to the passage
    and implementation of the Telecommunications Act, which included
    changes designed to stimulate competition for both local and
    long distance telecommunications services;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">rapid development and introduction of new
    technologies and services;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">increased competition within established markets
    from current and new market entrants that may provide competing
    or alternative services;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">22
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the blurring of traditional dividing lines
    between, and the bundling of, different services, such as local
    dial tone, long distance, wireless, cable, data and Internet
    services;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the increase in mergers and strategic alliances
    that allow one telecommunications provider to offer increased
    services or access to wider geographic markets.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We historically have experienced limited
competition in our rural telephone company markets.
Nevertheless, the market for telecommunications services is
highly competitive. Regulatory changes and technological
innovations occur regularly in the telecommunications industry,
and changes in these factors historically have had, and may in
the future have, a significant impact on competitive dynamics.
We face competition for basic voice service from wireless
telephone system operators (particularly in suburban areas
around Houston), which may increase as wireless technology
improves. In addition, under new Federal Communications
Commission, or FCC, wireless number portability rules, as of May
2004, our RLECs are now required to allow consumers to move a
phone number from a wireline phone to a wireless phone, which
may result in increased competition from wireless providers. We
also expect to face competition from new market entrants, such
as cable television and electric utility companies. Furthermore,
as a result of recent technological advances and enhancements to
equipment, voice over the Internet services, commonly referred
to as VOIP, are increasingly becoming an alternative to
traditional telephone services. VOIP services essentially
involve the routing of voice calls, at least in part, over the
Internet through packets of data instead of transmitting the
calls over the existing telephone system. While current VOIP
applications typically complete calls using incumbent local
exchange carrier, or ILEC, infrastructure and networks, as VOIP
services obtain acceptance and market penetration and technology
advances further, a greater quantity of communication may be
placed without the use of the ILEC infrastructure and networks,
thereby resulting in a loss of network access fees. The Internet
services market is also highly competitive, and we expect that
competition will intensify. In addition, we could face increased
competition from competitive local exchange carriers, or CLECs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our ability to compete successfully in our
markets will depend on several factors, including the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">how well we market our existing services and
    develop new technologies;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the quality and reliability of our network and
    service;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our ability to anticipate and respond to various
    competitive factors affecting the telecommunications industry,
    including a changing regulatory environment that may affect us
    differently from our competitors, pricing strategies and the
    introduction of new competitive services by our competitors,
    changes in consumer preferences, demographic trends and economic
    conditions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect competition to intensify as a result of
new competitors and the development of new technologies,
products and services. In addition, we believe that the
traditional dividing lines between, and bundling of, different
telecommunications services will be blurred and that mergers and
strategic alliances may allow one telecommunications provider to
offer increased services or access to wider geographic markets.
Some or all of these risks may cause us to have to spend
significantly more in capital expenditures than we currently
anticipate to keep existing, and attract new, customers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Many of our voice and data competitors, such as
cable providers, Internet access providers, wireless service
providers and long distance carriers such as AT&#38;T Corp., MCI
Communications Corporation, and Sprint Corp., have brand
recognition and financial, personnel, marketing and other
resources that are significantly greater than ours. In addition,
due to consolidation and strategic alliances within the
telecommunications industry, we cannot predict the number of
competitors that will emerge, especially as a result of existing
or new federal and state regulatory or legislative actions.
Increased competition from existing and new entities could lead
to price reductions, loss of customers, reduced operating
margins or loss of market share.
</FONT>

<P align="center"><FONT size="2">23
</FONT>

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<P align="left">
<B><I><FONT size="2">We may not be able to successfully adapt to
new technologies, respond effectively to customer requirements
or provide new services.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The telecommunications industry is subject to
rapid and significant changes in technology, frequent new
service introductions and evolving industry standards.
Technological developments may reduce the competitiveness of our
services and require unbudgeted upgrades, significant capital
expenditures and the procurement of additional services that
could be expensive and time consuming. New services arising out
of technological developments may reduce the competitiveness of
our services. If we fail to respond successfully to
technological changes or obsolescence or fail to obtain access
to important new technologies, we could lose customers and be
limited in our ability to attract new customers or sell new
services to our existing customers. The successful development
of new services, which is an element of our business strategy,
is uncertain and dependent on many factors, and we may not
generate anticipated revenues from such services. We cannot
predict the effect of these changes on our competitive position
or our profitability. The failure to generate anticipated
revenues from new services could have a material adverse effect
on our business, financial condition and results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, part of our marketing strategy is
based on market acceptance of DSL. We expect that an increasing
amount of our revenues will come from providing DSL service. The
market for high-speed Internet access is still developing, and
we expect current competitors and new market entrants to
introduce competing services and to develop new technologies.
The markets for our DSL services could fail to develop, grow
more slowly than anticipated or become saturated with
competitors with superior pricing or services. In addition, our
DSL offerings may become subject to newly adopted laws and
regulations. We cannot predict the outcome of these regulatory
developments or how they may affect our regulatory obligations
or the form of competition for these services. The failure to
generate anticipated revenues from DSL services could have a
material adverse effect on our business, financial condition and
results of operations.
</FONT>

<P align="left">
<B><I><FONT size="2">We face several risks in connection with
our recent acquisition of TXUCV.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our future success, and thus our ability to pay
interest and principal on our indebtedness and dividends on our
common stock will depend in part on our ability to integrate
TXUCV into our business. We currently expect to incur
approximately $14&nbsp;million in operating expenses associated
with the integration and restructuring of TXUCV in 2004 and
2005. Of the $14&nbsp;million, approximately $11&nbsp;million
relates to integration and approximately $3&nbsp;million relates
to restructuring. These one-time integration and restructuring
costs will be in addition to certain ongoing costs we expect to
incur to expand certain administrative functions, such as those
relating to SEC reporting and compliance and do not take into
account other potential cost savings and expenses of the TXUCV
acquisition. The integration of TXUCV involves numerous risks,
including the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">greater demands on our management and
    administrative resources;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">difficulties and unexpected costs in integrating
    the operations, personnel, services, technologies and other
    systems of CCI Illinois and CCI Texas;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">possible unexpected loss of key employees,
    customers and suppliers;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">unanticipated liabilities and contingencies of
    TXUCV and its business;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">unexpected costs of integrating the management
    and operation of the two businesses;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">failure to achieve expected cost savings.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">These challenges and uncertainties could have a
material adverse effect on our business, financial condition and
results of operations. We may not be able to manage the combined
operations and assets effectively or realize all or any of the
anticipated benefits of the acquisition. To the extent that we
make any additional acquisitions in the future, these risks
would likely be exacerbated.
</FONT>

<P align="center"><FONT size="2">24
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may become responsible for unexpected
liabilities or other contingencies that we did not discover in
the course of performing due diligence in connection with the
acquisition. Under the stock purchase agreement, the parent
company of TXUCV agreed to indemnify us against certain
undisclosed liabilities. We cannot assure you, however, that any
indemnification will be enforceable, collectible or sufficient
in amount, scope or duration to fully offset any possible
liabilities associated with the acquisition. Any of these
contingencies, individually or in the aggregate, could have a
material adverse effect on our business, financial condition and
results of operations.
</FONT>

<P align="left">
<B><I><FONT size="2">We face several risks associated with our
acquisition strategy.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our acquisition strategy entails numerous risks.
The pursuit of acquisition candidates is expensive and may not
be successful. Our ability to complete future acquisitions will
depend on our ability to identify suitable acquisition
candidates, negotiate acceptable terms for their acquisition
and, if necessary, finance those acquisitions, in each case,
before any attractive candidates are purchased by other parties,
some of whom may have greater financial and other resources than
us. Whether or not any particular acquisition is closed
successfully, each of these activities is expensive and time
consuming and would likely require our management to spend
considerable time and effort to accomplish them, which would
detract from their ability to run our current business. We may
face unexpected challenges in receiving any required approvals
from the FCC, the ICC, or other applicable state regulatory
commissions, which could result in delay or our not being able
to consummate the acquisition. Although we may spend
considerable expense and effort to pursue acquisitions, we may
not be successful in closing them.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we are successful in closing any acquisitions,
we would face several risks in integrating them, including those
listed above regarding the risks of integrating TXUCV. In
addition, any due diligence we perform may not prove to have
been accurate. For example, we may face unexpected difficulties
in entering markets in which we have little or no direct prior
experience or in generating expected revenue and cash flow from
the acquired companies or assets. The risks identified above may
make it more challenging and costly to integrate TXUCV if we
have not done so fully by the time of any new acquisition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If any of these risks materialize, they could
have a material adverse effect on our business and our ability
to achieve sufficient cash flow, provide adequate working
capital, service and repay our indebtedness and leave sufficient
funds to pay dividends.
</FONT>

<P align="left">
<B><I><FONT size="2">The successful operation and growth of our
business is primarily dependent on the economic conditions of
our service areas in Illinois and Texas.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Substantially all of our customers and operations
are located in Illinois and Texas. The customer base for
telecommunications services in each of our RLECs&#146; service
areas in Illinois and Texas is small and geographically
concentrated, particularly for residential customers. Due to our
geographical concentration, the successful operation and growth
of our business is primarily dependent on economic conditions in
our RLECs&#146; service areas. The economies of these areas, in
turn, are dependent upon many factors, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">demographic trends;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">in Illinois, the strength of the agricultural
    markets and the light manufacturing and services industries,
    continued demand from universities and hospitals and the level
    of government spending;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">in Texas, the strength of the manufacturing and
    retail industries and continued demand from schools and
    hospitals.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Poor economic conditions and other factors beyond
our control in our RLECs&#146; service areas could have a
material adverse effect on our business, financial condition and
results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003 and during the nine months ended
September&nbsp;30, 2004, our number of local access lines
declined in Illinois by approximately 2.3% and 2.9%,
respectively. We believe the principal reason we lost
</FONT>

<P align="center"><FONT size="2">25
</FONT>

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<DIV align="left">
<FONT size="2">access lines in these periods was due to the weak
economy in our Illinois service areas. In addition, we believe
our Illinois RLEC lost local access lines due to the
disconnection of second telephone lines by our residential
customers in connection with their substituting DSL or cable
modem service for dial-up Internet access and wireless services
for wireline service. In Texas, in 2003 our number of local
access lines declined by approximately 0.3% in the aggregate,
although local access lines for business customers grew by
approximately 3.3%. During the nine months ended
September&nbsp;30, 2004, our Texas local access lines declined
by approximately 1.3% in the aggregate, although local access
lines for business customers grew by 0.7%. The decline in CCI
Texas&#146; local access lines was caused by factors similar to
those of CCI Illinois. In addition, CCI Texas changed its credit
policies in 2003, which resulted in the removal of a greater
number of non-paying customers than in previous years. We
believe that due to the low growth demographics of the Illinois
market, we may continue to lose local access lines in Illinois.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">A system failure could cause delays or
    interruptions of service, which could cause us to lose
    customers.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To be successful, we will need to continue to
provide our customers reliable service over our network. Some of
the risks to our network and infrastructure include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">physical damage to our central offices or local
    access lines;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">disruptions beyond our control;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">power surges or outages;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">software defects.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Disruptions may cause interruptions in service or
reduced capacity for customers, either of which could cause us
to lose customers and incur unexpected expenses.
</FONT>

<P align="left">
<B><I><FONT size="2">Loss of a large customer could reduce our
revenues. In addition, a significant portion of our revenues
from the State of Illinois is based on contracts that are
favorable to the government.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our success depends in part upon the retention of
our large customers such as AT&#38;T and the State of Illinois.
AT&#38;T accounted for 4.8% and the State of Illinois accounted
for 6.7% of our revenues during 2003, after giving effect to the
TXUCV acquisition, and 4.2% and 6.3% for the nine months ended
September&nbsp;30, 2004, respectively. In general,
telecommunications companies such as ours face the risk of
losing customers as a result of a contract expiration, merger or
acquisition, business failure or the selection of another
provider of voice or data services. In addition, we generate a
significant portion of our local service revenues from
originating and terminating long distance and international
telephone calls for carriers such as AT&#38;T and MCI, many of
which recently have experienced substantial financial
difficulties. We cannot assure you that we will be able to
retain long-term relationships or secure renewals of short-term
relationships with our customers in the future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003 and for the nine months ended
September&nbsp;30, 2004, virtually all of the revenues of the
Public Services business and 55.1% and 45.8%, respectively, of
the revenues of the Market Response business of our Other
Operations were derived from our relationships with various
agencies of the State of Illinois, principally the Department of
Corrections and the Toll Highway Authority and various county
governments in Illinois. Obtaining contracts from government
agencies is challenging, and government contracts, like our
contracts with the State of Illinois, often include provisions
that are favorable to the government in ways that are not
standard in private commercial transactions. Specifically, each
of our contracts with the State of Illinois:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">includes provisions that allow the respective
    state agency to terminate the contract without cause and without
    penalty under some circumstances;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">is subject to decisions of state agencies that
    are subject to political influence on renewal;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">gives the State of Illinois the right to renew
    the contract at its option but does not give us the same
    right;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">could be cancelled if state funding becomes
    unavailable.
    </FONT></TD>
</TR>

</TABLE>

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</FONT>

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<P align="left">
<FONT size="2">The failure of the State of Illinois to perform
under the existing agreements for any reason, or to renew the
agreements when they expire, could have a material adverse
effect on the revenues of CCI Illinois. For example, the State
of Illinois, which represented 55.1% of Market Response&#146;s
revenues for 2003, recently awarded the renewal of the Illinois
State Toll Highway Authority contract, the sole source of those
revenues, to another provider.
</FONT>

<P align="left">
<B><I><FONT size="2">We have risks associated with obtaining and
maintaining necessary rights-of-way for our
network.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We need to obtain and maintain the necessary
rights-of-way for our network from governmental and
quasi-governmental entities and third parties, such as
railroads, utilities, state highway authorities, local
governments and transit authorities. We may not be successful in
obtaining and maintaining these rights-of-way or obtaining them
on acceptable terms whether in existing or new service areas.
Some of the agreements relating to these rights-of-way may be
short-term or revocable at will, and we cannot be certain that
we will continue to have access to existing rights-of-way after
they have expired or terminated. Although we believe that
alternative rights-of-way will be available, if any of these
agreements were terminated or could not be renewed, we may be
forced to remove our network facilities from under the affected
rights-of-way or relocate or abandon our networks.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our utility right-of-way agreements are subject
to conditions and limitations on access and use and are subject
to termination upon customary default provisions. In some cases,
these agreements require our fiber network to be moved or
removed in the event that the utility needs its right-of-way for
public utility purposes or no longer owns its right-of-way. For
example, CCI&nbsp;Texas is a party to several facilities license
agreements with TXU&nbsp;Electric Delivery Company, or TXUEDC,
the electric power utility subsidiary of TXU Corp. Pursuant to
these agreements, CCI Texas has the right to place the fiber
cables that comprise parts of its transport network on the poles
and towers owned by TXUEDC and to make use of the underlying
rights-of-way and easements that are owned by TXUEDC. The terms
of the agreements are highly restrictive and the license fees
associated with them are increasingly burdensome as prices for
fiber optic cable and capacity continue to decline. Furthermore,
to the extent that CCI Texas uses fiber that is placed pursuant
to TXUEDC license agreements, CCI Texas relies on the underlying
rights-of-way and easements used by TXUEDC. We cannot assure you
that in all cases the easements used by TXUEDC also allow for
the transport of video or digital communications to our CCI
Texas transport customers over fiber cable as, in many cases,
these easements were established many years ago specifically for
power distribution and transmission lines. If we discover that a
particular easement lacks the appropriate authorization for
video or digital communications circuits, we may be unsuccessful
in establishing a provision that allows for this type of
transport on that easement and would be forced to relocate our
fiber cable. In addition, in some cases, these agreements
require CCI Texas&#146; fiber network to be moved or removed in
the event that TXUEDC needs its right-of-way for public utility
purposes or no longer uses its right-of-way. In the event CCI
Texas must move the fiber cable, it must do so at its own cost.
If it is unable to find an alternate location for such fiber
cable, in which case it would not be able to transport video or
digital communications, CCI Texas may default on agreements with
its transport customers. While the TXUEDC license agreements are
renewable by CCI Texas for several successive five year terms,
the costs and terms of continuing the license agreements may
become increasingly difficult to sustain.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may not be able to maintain all of our
existing rights-of-way and permits or obtain and maintain the
additional rights-of-way and permits needed to implement our
business plan. In addition, our failure to maintain the
necessary rights-of-way, franchises, easements, licenses and
permits may result in an event of default under the amended and
restated credit facilities and other credit facilities we may
enter into in the future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a result of the above, our operations may be
interrupted and we may need to find alternative rights-of-way
and make unexpected capital expenditures.
</FONT>

<P align="center"><FONT size="2">27
</FONT>

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<P align="left">
<B><I><FONT size="2">We are dependent on third party vendors for
our information and billing systems.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Sophisticated information and billing systems are
vital to our ability to monitor and control costs, bill
customers, process customer orders, provide customer service and
achieve operating efficiencies. We currently rely on internal
systems and third party vendors to provide all of our
information and processing systems. Some of our billing,
customer service and management information systems have been
developed by third parties for us and may not perform as
anticipated. In addition, our plans for developing and
implementing our information and billing systems rely primarily
on the delivery of products and services by third party vendors.
Our right to use these systems is dependent upon license
agreements with third party vendors. Some of these agreements
are cancelable by the vendor, and the cancellation or
nonrenewable nature of these agreements could impair our ability
to process orders or bill our customers. Since we rely on third
party vendors to provide some of these services, any switch in
vendors could be costly and affect operating efficiencies.
</FONT>

<P align="left">
<B><I><FONT size="2">Our success depends on our ability to
attract and retain qualified management and other
personnel.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our success depends upon the talents and efforts
of key management personnel, many of whom have been with our
company and our industry for decades, including
Mr.&nbsp;Lumpkin, Robert J. Currey, Steven&nbsp;L. Childers,
Joseph&nbsp;R. Dively, Steven&nbsp;J. Shirar, C. Robert
Udell,&nbsp;Jr. and Christopher&nbsp;A. Young. There are no
employment agreements with any of these senior managers. The
loss of any such management personnel, due to retirement or
otherwise, and the inability to attract and retain highly
qualified technical and management personnel in the future,
could have a material adverse effect on our business, financial
condition and results of operations.
</FONT>

<P align="left">
<B><I><FONT size="2">Being a public company will increase our
expenses and administrative workload.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a public company with listed equity
securities, we will need to comply with new laws, regulations
and requirements, such as the Sarbanes-Oxley Act of 2002,
related SEC regulations and requirements of the New York Stock
Exchange that we did not need to comply with as a private
company. Preparing to comply and complying with new statutes,
regulations and requirements will occupy a significant amount of
time of our board of directors, management and our officers and
will increase our costs and expenses. We will need to:
</FONT>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">create or expand the roles and duties of our
    board of directors, our board committees and management;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">institute a more comprehensive compliance
    function;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">prepare and distribute periodic public reports in
    compliance with our obligations under the federal securities
    laws;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">involve and retain to a greater degree outside
    counsel and accountants in the above activities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">enhance our investor relations function;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">establish new internal policies, such as those
    relating to disclosure controls and procedures and insider
    trading.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we also expect that being a public
company and these new rules and regulations will make it more
expensive for us to obtain director and officer liability
insurance, and we may be required to accept reduced coverage or
incur substantially higher costs to obtain coverage. These
factors could also make it more difficult for us to attract and
retain qualified members of our board of directors, particularly
to serve on our audit committee, and qualified executive
officers.
</FONT>

<P align="left">
<B><I><FONT size="2">We will be exposed to risks relating to
evaluations of controls required by Section&nbsp;404 of the
Sarbanes-Oxley Act of 2002.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Changing laws, regulations and standards relating
to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002 and related regulations implemented
by the SEC and the New York Stock Exchange, are creating
uncertainty for public companies, increasing legal and financial
</FONT>

<P align="center"><FONT size="2">28
</FONT>

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<DIV align="left">
<FONT size="2">compliance costs and making some activities more
time consuming. We will be evaluating our internal controls
systems to allow management to report on, and our independent
auditors to attest to, our internal controls. We will be
performing the system and process evaluation and testing (and
any necessary remediation) required to comply with the
management certification and auditor attestation requirements of
Section&nbsp;404 of the Sarbanes-Oxley Act. While we anticipate
being able to fully implement the requirements relating to
internal controls and all other aspects of Section&nbsp;404 by
our December&nbsp;31, 2005 deadline, we cannot be certain as to
the timing of completion of our evaluation, testing and
remediation actions or the impact of the same on our operations
since there is presently no precedent available by which to
measure compliance adequacy. If we are not able to implement the
requirements of Section&nbsp;404 in a timely manner or with
adequate compliance, we might be subject to sanctions or
investigation by regulatory authorities, such as the SEC or the
New York Stock Exchange. Any such action could adversely affect
our financial results or investors&#146; confidence in our
company, and could cause our stock price to fall. In addition,
the controls and procedures that we will implement may not
comply with all of the relevant rules and regulations of the SEC
and the New York Stock Exchange. If we fail to develop and
maintain effective controls and procedures, we may be unable to
provide the financial information in a timely and reliable
manner.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Because we will be a &#147;controlled
company&#148; under the New York Stock Exchange rules, we will
be exempt from certain New York Stock Exchange corporate
governance standards and, as a result, you will not have the
same protections afforded to stockholders of companies that are
subject to these requirements.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that, on the closing of the offering,
Central Illinois Telephone will own shares of Class&nbsp;B
common stock having a majority of the voting power of our
outstanding common stock. As a result, we will be a
&#147;controlled company&#148; within the meaning of the New
York Stock Exchange corporate governance standards. Under these
standards, a company of which more than 50% of the voting power
is held by another company or group is a &#147;controlled
company&#148; and may elect not to comply with certain of these
standards, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the requirement that a majority of the board of
    directors consist of independent directors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the requirement that the nominating committee be
    composed entirely of independent directors with a written
    charter addressing the committee&#146;s purpose and
    responsibilities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the requirement that the compensation committee
    be composed entirely of independent directors with a written
    charter addressing the committee&#146;s purpose and
    responsibilities; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the requirement for an annual performance
    evaluation of the nominating and corporate governance and
    compensation committees.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Following this offering, we may take advantage of
these exemptions. As a result, we may not have a majority of
independent directors and our nominating and compensation
committees may not consist entirely of independent directors.
Accordingly, you may not have the same protection afforded to
stockholders of companies that are subject to all of the New
York Stock Exchange corporate governance requirements.
</FONT>

<P align="center">
<B><FONT size="2">Regulatory Risks</FONT></B>

<P align="left">
<B><I><FONT size="2">The telecommunications industry in which we
operate is subject to extensive federal, state and local
regulation that could change in a manner adverse to
us.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our main sources of revenues are our local
telephone businesses in Illinois and Texas. These businesses
operate in a generally supportive regulatory environment, with
subsidized revenues pursuant to federal and state statutes and
regulations, including those designed to promote widely
available, quality telephone service at affordable prices in
rural areas. Primarily due to legislative and regulatory
provisions, competitive alternatives to many of our services are
limited. These laws and regulations may be, and in some cases
have been, challenged in the courts, and could be changed by
Congress, state legislatures or regulators at any time. In
addition, new regulations could be imposed by federal or state
authorities
</FONT>

<P align="center"><FONT size="2">29
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<DIV align="left">
<FONT size="2">increasing our operating costs or capital
requirements or that are otherwise adverse to us. We cannot
predict the impact of future developments or changes to the
regulatory environment or the impact such developments or
changes may have on us. Adverse rulings, legislation or changes
in governmental policy on issues material to us could have a
material adverse effect on our business, results of operations,
financial condition and prospects.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Furthermore, any of the following related risks
could have a significant impact on us:
</FONT>

<P align="left">
<B><I><FONT size="2">Our RLECs could lose their protected status
under interconnection rules.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Telecommunications Act imposes a number of
interconnection and other requirements on local communications
providers, including ILECs. Each of the subsidiaries through
which we operate our local telephone businesses is an ILEC and
is also classified as an RLEC under the Telecommunications Act.
The Telecommunications Act exempts RLECs from some of the more
burdensome interconnection requirements such as unbundling of
network elements and sharing information and facilities with
other communications providers. These requirements would
otherwise require our RLECs to lease to CLECs unbundled network
elements, or UNEs, to enable the delivery of services to the
competitor&#146;s customers in our service area, either in
combination with CLEC&#146;s network or as a recombined service
offering on an unbundled network element platform, or UNEP.
These unbundling requirements, and the obligation to offer UNEs
to competitors, impose substantial costs on, and result in
customer attrition for, the ILECs that must comply with these
requirements. The ICC or the PUCT can terminate the applicable
rural exemption for each of our RLECs if the RLEC receives a
bona fide request for full interconnection from another
telecommunications carrier and the state commission determines
that the request is technically feasible, not unduly
economically burdensome and consistent with universal service
requirements. None of our RLECs is currently subject to an
interconnection request inconsistent with their status as a
rural telephone company. Although state regulators have been
traditionally very protective of this status, we cannot assure
you that they will continue to be so disposed. If the ICC or
PUCT terminates the applicable rural exemption in whole or in
part for any of our RLECs, or if the applicable state commission
does not allow us adequate compensation for the costs of
providing the interconnection or UNEs, our administrative and
regulatory costs could increase significantly and we could
suffer a significant loss of customers to existing or new
competitors. These events could have a material adverse effect
on our business, revenues and profitability.
</FONT>

<P align="left">
<B><I><FONT size="2">Revenues from network access charges may be
reduced or lost.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A significant portion of our RLECs&#146; revenues
come from network access charges paid by long distance and other
carriers for originating or terminating calls in our RLECs&#146;
service areas. The amount of network access charge revenues that
our RLECs receive is based on interstate rates set by the FCC
and intrastate rates set by the ICC and PUCT, as applicable.
These rates are subject to change. The FCC has reformed, and
continues to reform, the federal network access charge system
and the states, including Illinois and Texas, often establish
intrastate network access charges that mirror or otherwise
interrelate with the federal rules.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Traditionally, regulators have allowed network
access rates to be set higher in rural areas than the actual
cost of originating or terminating calls as an implicit means of
subsidizing the high cost of providing local service in rural
areas. In 2001, the FCC promulgated an order implementing the
beginning phases of the plan of the Multi Association Group to
reform the network access charge system for rural carriers. The
Multi Association Group is a consortium of various
telecommunications industry groups. The 2001 order reduced
network access charges and shifted a portion of cost recovery,
which historically was based on minutes of use and imposed on
long distance carriers, to flat-rate, monthly per line charges
imposed on end-user customers. While the FCC simultaneously
increased subsidies to RLECs from the federal universal service
fund, the aggregate amount of network access charges paid by
long distance and other carriers to access providers, such as
our RLECs, decreased. In the future, they may continue to
decrease. The FCC currently is considering further changes in
both access charges and federal universal service fund
subsidies. It is unknown at this time what additional changes,
if any, the FCC may eventually adopt and
</FONT>

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<DIV align="left">
<FONT size="2">we cannot assure you that the federal universal
service fund subsidies our RLECs receive will remain at current
levels.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The FCC&#146;s 2001 access charge reform order
had a negative impact on the intrastate network access revenues
of our Illinois RLEC. Under Illinois network access regulations,
our Illinois RLEC&#146;s intrastate network access rates mirror
interstate network access rates. Illinois does not provide,
however, an explicit subsidy in the form of a universal service
fund applicable to our Illinois RLEC. As a result, while
subsidies from the federal universal service fund have offset
Illinois Telephone Operations&#146; decrease in revenues
resulting from the reduction in interstate network access rates,
there was not a corresponding offset for the decrease in
revenues from the reduction in intrastate network access rates.
The reforms did not have an impact on the intrastate network
access rates of our Texas RLECs because the regime applicable to
our Texas RLECs does not mirror the FCC regime. But, both the
ICC and the PUCT are continuing to investigate possible changes
to the structure for intrastate network access charges in their
respective states and we cannot predict the effect any changes
they make to network access charges and their respective
subsidies regimes will have on us.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To the extent any of our RLECs become subject to
competition, and CLECs increase their operations in the areas
served by our RLECs, a portion of long distance and other
carriers&#146; network access charges will be paid to our
competitors rather than to our RLECs. In addition, the
compensation our RLECs receive from network access charges could
be reduced due to competition from wireless carriers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, VOIP services are increasingly being
embraced by many industry participants, including AT&#38;T, SBC
Communications Inc., or SBC, and Time Warner Inc., or Time
Warner. On March&nbsp;10, 2004, the FCC issued a Notice of
Proposed Rulemaking with respect to issues relating to services
and applications of IP-enabled services. Among other things, the
FCC is considering whether VOIP services are regulated
telecommunications services or unregulated information services.
The FCC is also considering whether, and to what extent,
providers of VOIP services are obligated to pay access charges
for calls originating or terminating on ILEC facilities. Many
carriers, including ILECs, long distance carriers and cable
companies are increasingly deploying VOIP services. We cannot
predict the outcome of the FCC&#146;s rulemaking or the impact
on the revenues of our RLECs. The proliferation of VOIP,
particularly to the extent such communications do not utilize
our RLECs&#146; networks, may have a material adverse effect on
our business, revenues and profitability.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Regulatory developments, related competitive
developments and reductions in network access charges resulting
from these developments could have a material adverse effect on
our business, revenue and profitability.
</FONT>

<P align="left">
<B><I><FONT size="2">We believe long distance carriers are
disputing their obligation to pay network access charges to
ILECs for use of their networks.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In recent years, long distance carriers, such as
AT&#38;T, MCI and Sprint, have become more aggressive in
disputing interstate access charge rates set by the FCC and the
applicability of network access charges to their
telecommunications traffic. We believe that these disputes have
increased in part due to advances in technology that have
rendered the identity and jurisdiction of traffic more difficult
to ascertain and that have afforded carriers an increased
opportunity to assert regulatory distinctions and claims to
lower access costs for their traffic. For example, in October
2002, AT&#38;T filed a petition with the FCC challenging its
current and prospective obligation to pay network access charges
to local exchange carriers for the use of their networks. The
FCC rejected AT&#38;T&#146;s petition. In September 2003, Vonage
Holdings Corporation filed a petition with the FCC to preempt an
order of the Minnesota Public Utilities Commission which had
issued an order requiring Vonage to comply with the Minnesota
Commission&#146;s order. The FCC determined that Vonage&#146;s
VOIP service was such that it was impossible to divide it into
interstate and intrastate components without negating federal
rules and policies. Accordingly, the FCC found it was an
interstate service not subject to traditional state telephone
regulation. While the FCC&nbsp;Order did not specifically
address the issue of the application of intrastate access
charges to Vonage&#146;s VOIP service, the fact that the service
was found to be solely interstate raises that concern. We cannot
predict other actions
</FONT>

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<FONT size="2">that other long distance carriers may take before
the FCC or with their local exchange carriers, including our
RLECs, to challenge the applicability of access charges. To
date, no long distance or other carrier has made a claim to us
contesting the applicability of network access charges billed by
our RLECs. We cannot assure you, however, that long distance or
other carriers will not make such claims to us in the future
nor, if such a claim is made, can we predict the magnitude of
the claim. As a result of the increasing deployment of VOIP
services and other technological changes, we believe that these
types of disputes and claims will likely increase.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A decrease in network access revenues could have
a material adverse effect on our business, financial condition
and results of operation.
</FONT>

<P align="left">
<B><I><FONT size="2">Government subsidies we receive could be
reduced or lost.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, telecommunications service in rural
areas is more costly to provide than service in urban areas. By
supporting the high cost of operations in our rural markets, the
federal and state subsidy payments our RLECs receive are
intended to promote widely available, quality telephone service
at affordable prices in rural areas. In 2003, CCI&nbsp;Illinois
received $6.0&nbsp;million from the federal universal service
fund and CCI Texas received an aggregate of $41.4&nbsp;million
from the federal universal service fund and the Texas universal
service fund. Of the $41.4&nbsp;million received by
CCI&nbsp;Texas, $6.4&nbsp;million represented the recovery of
additional subsidy payments from the federal universal service
fund for prior periods which was a larger out-of-period
adjustment than in prior years. In the aggregate, the
$47.4&nbsp;million comprised 14.5% of our revenues in 2003,
after giving effect to the TXUCV&nbsp;acquisition. For the nine
months ended September&nbsp;30, 2004, CCI&nbsp;Illinois received
$10.0&nbsp;million from the federal universal service fund,
$2.7&nbsp;million of which represented the recovery of
additional subsidy payments from the federal universal service
fund for prior periods and CCI&nbsp;Texas received an aggregate
$11.9&nbsp;million from the federal universal service fund and
the Texas universal service fund, $2.7&nbsp;million of which
represented the recovery of additional subsidy payments from the
federal universal service fund for prior periods. In the
aggregate, the $21.9&nbsp;million comprised 8.9% of revenues for
the nine months ended September&nbsp;30, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the Telecommunications Act, our competitors
can obtain the same level of federal universal service fund
subsidies as we do if the ICC or PUCT, as applicable, determines
that granting these subsidies to competitors would be in the
public interest and the competitors offer and advertise certain
telephone services as required by the Telecommunications Act and
the FCC. One such application by a potential competitor in
Illinois was recently dismissed by the ICC due to the
applicant&#146;s lack of appropriate ICC certifications and at
least two other such applications are presently pending before
the ICC. We are not aware of any having been filed in our Texas
service areas. Under current rules, any such payments to our
competitors would not affect the level of subsidies received by
our RLECs, but they would facilitate competitive entry into our
RLECs&#146; service areas and our RLECs may not be able to
compete as effectively or otherwise continue to operate as
profitability. In addition, any changes in legislative and
regulatory provisions relating to federal universal service fund
subsidies could have an adverse effect on our business, revenues
or profitability.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the last two years, the FCC has made
modifications to the federal universal service fund system that
changed the sources of support and the method for determining
the level of support recipients of federal universal service
fund subsidies receive. These changes, which, among other
things, removed certain implicit support from network access
charges and made it explicit support, have been, generally,
revenue neutral to our RLECs&#146; operations in terms of
federal support. It is unclear whether the changes in
methodology will continue to accurately reflect the costs
incurred by our RLECs and whether we will continue to receive
the same amount of federal universal service fund support that
our RLECs have received in the past. In addition, several
parties have raised objections to the size of the federal
universal service fund and the types of services eligible for
support. A number of issues regarding the source and amount of
contributions to, and eligibility for payments from, the federal
universal service fund need to be resolved in the near future.
For example, the FCC is considering adopting a recommendation
from the Federal-State Joint Board on Universal Service, that,
if adopted in its current form, could make it harder for
competitors to qualify for federal universal service fund
subsidies, but could also reduce the amount of
</FONT>

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<FONT size="2">subsidies available to our RLECs if a competitor
does qualify. The Federal-State Joint Board on Universal Service
was established in March 1996 to make recommendations to
implement the universal service provisions of the
Telecommunications Act and is comprised of FCC Commissioners,
State Utility Commissioners and a consumer advocate
representative. Furthermore, the Texas universal service
fund&#146;s funding is subject to adjustment during the next
comprehensive review of the Texas state statutes governing the
regulation and obligations of telecommunications carriers which
is scheduled to occur during the first six months of 2005. The
outcome of any of these proceedings or other legislative or
regulatory changes will not be fully known until mid-2005, but
could affect the amount of federal universal service fund and
Texas universal service fund support received by our applicable
RLECs.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We cannot predict the outcome of any FCC, PUCT or
ICC rulemaking or similar proceedings. If our RLECs do not
continue to receive federal and state subsidies, or if these
subsidies are reduced, our RLECs may not be able to operate as
profitably as they have historically. In addition, if the number
of local access lines that our RLECs serve increases, under the
rules governing the federal universal service fund, the rate at
which we can recover certain federal universal service fund
payments may decrease. This may have an adverse effect on our
business, revenues and profitability.
</FONT>

<P align="left">
<B><I><FONT size="2">Our business could be adversely affected as
a result of the high costs of regulatory
compliance.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Regulatory compliance results in significant
costs for us and diverts the time and effort of management and
our officers away from running our business. In addition,
because regulations differ from state to state, we could face
significant costs in obtaining information necessary to compete
effectively if we try to provide services, such as long distance
services, in markets in different states. These information
barriers could cause us to incur substantial costs and to
encounter significant obstacles and delays in entering these
markets. Compliance costs and information barriers could also
affect our ability to evaluate and compete for new opportunities
to acquire local access lines or businesses as they arise.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our intrastate services are also generally
subject to certification, tariff filing and other ongoing state
regulatory requirements. Challenges to our tariffs by regulators
or third parties or delays in obtaining certifications and
regulatory approvals could cause us to incur substantial legal
and administrative expenses. If successful, these challenges
could adversely affect the rates that we are able to charge to
customers. Any changes in legislative and regulatory provisions
relating to these rates could have a material adverse effect on
our business, revenues and profitability.
</FONT>

<P align="left">
<B><I><FONT size="2">Regulatory changes in the
telecommunications industry could adversely affect our business
by facilitating greater competition against us, reducing
potential revenues or raising our costs.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Legislative and regulatory changes in the
telecommunications industry could adversely affect our business
by facilitating greater competition against us, reducing our
revenues or raising our costs. For example, federal or state
legislatures or regulatory commissions could impose new
requirements relating to standards or quality of service, credit
and collection policies, or obligations to provide new or
enhanced services such as high-speed access to the Internet or
number portability, whereby consumers can keep their telephone
number when changing carriers. Any such requirements could
increase operating costs or capital requirements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Telecommunications Act provides for
significant changes and increased competition in the
telecommunications industry. This federal statute and the
related regulations remain subject to judicial review and
additional rulemakings of the FCC, as well as to implementing
actions by state commissions. As a result, we cannot predict
what effect the legislation and its implementation by regulators
and courts will have on the business and operations of our
RLECs. Several regulatory and judicial proceedings have recently
concluded, are underway or may soon be commenced, addressing
matters affecting the operations of our RLECs and those of our
competitors. We also believe that Congress may consider
potential amendments to the Telecommunications Act in its 2005
session. We cannot predict the outcome of these developments,
nor can we assure you that these changes will not have a
material adverse effect on us. In addition, the Illinois General
Assembly and the Texas Legislature have each made major
revisions and
</FONT>

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<DIV align="left">
<FONT size="2">added significant new provisions to the portions
of their respective state statutes governing the regulation and
obligations of telecommunications carriers on a number of
occasions in recent years. The next comprehensive review of, and
potential revision to, the provisions of each of these state
statutes is scheduled to occur during the first six months of
2005. We cannot predict the nature or extent of the legislative
changes that may result from the 2005 review or the resulting
impact on the business and operations of our RLECs.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, our Internet access offerings may
become subject to newly adopted laws and regulations. Currently,
there exists only a small body of law and regulation applicable
to access to, or commerce on, the Internet. As the significance
of the Internet expands, federal, state and local governments
may adopt new rules and regulations or apply existing laws and
regulations to the Internet. The FCC is currently reviewing the
appropriate regulatory framework governing high speed access to
the Internet through telephone and cable providers&#146;
communications networks. We cannot predict the outcome of these
proceedings. They may affect our regulatory obligations and the
form of competition for these services which could have a
material adverse effect on our business, revenue and
profitability.
</FONT>

<P align="left">
<B><I><FONT size="2">&#147;Do not call&#148; registries may
limit our ability to market our services.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Market Response business is subject to
various federal and state &#147;do not call&#148; list
requirements. Recently, the FCC and the Federal Trade
Commission, or FTC, amended their rules to provide for a
national &#147;do not call&#148; registry. Under these new
federal regulations, consumers may have their phone numbers
added to the national registry and telemarketing companies, such
as our Market Response business, are prohibited from calling
anyone on that registry other than for limited exceptions. In
September 2003, telemarketers were given access to the registry
and are now required to compare their call lists against the
national &#147;do not call&#148; registry at least once every
90&nbsp;days. We are required to pay a fee to access the
registry on a quarterly basis. In addition, the rule provides
for fines of up to $11,000&nbsp;per violation and other possible
penalties. This rule may restrict our ability to market our
services effectively to new customers. Furthermore, compliance
with this new rule may prove difficult, and we may incur
penalties for improperly conducting our marketing activities. A
recent decision by the court of appeals for the Tenth Circuit
rejected challenges to several aspects of the &#147;do not
call&#148; rules. In addition, under the Consolidated
Appropriations Act of 2004, the FTC voted to amend the rules,
effective January&nbsp;1, 2005, to require that telemarketers
access the registry and purge numbers from their call lists
every 31&nbsp;days. They may affect our regulatory obligations
and the form of competition for these services which could have
a material adverse effect on our business, revenue and
profitability.
</FONT>

<P align="left">
<B><I><FONT size="2">We may face significant future liabilities
or compliance costs in connection with environmental and worker
health and safety matters.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our operations and properties are subject to
federal, state and local laws and regulations relating to
protection of the environment, natural resources and worker
health and safety, including laws and regulations governing and
creating liability relating to, the management, storage and
disposal of hazardous materials, asbestos, petroleum products
and other regulated materials. We also are subject to
environmental laws and regulations governing air emissions from
our fleets of vehicles. As a result, we face several risks,
including the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Under certain environmental laws, we could be
    held liable, jointly and severally and without regard to fault,
    for the costs of investigating and remediating any actual or
    threatened environmental contamination at currently and formerly
    owned or operated properties, and those of our predecessors, and
    for contamination associated with disposal by us or our
    predecessors of hazardous materials at third party disposal
    sites. Hazardous materials may have been released at certain
    current or formerly owned properties as a result of historic
    operations.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The presence of contamination can adversely
    affect the value of our properties and our ability to sell any
    such affected property or to use it as collateral.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">34
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We could be held responsible for third party
    property damage claims, personal injury claims or natural
    resource damage claims relating to any such contamination.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The cost of complying with existing environmental
    requirements could be significant.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Adoption of new environmental laws or regulations
    or changes in existing laws or regulations or their
    interpretations could result in significant compliance costs or
    as yet identified environmental liabilities.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Future acquisitions of businesses or properties
    subject to environmental requirements or affected by
    environmental contamination could require us to incur
    substantial costs relating to such matters.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In addition, environmental laws regulating
    wetlands, endangered species and other land use and natural
    resource issues may increase costs associated with future
    business or expansion opportunities, delay, alter or interfere
    with such plans, or otherwise adversely affect such plans.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As a result of the above, we may face significant
liabilities and compliance costs in the future.
</FONT>

<P align="center"><FONT size="2">35
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='107'></A>
</DIV>

<!-- link1 "USE OF PROCEEDS" -->

<P align="center">
<B><FONT size="2">USE OF PROCEEDS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We estimate that we will receive net proceeds
from this offering of approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
after deducting underwriting discounts and commissions and other
offering-related expenses. We will use the net proceeds from
this offering, together with additional borrowings under the
amended and restated credit facilities and approximately
$47.7&nbsp;million of cash on hand, to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">repay in full outstanding borrowings under our
    term loan&nbsp;A facility, together with accrued but unpaid
    interest through the closing date of this offering;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">redeem&nbsp;35.0% of the aggregate principal
    amount of our senior notes, which will include the payment of
    the associated redemption premium of 9.75% of the principal
    amount to be redeemed, together with accrued but unpaid interest
    through the date of redemption;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">pre-fund expected integration and restructuring
    costs for 2005 relating to the TXUCV acquisition; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">pay fees and expenses associated with the
    repayment of the term loan&nbsp;A facility and entering into the
    amended and restated credit facilities.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At September&nbsp;30, 2004, the term loan&nbsp;A
facility bore interest at a rate of 4.5% and had an outstanding
balance of $118.7&nbsp;million. The term A loan facility is
scheduled to mature on April&nbsp;14, 2010. Our senior notes
bear interest at a rate of 9&nbsp;3/4% annually and are
scheduled to mature on April&nbsp;1, 2012. The proceeds from our
borrowings under the term loan&nbsp;A facility and our issuance
of the senior notes were used, together with other sources of
funds, to pay a portion of the purchase price of the TXUCV
acquisition and to repay existing debt of CCI, among other uses
of funds. The closing of the offering is conditioned on the
closing of the reorganization, which requires the prior approval
of the ICC, and the entering into, and borrowing under, the
amended and restated credit facilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will not receive any of the proceeds from the
selling stockholders&#146; sale of shares of Class&nbsp;A common
stock in the offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table lists the estimated sources
and uses of funds from this offering and the related
transactions. The actual amounts on the date that this offering
and the related transactions close may vary.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="37%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Sources</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Uses</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="12"></TD>
</TR>

<TR>
    <TD colspan="12" align="center" nowrap><B><FONT size="1">(dollars in millions)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">47.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Repayment of term loan&nbsp;A facility(2)(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Offering proceeds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">90.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Senior notes redemption(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase in term loan C facility(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">75.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Redemption premium
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fees and expenses(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pre-funding integration and<BR>
    restructuring costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total sources
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">213.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">213.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes $7.5&nbsp;million of cash that will be
    used to pre-fund expected integration and restructuring costs
    for 2005 relating to the TXUCV acquisition.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We expect that our existing credit facilities
    will be amended and restated to, among other things, repay the
    term loan&nbsp;A facility and to increase the amount of
    borrowings available under our existing term loan&nbsp;C
    facility, which is expected to mature on October&nbsp;14, 2011.
    See &#147;Description of Indebtedness&nbsp;&#151; Amended and
    Restated Credit Facilities&#148;.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Excludes accrued but unpaid interest on the term
    loan&nbsp;A facility and the senior notes to be redeemed,
    respectively, through the closing date of this offering.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Transaction fees and expenses include estimated
    underwriting discounts and commissions, commitment and financing
    fees payable in connection with the amended and restated credit
    facilities, and legal, accounting, advisory and other costs
    payable in connection with this offering and the related
    transactions.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">36
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='108'></A>
</DIV>

<!-- link1 "DIVIDEND POLICY AND RESTRICTIONS" -->

<P align="center">
<B><FONT size="2">DIVIDEND POLICY AND RESTRICTIONS</FONT></B>

<P align="left">
<B><FONT size="2">General</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors has adopted a dividend
policy, effective upon the closing of this offering, which
reflects an intention to distribute as regular quarterly
dividends to our stockholders a substantial portion of the cash
generated by our business in excess of our expected cash needs
and other possible uses. These expected cash needs include
interest and principal payments on our indebtedness, capital
expenditures, integration, restructuring and related costs of
the TXUCV acquisition in 2004 and 2005, incremental costs
associated with being a public company, taxes and certain other
costs. In accordance with our dividend policy, we currently
intend to pay an initial dividend of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share on or
about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005 and to continue to pay quarterly dividends at an annual
rate of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share for the first full year following the closing of this
offering, subject to our board of director&#146;s decision to
declare these dividends and various restrictions on our ability
to do so. This policy reflects our judgment that our
stockholders would be better served if we distributed to them a
substantial portion of the cash generated by our business rather
than using the cash for other purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In reviewing and adopting the dividend policy,
our board of directors reviewed: estimates of our EBITDA; EBITDA
excluding the effect of specified items as we expect to be
required by our amended and restated credit facilities, which we
view as the most significant legal restraint on our ability to
pay dividends; and cash available to pay dividends as we expect
it to be determined under our amended and restated credit
facilities. With respect to these estimates and the dividend
policy as a whole, our board of directors evaluated numerous
factors, made several assumptions and took other considerations
into account, which are summarized below under
&#147;&#151;&nbsp;Assumptions and Considerations&#148;. We
expect that our board of directors will review regularly the
dividend policy and these factors, assumptions and
considerations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are not required to pay dividends, and our
stockholders will not be guaranteed, or have contractual or
other rights, to receive dividends. Our board of directors may
decide, in its discretion, at any time, to decrease the amount
of dividends, otherwise modify or repeal the dividend policy or
discontinue entirely the payment of dividends. Our board could
depart from or change our dividend policy, for example, if it
were to determine that we had insufficient cash to take
advantage of other opportunities with attractive rates of
return. You should understand the various risks relating to our
dividend policy, which are summarized under &#147;Risk
Factors&nbsp;&#151; Risks Relating to Our Class&nbsp;A Common
Stock&nbsp;&#151; You may not receive any dividends, and there
are several risks relating to our paying, and the restrictions
on our ability to pay, dividends&#148; and &#147;&#151;&nbsp;Our
dividend policy may limit our ability to pursue growth
opportunities&#148;.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have no history of paying dividends out of our
cash flow. Dividends on our common stock will not be cumulative.
</FONT>

<P align="left">
<B><FONT size="2">Estimated Minimum Bank EBITDA and Cash
Available to Pay Dividends</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We do not as a matter of course make public
projections as to future sales, earnings or other results of
operations and do not plan to do so in the future. However, our
management has prepared the estimated financial information set
forth below in order to provide an estimate of the amount of
cash that may be available to pay dividends, in the event that
our board of directors determines to do so and subject to the
limits on our ability to pay dividends. The estimated financial
information was not prepared with a view toward complying with
any SEC or American Institute of Certified Public Accountants
guidelines with respect to prospective financial information,
but, in the view of our management, was prepared on a reasonable
basis, reflects the best currently available estimates and
judgments and presents, to the best of management&#146;s current
belief, our expected future financial performance. Neither our
independent registered public accounting firm nor any other
independent registered public accounting firm has compiled,
examined, or performed any procedures with respect to the
estimated financial information contained herein, nor have they
expressed any opinion or any other form of assurance on such
information or its achievability, and assume no responsibility
for, and disclaim any association with, the estimated financial
information.
</FONT>

<P align="center"><FONT size="2">37
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The estimated financial information below is only
an estimate, is not a prediction of fact and should not be
relied upon as being necessarily indicative of future results.
You are cautioned not to place undue reliance on the estimated
financial information. The factors, assumptions and other
considerations relating to the estimated financial information
are inherently uncertain and, though considered reasonable by
our management as of the date of its preparation, are subject to
a wide variety of significant business, economic, competitive
and other risks and uncertainties, including those described
under &#147;Risk Factors.&#148; There will be differences
between actual and projected results. Accordingly, we cannot
assure you that the estimated financial information is
indicative of our future performance or that the actual results
will not differ materially from the estimated financial
information presented below.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that, in order to pay dividends on our
common stock in the year following this offering according to
our dividend policy solely from cash generated by our business,
to meet our expected cash needs and to comply with the covenants
in our indenture and expected to be in our amended and restated
credit facilities, we would need to have at least
$118.3&nbsp;million in Bank EBITDA, which we refer to as
estimated minimum Bank EBITDA below. Bank EBITDA refers to the
defined term we expect will be contained in our amended and
restated credit facilities. The amount of dividends we are able
to pay in the future under the amended and restated credit
facilities will increase or decrease based upon, among other
things, our cumulative Bank EBITDA and our needs for Available
Cash, as each of these terms are defined under &#147;Description
of Indebtedness&nbsp;&#151; Amended and Restated Credit
Facilities.&#148; We are also restricted from paying dividends
under our indenture. However, the indenture restriction is
significantly less restrictive than the comparable restriction
we expect will be contained in our amended and restated credit
facilities. Based on numerous factors, assumptions and
considerations described under &#147;&#151;&nbsp;Assumptions and
Considerations&#148; below, we believe that our estimated Bank
EBITDA for the year following the closing of this offering will
be at least this amount. Nothing in this prospectus should be
understood to be directly or indirectly an estimate for any
other period.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth our unaudited
calculation illustrating our belief that $118.3&nbsp;million of
estimated minimum Bank EBITDA would be sufficient to fund our
expected cash needs, to comply with the restrictive covenants in
our amended and restated credit facilities and indenture and to
fund dividends according to our initial dividend policy for the
first full year following the closing of the offering.
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="75%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ending</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2005</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Estimated Cash Available to Pay Dividends
    Based on Estimated Minimum Bank EBITDA</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated Minimum Bank EBITDA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated cash interest expense(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,054</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated principal payments(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,232</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated capital expenditures(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated cash taxes(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated cash available to pay dividends on
    common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">38
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth our unaudited
calculation of EBITDA, Bank EBITDA and estimated cash available
to pay dividends for the year ended December&nbsp;31, 2003 and
for the twelve months ended September&nbsp;30, 2004, assuming
that the offering had closed on the first day of the period
presented and the other assumptions described in the notes to
the table and summarized below under
&#147;&#151;&nbsp;Assumptions and Considerations&#148;.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To derive Bank EBITDA, we have given effect to
items we expect will be specified in our amended and restated
credit facilities. To derive estimated cash available to pay
dividends, we have deducted from Bank EBITDA our estimated cash
needs that are not already accounted for in EBITDA.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Twelve Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Estimated Cash Available to Pay
    Dividends</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,469</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,090</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,408</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,766</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,143</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and Amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">EBITDA(5)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110,464</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retention bonuses(6)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">978</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Severance costs(7)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TXUCV sales due diligence and transaction costs(8)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,408</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,185</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Integration costs(9)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net(11)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(806</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,854</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other non-cash losses (gains):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill impairment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and asset impairment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bank EBITDA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">122,835</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,363</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash interest expense on amended and restated
    credit facilities(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,054</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,054</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Principal payments on amended and restated credit
    facilities(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,232</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,232</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(29,485</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,023</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated public company expenses(10)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash income taxes(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated cash available to pay dividends
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,064</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Assumes (a)&nbsp;with respect to the amended and
    restated credit facilities, interest at a weighted average rate
    of 5.2% on an annual basis on $389.6&nbsp;million outstanding
    borrowings under the new term facility, no borrowings under our
    new $30.0&nbsp;million revolving credit facility and a 0.5%
    commitment fee on the unused balance under the new revolving
    credit facility; and (b)&nbsp;with respect to our senior notes,
    an interest rate of 9&nbsp;3/4% on $130.0&nbsp;million aggregate
    principal amount of senior notes outstanding after giving effect
    to the redemption of $70.0&nbsp;million principal amount of
    senior notes in connection with this offering and the related
    transactions; and excludes non-cash amortization of deferred
    financing costs. For a discussion of deferred financing costs,
    see Note&nbsp;10 to the unaudited pro forma condensed
    consolidated financial statements. At September&nbsp;30, 2004,
    we had interest rate swap agreements covering
    $215.6&nbsp;million of aggregate principal amount of our
    existing variable rate debt, which we expect to cover our new
    variable rate debt under the increased term loan
    C&nbsp;facility, at fixed LIBOR rates ranging from 2.99% to
    3.35%. If market interest rates were to average 1.0% higher than
    the average rates that prevailed from January&nbsp;1, 2004
    through September&nbsp;30, 2004, our interest payments would
    increase by approximately $1.3&nbsp;million for the period.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">For purposes of calculating estimated minimum
    Bank EBITDA, we have assumed that we will be required to make
    principal amortization payments on our increased term loan
    C&nbsp;facility proportionate to those required under our
    existing term facilities.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">39
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">For the twelve months ended September&nbsp;30,
    2004, our capital expenditures were approximately
    $31.0&nbsp;million. We expect capital expenditures for 2004 to
    be approximately $33.8&nbsp;million and approximately
    $33.5&nbsp;million for 2005. For a more detailed discussion of
    our capital expenditures, see &#147;Management&#146;s Discussion
    and Analysis of Financial Condition and Results of
    Operations&nbsp;&#151; CCI Holdings&nbsp;&#151; Liquidity and
    Capital Resources&nbsp;&#151; Capital Requirements&#148;.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">As of September&nbsp;30, 2004, we estimate that
    we would have had an aggregate of $26.6&nbsp;million of net
    operating loss carry forwards, or NOLs, available to us, based
    on numerous assumptions. Assuming we have Bank EBITDA in 2005 in
    an amount that is equivalent to our estimated minimum Bank
    EBITDA, our remaining NOL as of December&nbsp;31, 2005 would be
    approximately $13.0&nbsp;million. We have estimated cash taxes
    assuming adjustments resulting from the offering and the related
    transactions based on an estimate of our NOLs (including an
    &#147;ownership change&#148; under Section&nbsp;382 of the
    Internal Revenue Code limiting the usage of our NOLs), deduction
    of the redemption premium and interest and amortization of
    deferred financing fees based on our new capital structure. At
    such time as our NOLs have been fully used, our cash tax
    liability will increase and may impact our ability to pay
    dividends. Our tax liability may also be affected by limitations
    on the use of our NOLs under Section&nbsp;382 of the Internal
    Revenue Code by reason of this offering and earlier ownership
    changes.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">EBITDA is defined as net earnings (loss) before
    interest expense, income taxes, depreciation and amortization,
    as adjusted to give effect to the TXUCV acquisition and this
    offering and related transactions consistent with the unaudited
    pro forma condensed consolidated financial statements of CCI
    Holdings. We believe that net income is the most directly
    comparable financial measure to EBITDA under generally accepted
    accounting principles, or GAAP. We present EBITDA for several
    reasons. Management believes that EBITDA is useful as a means to
    evaluate our ability to pay our estimated cash needs and pay
    dividends. In addition, we have historically presented EBITDA to
    investors because it is frequently used by investors, securities
    analysts and other interested parties in the evaluation of
    companies in our industry, and we believe that presenting it
    here provides a measure of consistency in our financial
    reporting. EBITDA is also a component of restrictive covenants
    and financial ratios contained in the agreements governing our
    debt (and that we expect will be contained in our amended and
    restated credit facilities), which require us to maintain
    compliance with these covenants and which limit certain
    activities, such as our ability to incur debt and to pay
    dividends. The definitions in these covenants and ratios are
    based on EBITDA after giving effect to specified charges. As a
    result, we believe that the presentation of EBITDA as
    supplemented by these other items provides important additional
    information to investors. See &#147;Management&#146;s Discussion
    and Analysis of Results of Operations and Financial
    Condition&nbsp;&#151; CCI Holdings&nbsp;&#151; Liquidity and
    Capital Resources&nbsp;&#151; Debt and Capital
    Leases&nbsp;&#151; Covenant Compliance&#148;. In addition,
    EBITDA provides our board of directors meaningful information to
    determine, with other data, assumptions and considerations, our
    dividend policy and our ability to pay dividends under the
    restrictive covenants in the agreements governing our debt.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">EBITDA is a non-GAAP financial measure.
    Accordingly, it should not be construed as an alternative to net
    income (loss), cash flows from operations or net cash from
    operating or investing activities as defined by GAAP and is not
    on its own necessarily indicative of cash available to fund our
    cash needs as determined in accordance with GAAP. In addition,
    not all companies use identical calculations, and this
    presentation of EBITDA may not be comparable to other similarly
    titled measures of other companies.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">During 2003, TXUCV paid retention bonuses to keep
    key employees to run its day-to-day business operations while it
    was being prepared for sale. Other than retention costs payable
    in connection with the TXUCV acquisition, we do not expect to
    incur such charges in the future.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(7)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">As a result of employee terminations in 2003,
    TXUCV incurred $4.4&nbsp;million in severance costs. For the
    twelve months ended September&nbsp;30, 2004, $5.8&nbsp;million
    in severance was incurred, primarily driven by employee
    terminations associated with the TXUCV acquisition. For a
    summary of future integration and restructuring costs, see
    note&nbsp;(9) below.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(8)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">During 2003, TXUCV incurred $1.4&nbsp;million in
    financial and legal costs in connection with TXU Corp. having
    prepared TXUCV for sale and the related sales process. We do not
    expect to incur such charges in the future. For the twelve
    months ended September&nbsp;30, 2004, TXUCV incurred
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">40
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">$2.6&nbsp;million in costs associated with the
    sale of the company and CCI&nbsp;Holdings incurred
    $0.5&nbsp;million associated with the sale of TXUCV.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(9)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">We currently expect to incur approximately
    $14&nbsp;million in operating expenses associated with the TXUCV
    integration and restructuring process in 2004 and 2005. Of the
    $14&nbsp;million, approximately $11&nbsp;million relates to
    integration and approximately $3&nbsp;million relates to
    restructuring. As of September&nbsp;30, 2004, we had spent
    $2.3&nbsp;million on integration. In connection with this
    offering and the related transactions, we will pre-fund
    $7.5&nbsp;million of expected integration and restructuring
    expenses for 2005 with cash from our balance sheet. We do not
    expect that the pre-funding of these estimated expenses will
    change any of our expected cash plans or otherwise effect our
    expected working capital requirements. These one-time
    integration and restructuring costs will be in addition to
    certain ongoing costs we expect to incur to expand certain
    administrative functions, such as those relating to SEC
    reporting and compliance, and do not take into account other
    potential cost savings and expenses of the TXUCV integration. We
    do not expect to incur any significant costs relating to the
    TXUCV acquisition after 2005.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(10)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Consists of our estimate of $1.0&nbsp;million in
    incremental, ongoing expenses associated with being a public
    company, including compliance and related administrative
    expenses, accounting and legal fees, investor relations
    expenses, director&#146;s fees and director and officer
    liability insurance premiums, registrar and transfer agent fees,
    listing fees and other, miscellaneous expenses.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(11)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Other, net includes equity earnings from the
    cellular partnerships, dividend income and recognizing the
    minority interests of investors in East Texas Fiber, Inc.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Assumptions and Considerations</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In reviewing and adopting the dividend policy,
our board of directors reviewed estimates of the cash available
to pay dividends based on the estimates in the tables above and,
with respect to these estimates and the dividend policy as a
whole, evaluated numerous factors, made several assumptions and
took other considerations into account.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors reviewed and analyzed
several factors, including, but not limited to, the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our historical results of operations and
    financial condition, including that our Bank EBITDA was
    $122.8&nbsp;million in 2003 and $132.4&nbsp;million for the
    twelve months ended September&nbsp;30, 2004;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our estimated minimum Bank EBITDA and our belief
    that our actual Bank EBITDA for the first year following the
    offering will be at least this amount;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the matters discussed in the notes to the tables
    above;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our various expected cash needs, including
    interest and principal payments on our debt, capital
    expenditures, integration and restructuring costs of the TXUCV
    acquisition in 2004 and 2005, incremental costs associated with
    being a public company, taxes and certain other costs;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an analysis of the impact of our intention to pay
    dividends at the level described above on our operations and
    performance based on prior years&#146; results;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our belief that our new revolving credit facility
    would have had sufficient capacity to finance expected
    fluctuations in working capital and other cash needs, including
    the payment of dividends at the levels described above, although
    we currently do not intend to borrow under our new revolving
    credit facility to pay dividends;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">other possible uses of cash with attractive rates
    of return;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">potential sources of liquidity, including
    possible asset sales, and capital resources;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the state of our business, the environment in
    which we operate and the various risk we face, including
    competition, technological change, changes in our industry, and
    regulatory and other risks and that they will remain consistent
    with previous periods;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our assumption regarding the absence of
    extraordinary business events and risks, such as new
    industry-altering technological developments or adverse
    regulatory developments, that may adversely affect our business,
    results of operations or anticipated cash needs.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">41
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our intended policy to distribute rather than
retain a significant portion of the cash generated by our
business as regular quarterly dividends is based upon the
current assessment by our board of directors of the factors and
assumptions listed above. If these factors and assumptions were
to change, we would need to reassess that policy. Over time, our
capital and other cash needs will be subject to increasing
uncertainties and are more difficult to predict, which could
affect whether we pay dividends and the level of any dividends
we may pay in the future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our dividend policy may limit our ability to
pursue growth opportunities, such as to fund a material
expansion of our business, including any significant
acquisitions or to pursue growth opportunities requiring capital
expenditures significantly beyond our current expectations.
However, we intend to retain sufficient cash after the payment
of dividends to permit the pursuit of growth opportunities that
do not require material capital investments. In the recent past,
such growth opportunities have included investments in new
services such as DSL Internet access and the introduction of
digital video service in selected Illinois markets. Currently,
we have no specific plans to make a significant acquisition or
to increase capital spending to expand our business materially.
However, we will evaluate potential growth opportunities and
capital expenditures as they arise and, if our board of
directors determines that it is in our best interest to use cash
that would otherwise be available for dividends to pursue an
acquisition opportunity, to materially increase capital spending
or for some other purpose, the board would be free to depart
from or change our dividend policy at any time.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There are several risks relating to our dividend
policy which are summarized under &#147;Risk Factors&nbsp;&#151;
Risks Relating to Our Class&nbsp;A Common Stock&nbsp;&#151; You
may not receive dividends, and there are several risks relating
to our paying, and the restrictions on our ability to pay,
dividends&#148; and &#147;&#151;&nbsp;Our dividend policy may
limit our ability to pursue growth opportunities&#148;. We
cannot assure you that we will pay dividends during or following
the year after this offering or thereafter at the level
estimated above or at all. Dividend payments are within the
absolute discretion of our board of directors and will be
dependent upon many factors and future developments that could
differ materially from our current expectations.
</FONT>

<P align="left">
<B><FONT size="2">Restrictions on Payment of Dividends</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our ability to pay dividends will be restricted
by current and future agreements governing our debt, including
the amended and restated credit facilities and the indenture and
by Delaware law and may be restricted by state regulatory
authorities.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Amended and Restated Credit
    Facilities</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our existing credit facilities currently do not
permit us to pay the dividends contemplated in this prospectus.
As such, concurrently with the closing of this offering, we
intend to enter into the amended and restated credit facilities
to enable us to pay dividends, subject to the satisfaction of
certain financial covenants, conditions and other restrictions.
The specific terms of these covenants, conditions and other
restrictions, however, have not yet been agreed upon. Once
finalized, the specific terms of these covenants, conditions and
other restrictions will be contained in the amended and restated
credit agreement to be filed as an exhibit to the registration
statement of which this prospectus forms a part. For the twelve
months ended September&nbsp;30, 2004, we expect we would have
generated cash available to pay dividends of $63.1&nbsp;million
under the amended and restated credit facilities (based on our
expectation of the terms of these facilities). The amount of
dividends we are able to pay in the future under the amended and
restated credit facilities will increase or decrease based upon,
among other things, our cumulative Bank EBITDA and our needs for
Available Cash. For a more complete description of the expected
terms of the amended and restated credit facilities see
&#147;Description of Indebtedness&nbsp;&#151; Amended and
Restated Credit Facilities.&#148;
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Senior Notes</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The indenture also restricts the amount of
dividends, distributions and other restricted payments we may
pay. As of September&nbsp;30, 2004, we would have been permitted
to pay dividends of $111.0&nbsp;million under the general
formula under the restricted payments covenant of the indenture,
commonly referred to
</FONT>

<P align="center"><FONT size="2">42
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">as the build up amount. In addition, for the
twelve months ended September&nbsp;30, 2004, without giving
effect to an $81.5&nbsp;million increase in the buildup amount
as a consequence of this offering, we would have generated
$72.6&nbsp;million of capacity under the buildup amount
provision of the indenture. The build-up amount will increase or
decrease depending upon, among other things, our EBITDA, our
consolidated interest expense, the net proceeds of the sale of
capital stock and the amount of restricted payments we may make
from time to time, including, among other things, the payment of
cash dividends. Regardless of whether we could make any
restricted payments under the build-up amount referred to above,
we may, following the first public equity offering that results
in a public market (which includes this offering), pay dividends
on our capital stock of up to 6.0% per year of the cash proceeds
(net of underwriters&#146; fees, discounts or commissions paid
by us) of such first public equity offering subject to specified
conditions, including that the amount of dividends are included
in the calculation of the amount of restricted payments we have
made under the build-up amount and (2)&nbsp;at the time of
payment of any such dividend, no default or event of default
shall have occurred and be continuing or would result therefrom.
Based on this provision and after giving effect to this offering
and the related transactions, we expect that we would be able to
pay approximately $5.0&nbsp;million annually in dividends. For a
more complete description of the indenture, see
&#147;Description of Indebtedness&nbsp;&#151; Senior Notes&#148;.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Delaware Law</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under Delaware law, our board of directors may
not authorize payment of a dividend unless it is either paid out
of our surplus, as calculated in accordance with the DGCL, or if
we do not have a surplus, it is paid out of our net profits for
the fiscal year in which the dividend is declared and/or the
preceding fiscal year. Although we believe we will be permitted
to pay dividends at the anticipated levels during the first year
following this offering in compliance with Delaware law, our
board will periodically seek to assure itself that the statutory
requirements will be met before actually declaring dividends.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">State Regulatory Requirements</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The ICC and the PUCT could require our Illinois
and Texas RLECs to make minimum amounts of capital expenditures
and could limit the amount of cash available to transfer from
our RLECs to us. In connection with ICTC&#146;s guarantee of
CCI&#146;s CoBank credit facility in December 2002, the ICC
issued an order which imposed a minimum capital expenditure
requirement on our Illinois RLEC of $9.0&nbsp;million per year
and $30.0&nbsp;million for the three years ending
December&nbsp;31, 2005 and restricted the amount of cash that
our Illinois RLEC could transfer to its parent company, CCI to
its free cash flow, as defined in the order. In 2003, both of
our Texas RLECs elected to be governed under an incentive
regulatory regime, which obligated each of them to make capital
expenditures for network infrastructure in exchange for immunity
from adjustment to many of their rates. The ICC&#146;s minimum
capital expenditure requirements and restrictions on cash
transfers terminated upon repayment and termination of the
CoBank credit facility in connection with the acquisition of
TXUCV, and we believe our Texas RLECs have met the current
requirements for capital expenditures on network infrastructure.
However, the ICC and the PUCT could impose additional or other
restrictions of this type in the future. In particular, the ICC,
but not the PUCT, will review, and we will be required to
receive the approval of the ICC to effect the reorganization. In
connection with the ICC&#146;s review of the reorganization, the
ICC could impose various conditions as a part of its approval of
the reorganization, including, restrictions on cash transfers
from our Illinois RLEC to us and other requirements (such as a
prohibition on distributions by ICTC for a reporting year to the
extent that ICTC fails to meet or exceed agreed benchmarks for a
majority of seven service quality metrics for the prior
reporting year). In addition, we expect that in our amended and
restated credit facilities we will agree to use our reasonable
efforts as promptly as reasonably practicable after the closing
of these facilities to obtain the consent of the ICC for ICTC to
guarantee $195.0&nbsp;million of the obligations of the
borrowers under these facilities and grant a security interest
in its respective properties securing $195.0&nbsp;million of
borrowings. If such an order is granted, it will also likely
require ICTC to make a minimum dollar amount of capital
expenditures and limit its ability to pay dividends to CCI based
on a dollar amount tied to free cash flow. As a result of the
above, any requirements or restrictions imposed by the ICC or
PUCT could limit the amount of cash that is available to be
transferred from our RLECs to us.
</FONT>

<P align="center"><FONT size="2">43
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='109'></A>
</DIV>

<!-- link1 "CAPITALIZATION" -->

<P align="center">
<B><FONT size="2">CAPITALIZATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth as of
September&nbsp;30, 2004, the cash and cash equivalents and
capitalization:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">of Homebase on an actual basis without giving
    effect to the reorganization;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">of CCI Holdings, on an as adjusted basis to give
    effect to (a)&nbsp;the reorganization (b)&nbsp;this offering,
    (c)&nbsp;the amendment and restatement of our credit facilities
    and (d)&nbsp;our application of the estimated net proceeds as
    set forth in &#147;Use of Proceeds&#148;, in each case, assuming
    these transactions occurred on September&nbsp;30, 2004.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should read this table in conjunction with
&#147;Use of Proceeds&#148;, &#147;Management&#146;s Discussion
and Analysis of Financial Condition and Results of
Operations&nbsp;&#151; CCI Holdings&#148; and
&#147;&#151;&nbsp;CCI Texas&#148;, the financial statements and
the related notes of each of CCI Holdings, TXUCV and its
subsidiaries and the unaudited pro forma condensed consolidated
financial statements of CCI Holdings included elsewhere in this
prospectus.
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">As of September&nbsp;30, 2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Actual(2)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As Adjusted</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Cash and cash
    equivalents</FONT></B><FONT size="2">(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Long-term debt (including current
    portion):</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Credit facilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revolving credit facility(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Term loan facilities(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">432,617</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">389,629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total credit facilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">432,617</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">389,629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital lease obligations(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,314</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,314</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">9&nbsp;3/4 senior notes due 2012
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">130,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total long-term debt (including current portion)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">633,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">520,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Redeemable preferred shares:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;A preferred shares, $1,000 per value,
    182,000&nbsp;shares authorized, issued and outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">201,126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Members&#146; deficit/stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common shares, no par value, 10,000,000 shares
    authorized, issued and outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;A common stock, par value
    $0.01&nbsp;per
    share, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    authorized,
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    issued and outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;B common stock, par value $0.01 per
    share, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    authorized, issued and outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Additional paid-in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,482</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,472</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated other comprehensive loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(714</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(714</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Members&#146; deficit/stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,138</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total capitalization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">825,919</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">788,406</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes $7.5&nbsp;million of cash that will be
    used to pre-fund expected integration and restructuring costs
    for 2005 relating to the TXUCV acquisition described under
    note&nbsp;9 to the tables under &#147;Dividend Policy and
    Restrictions&#148;.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">44
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The existing credit facilities contain, and the
    amended and restated credit facilities are expected to contain,
    a $30.0&nbsp;million revolving credit facility with a maturity
    of six years.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">As of September&nbsp;30, 2004, the existing
    credit facilities contained a $315.0&nbsp;million term
    loan&nbsp;B facility with a maturity of seven years and six
    months. On October&nbsp;22, 2004, we amended and restated these
    facilities to, among other things, convert all borrowings then
    outstanding under the term loan&nbsp;B facility into
    approximately $314.0&nbsp;million of aggregate borrowings under
    a term loan&nbsp;C facility. We expect that the amended and
    restated credit facilities will increase the term loan C
    facility to $389.6&nbsp;million.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The capital lease obligations represent the
    outstanding balance under the GECC capital leases. See
    &#147;Description of Indebtedness&nbsp;&#151; GECC Capital
    Leases&#148;.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">45
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='110'></A>
</DIV>

<!-- link1 "DILUTION" -->

<P align="center">
<B><FONT size="2">DILUTION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If you purchase Class&nbsp;A common stock in this
offering, your interest will be diluted to the extent of the
difference between the price per share paid by you in this
offering and the net tangible book deficiency per share of our
common stock after the offering. Net tangible book deficiency
per share of our common stock may be determined at any date by
subtracting our total liabilities from our total assets less our
intangible assets and dividing the difference by the number of
shares of common stock outstanding at that date.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our net tangible book deficiency as of
September&nbsp;30, 2004 was approximately $366.6&nbsp;million,
or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock. After giving effect to this offering and
the application of the net proceeds in the manner described
under &#147;Use of Proceeds&#148;, our as adjusted net tangible
book deficiency as of September&nbsp;30, 2004 would have been
approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock. This represents an immediate increase in
net tangible book value of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of our common stock to our existing common stockholders
and an immediate dilution of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of our Class&nbsp;A common stock to new investors
purchasing our Class&nbsp;A common stock in this offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table illustrates the dilution to
new investors:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="78%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Initial public offering price per share of
    Class&nbsp;A common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net tangible book value (deficiency) per share as
    of September&nbsp;30, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase per share attributable to new investors
    in this offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As adjusted net tangible book value (deficiency)
    giving effect to this offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dilution in net tangible book value (deficiency)
    per share to investors in this offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth as of
September&nbsp;30, 2004:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the total number of shares of our common stock
    owned by our existing common stockholders and to be owned by new
    investors purchasing shares of Class&nbsp;A common stock in this
    offering;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the total consideration paid by our existing
    common stockholders and to be paid by the new investors
    purchasing shares of Class&nbsp;A common stock in this
    offering;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the average price per share of common stock paid
    by our existing common stockholders and to be paid by new
    investors purchasing shares of Class&nbsp;A common stock in this
    offering:
    </FONT></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="37%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Shares Purchased</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Total Consideration</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average Price</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per&nbsp;Share</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Existing common stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New investors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The foregoing discussion and tables exclude
shares sold by our existing equity investors. To the extent that
any options to purchase shares of our common stock are granted
in the future and these options are exercised, there may be
further dilution to new investors.
</FONT>

<P align="center"><FONT size="2">46
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2"> <A name='111'></A>
</FONT>
</DIV>

<!-- link1 "SELECTED HISTORICAL AND OTHER FINANCIAL DATA -- CCI HOLDINGS" -->

<P align="center">
<B><FONT size="2">SELECTED HISTORICAL AND OTHER FINANCIAL
DATA&nbsp;&#151; CCI HOLDINGS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Holdings is a holding company with no income
from operations or assets except for the capital stock of CCI
and Texas Holdings. CCI acquired ICTC and the related businesses
on December&nbsp;31, 2002. We believe the operations of ICTC and
the related businesses prior to December&nbsp;31, 2002 represent
the predecessor of CCI Holdings. Texas Holdings is a holding
company with no income from operations or assets except for the
capital stock of CCV (formerly TXUCV). Texas Holdings was formed
for the sole purpose of acquiring TXUCV, which was acquired on
April&nbsp;14, 2004 and renamed CCV after the closing of the
acquisition. Results for the nine months ended
September&nbsp;30, 2004 include the results of operations of CCV
since the date of the TXUCV acquisition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The selected consolidated financial information
set forth below have been derived from the unaudited combined
financial statements of ICTC and related businesses as of and
for the years ended December&nbsp;31, 1999 and 2000, the audited
combined financial statements of ICTC and related businesses as
of and for the years ended December&nbsp;31, 2001 and 2002, the
audited consolidated financial statements of CCI Holdings as of
and for the year ended December&nbsp;31, 2003 and the unaudited
consolidated financial statements of CCI Holdings as of and for
the nine months ended September&nbsp;30, 2003 and 2004. The
unaudited combined financial statements of ICTC and related
businesses, the predecessor of CCI Holdings, as of and for the
years ended December&nbsp;31, 1999 and 2000 and the unaudited
consolidated financial statements of CCI Holdings as of and for
the nine months ended September&nbsp;30, 2003 and 2004 reflect
all adjustments which management believes to be of a normal and
recurring nature and necessary for a fair presentation of the
results for the referenced unaudited periods. Operating results
for the nine months ended September&nbsp;30, 2003 and 2004 are
not necessarily indicative of the results for the full year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following selected historical consolidated
financial information should be read in conjunction with
&#147;Management&#146;s Discussion and Analysis of Financial
Condition&nbsp;&#151; CCI Holdings&#148;, the consolidated
financial statements of CCI Holdings and the audited and
unaudited combined financial statements of ICTC and related
businesses and the related notes included elsewhere in this
prospectus.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Predecessor</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">CCI Holdings</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Ended September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(dollars in millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Consolidated Statement of Operations
    Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">117.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense, net(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income tax expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss per common share&nbsp;&#151; basic and
    diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.33</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.43</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.61</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Other Financial Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Telephone Operations revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">72.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">79.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">90.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">161.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Other Data (as of end of period):</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Local access lines in service
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Residential
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,884</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,064</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,249</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,461</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,494</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">170,933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Business
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,428</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,475</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,426</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,793</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total local access lines(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93,312</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,997</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,722</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93,008</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">90,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,284</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">257,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">DSL subscribers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,761</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,951</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,564</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">47
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Predecessor</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">CCI Holdings</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Ended September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(dollars in millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Consolidated Cash Flow Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(296.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(293.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(547.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">277.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">285.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">525.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Predecessor</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">CCI Holdings</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">As of December&nbsp;31</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">As of September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(dollars in millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Consolidated Balance Sheet Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net plant, property&nbsp;&#38; equipment(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">350.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">284.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">270.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">236.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">317.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">319.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,051.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total long-term debt (including current
    portion)(5)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">180.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">182.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">633.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Redeemable preferred shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">99.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">201.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Parent company investment/ Members&#146; deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">206.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">178.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">174.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">On January&nbsp;1, 2002, ICTC and related
    businesses adopted SFAS&nbsp;No.&nbsp;142, Goodwill and Other
    Intangible Assets. Pursuant to SFAS&nbsp;No.&nbsp;142, ICTC
    ceased amortizing goodwill on January&nbsp;1, 2002 and instead
    tested for goodwill impairment annually. Amortization expense
    for goodwill and intangible assets was $17.6&nbsp;million from
    1999 through 2001, $10.1&nbsp;million in 2002 and
    $7.0&nbsp;million in 2003. Depreciation and amortization
    excludes amortization of deferred financing costs.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Interest expense includes amortization of
    deferred financing costs totaling $0.5&nbsp;million in 2003 and
    $4.8&nbsp;million and $0.4&nbsp;million as of September&nbsp;30,
    2004 and 2003, respectively.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">On September&nbsp;30, 2001, ICTC sold two
    exchanges of approximately 2,750 access lines, received proceeds
    from the sale of $7.2&nbsp;million and recorded a gain on the
    sale of assets of approximately $5.2&nbsp;million.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Property, plant and equipment are recorded at
    cost. The cost of additions, replacements and major improvements
    is capitalized, while repairs and maintenance are charged to
    expenses. When property, plant and equipment are retired from
    ICTC, the original cost, net of salvage, is charged against
    accumulated depreciation, with no gain or loss recognized in
    accordance with composite group life remaining methodology used
    for regulated telephone plant assets.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In connection with the TXUCV acquisition on
    April&nbsp;14, 2004, we issued $200.0&nbsp;million in aggregate
    principal amount of senior notes and entered into the existing
    credit facilities, of which $432.6&nbsp;million was outstanding
    as of September&nbsp;30, 2004. As of September&nbsp;30, 2004,
    $4.4&nbsp;million of long-term debt had been paid.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">48
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='112'></A>
</DIV>

<!-- link1 "SELECTED HISTORICAL AND OTHER FINANCIAL DATA -- CCI TEXAS" -->

<P align="center">
<B><FONT size="2">SELECTED HISTORICAL AND OTHER FINANCIAL
DATA&nbsp;&#151; CCI&nbsp;TEXAS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Texas Holdings is a holding company with no
income from operations or assets except for the capital stock of
CCV. Texas Holdings was formed for the sole purpose of acquiring
TXUCV, which was acquired on April&nbsp;14, 2004 and renamed CCV
after the closing of the acquisition. As a result, we have not
provided separate financial results for Texas Holdings and
present only the financial results of CCV. We believe that the
operations of TXUCV prior to April&nbsp;14, 2004 represent the
predecessor of CCV. In addition, TXU&nbsp;Corp. contributed the
parent company of Fort&nbsp;Bend Telephone Company on
August&nbsp;11, 2000 to TXUCV. We believe the operations of
Fort&nbsp;Bend Telephone Company prior to August&nbsp;11, 2000
represent the predecessor of TXUCV.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The selected consolidated financial information
set forth below have been derived from the audited consolidated
financial statements of Fort&nbsp;Bend Telephone Company, the
predecessor of TXUCV, as of and for the year ended
December&nbsp;31, 1999 and as of and for the period ended
August&nbsp;10, 2000, the audited consolidated financial
statements of TXUCV, the predecessor of CCV, as of and for the
years ended December&nbsp;31, 2000, 2001, 2002 and 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following selected consolidated financial
information should be read in conjunction with
&#147;Management&#146;s Discussion and Analysis of Financial
Condition&nbsp;&#151; CCV&#148; audited and unaudited
consolidated financial statements of TXUCV, the audited and
unaudited financial statements of CCV and the related notes
elsewhere in this prospectus.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Predecessor to TXUCV</FONT></B></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period from</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period from</FONT></B></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1/1/00 to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">8/11/00 to</FONT></B></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">8/10/00</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">12/31/00</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(dollars in millions)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Consolidated Statement of Operations
    Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">126.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">207.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">214.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">194.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Network operating costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring, asset impairment and other
    charges(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill impairment charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(132.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense, net(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(128.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes (expense)&nbsp;benefit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(89.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Other Data (as of end of period):</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Local access lines in service
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Residential
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,182</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">117,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119,488</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">116,862</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Business
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,292</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,406</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,023</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,780</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total local access lines
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">116,576</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">116,422</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">169,894</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">172,083</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">171,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">DSL subscribers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,069</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,423</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,668</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CLEC access lines
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,541</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,591</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,088</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Consolidated Cash Flow Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from (used in) operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows used in investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(53.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(48.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(59.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from (used in) financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(61.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">49
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">As of December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Predecessor to TXUCV</FONT></B></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As of 8/10/00</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Consolidated Balance Sheet Data:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net plant, property&nbsp;&#38; equipment(5)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">198.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">332.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">363.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">240.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">231.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">555.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">787.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">800.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">700.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">647.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total long-term debt (including current
    portion)(6)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">157.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">172.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">166.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">354.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">490.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">496.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">407.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">410.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">On January&nbsp;1, 2002, TXUCV adopted
    SFAS&nbsp;No.&nbsp;142, Goodwill and Other Intangible Assets.
    Pursuant to SFAS&nbsp;No.&nbsp;142, TXUCV ceased amortizing
    goodwill on January&nbsp;1, 2002, and instead tests for goodwill
    impairment annually. Amortization expense for goodwill and
    intangible assets was $5.3&nbsp;million in 1999,
    $8.7&nbsp;million in 2000, and $13.7&nbsp;million in 2001. In
    accordance with SFAS&nbsp;No.&nbsp;142, TXUCV recognized
    goodwill impairments of $13.2&nbsp;million and
    $18.0&nbsp;million in 2003 and 2002, respectively.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">During 2002, TXUCV recognized restructurings,
    asset impairment and other charges of $101.4&nbsp;million due to
    write down of assets relating to TXUCV&#146;s CLEC and transport
    businesses.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Interest expense prior to the TXUCV acquisition
    was from the TXU revolving credit facility, GECC capital leases,
    mortgage notes and is reduced by allowance for funds used during
    construction.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Other, net includes equity earnings from the
    cellular partnerships, dividend income and recognizing the
    minority interests of investors in East Texas Fiber, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Property, plant and equipment items are recorded
    at cost. The cost of additions, replacements and major
    improvements is capitalized, while repairs and maintenance are
    charged to expense.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In connection with the TXUCV acquisition on
    April&nbsp;14, 2004, CCI&nbsp;Texas and CCI&nbsp;Illinois
    incurred, severally and not jointly, an aggregate of
    $637.0&nbsp;million of new long-term debt, of which
    CCI&nbsp;Texas is severally responsible for $125.0&nbsp;million
    in senior notes and $267.0&nbsp;million in term loans under the
    existing credit facilities.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">50
</FONT>

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<DIV align="left">
<A name='113'></A>
</DIV>

<!-- link1 "MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CCI HOLDINGS" -->

<P align="center">
<B><FONT size="2">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION</FONT></B>

<DIV align="center">
<B><FONT size="2">AND RESULTS OF OPERATIONS&nbsp;&#151; CCI
HOLDINGS</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">We present below Management&#146;s Discussion
and Analysis of Financial Condition and Results of Operations of
CCI Holdings. The following discussion should be read in
conjunction with the historical consolidated financial
statements and related notes, unaudited pro forma financial
statements and other financial information related to CCI
Holdings appearing elsewhere in this prospectus.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">The following discussion gives retroactive
effect to our reorganization as if it had occurred on
September&nbsp;30, 2004. As a result, the discussion below
represents the financial results of CCI and Texas Holdings on a
consolidated basis. For all periods prior to April&nbsp;14,
2004, the date of the TXUCV acquisition, our financial results
only include CCI and its consolidated subsidiaries. For all
periods subsequent to April&nbsp;14, 2004, our financial results
include CCI and Texas Holdings on a consolidated
basis.</FONT></I>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are an established rural local exchange
company that provides communications services to residential and
business customers in Illinois through CCI Illinois and in Texas
through CCI Texas. As of September&nbsp;30, 2004, we were the
16th largest local telephone company in the United States, based
on industry sources, with approximately 257,726 local access
lines and 24,385 DSL lines in service. Our main sources of
revenues are our local telephone businesses in Illinois and
Texas, which offer an array of services, including local dial
tone, custom calling features, private line services, long
distance, dial-up and high-speed Internet access, carrier access
and billing and collection services. We also operate a number of
complementary businesses. In Illinois, we provide additional
services such as telephone service to county jails and state
prisons, operator and national directory assistance and
telemarketing and order fulfillment services. In Texas, we
publish telephone directories and offer wholesale transport
services on a fiber optic network.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Segments</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with the reporting requirement of
Statement of Financial Accounting Standards, or SFAS,
No.&nbsp;131, <I>Disclosure about Segments of an Enterprise and
Related Information</I>, CCI Holdings has two reportable
business segments, Telephone Operations and Other Operations.
The results of operations discussed below reflect the
consolidated results of CCI Holdings.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Acquisitions</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Holdings began operations with the
acquisition from McLeodUSA of ICTC and several related
businesses on December&nbsp;31, 2002. CCI Texas began operations
in its present form with our acquisition of all of the capital
stock of TXUCV on April&nbsp;14, 2004 for $527.0&nbsp;million in
cash, subject to adjustment. As a result of the foregoing,
period-to-period comparisons of our financial results to date
are not necessarily meaningful and should not be relied upon as
an indication of future performance due to the following factors:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Revenues and expenses in the first nine months of
    2004 and in 2003 for certain long distance services and data and
    Internet services include services that were not part of the
    financial results of our Telephone Operations segment when it
    was owned by McLeodUSA in 2002 and 2001. These services were
    provided, and revenues were recognized, by McLeodUSA as part of
    its CLEC operations. In order for McLeodUSA to provide these
    services to customers in our Illinois RLEC&#146;s service area,
    ICTC provided McLeodUSA&#146;s CLEC operations access to its
    network and billing and collection services for which it
    received network access charges and billing and collection fees.
    Following our acquisition of ICTC and the related businesses,
    Telephone Operations launched its own business providing similar
    long distance and data and Internet services to customers
    primarily located in our Illinois RLEC&#146;s service area. As a
    result, the results of operations of Telephone
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">51
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">Operations in 2003 include operations that were
    not included in 2002 and 2001 when ICTC and the related
    operations were owned by McLeodUSA.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Revenues and expenses in the first nine months of
    2004 include the results of operations of CCI Texas from
    April&nbsp;14, 2004, the date of its acquisition, through
    September&nbsp;30, 2004. As a result, our financial results as
    of and for the nine month period ended for September&nbsp;30,
    2004 include operations that were not included for the same
    period in 2003.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Expenses for the first nine months of 2004 and
    for the calendar year 2003 included $2.9&nbsp;million and
    $2.0&nbsp;million, respectively, in aggregate professional
    services fees paid to our existing equity investors pursuant to
    two professional services agreements. The fees due under these
    agreements total $5.0&nbsp;million for each 12&nbsp;month
    period. The rights of our existing equity investors to receive
    these professional service fees will terminate upon the closing
    of this offering. See &#147;Certain Relationships and Related
    Party Transactions&nbsp;&#151; Professional Services Fee
    Agreements&#148;.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In 2001 and 2002 McLeodUSA encountered financial
    difficulties and, as a result, initiated cost-cutting
    initiatives and reduced financial support for all operations
    other than ICTC. Although certain expenses were reduced as a
    result of these initiatives, revenues and income from operations
    also declined in these periods. In connection with its
    bankruptcy proceeding in 2002, McLeodUSA identified ICTC and the
    related businesses as assets held for sale and as discontinued
    operations.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Revenues</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To date, our revenues have been derived primarily
from the sale of voice and data communications services to
residential and business customers in our RLECs&#146; service
areas. For the nine months ended September&nbsp;30, 2004,
approximately 84.4%, or $161.2&nbsp;million, of our operating
revenues came from Telephone Operations and approximately 15.6%,
or $29.8&nbsp;million, came from Other Operations. For the nine
months ended September&nbsp;30, 2003, approximately 68.4%, or
$67.5&nbsp;million, of our operating revenues came from
Telephone Operations and approximately 31.6%, or
$31.2&nbsp;million, came from Other Operations. For the year
ended December&nbsp;31, 2003, approximately 68.3%, or
$90.3&nbsp;million, of our operating revenues came from
Telephone Operations and 31.7%, or $42.0&nbsp;million, came from
Other Operations. For the year ended December&nbsp;31, 2002,
approximately 69.8%, or $76.7&nbsp;million, of our operating
revenues came from Telephone Operations and 30.2%, or
$33.2&nbsp;million, from Other Operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to focus on continuing to generate
increasing revenues in our Telephone Operations segment from our
local telephone, long distance, and data and Internet
businesses. We expect that the sale of DSL lines and the
bundling of local service, custom calling features, voicemail
and Internet access will continue to be our primary focus. We
anticipate that the sale of communications services to customers
in our RLECs&#146; service areas in Illinois and Texas will
continue to provide the predominant share of our revenues for
the foreseeable future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are currently experiencing a decline in the
number of local access lines in service in our RLECs&#146;
service areas. As of September&nbsp;30, 2004, we had
approximately 257,726 local access lines in service, which is a
decrease of 6,541&nbsp;local access lines from approximately
264,267&nbsp;local access lines in service at September&nbsp;30,
2003. We believe the principal reason we lost local access lines
in this period was due to the weak economy in our service areas.
In addition, we believe our RLECs lost local access lines due to
the disconnection of second telephone lines by our residential
customers in connection with their substituting DSL or cable
modem service for dial-up Internet access and wireless services
for wireline service.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The number of DSL subscribers we serve grew
substantially for the year ended 2003 and during the nine months
ended September&nbsp;30, 2004, compared to the same periods in
2002 and 2003, respectively. This increase is primarily due to
our continued focus on selling DSL service and the success of
bundling DSL with combinations of local service, custom calling
features and voicemail. DSL lines in service increased 206.7% to
approximately 24,385 lines (or 27.1% when CCI Texas&#146; 14,276
lines are excluded) as of September&nbsp;30, 2004 from
approximately 7,951 lines as of December&nbsp;31, 2003, which
was a 38.0%
</FONT>

<P align="center"><FONT size="2">52
</FONT>

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<DIV align="left">
<FONT size="2">increase from approximately 5,761 lines as of
December&nbsp;31, 2002. Our penetration rate for DSL lines in
service was approximately 9.5% and 9% of our RLECs&#146; local
access lines at September&nbsp;30, 2004 and December&nbsp;31,
2003, respectively.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have also been successful in growing our
revenues in Telephone Operations by bundling combinations of
local service, custom calling features, voicemail and Internet
access. The number of these bundles, which we refer to as
service bundles, increased 323.9% to over 28,400 service bundles
(or 22.4% when CCI Texas&#146; 20,200 bundles are excluded) at
September&nbsp;30, 2004 from approximately 6,700 service bundles
at December&nbsp;31, 2003, which itself was a 43.0% increase
from approximately 4,700 service bundles at December&nbsp;31,
2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Telephone Operations added revenues in 2003 and
in the nine months ended September&nbsp;30, 2004, from long
distance provided primarily to our RLECs&#146; customers that
had been provided previously by McLeodUSA and TXUCV. At
September&nbsp;30, 2004, Telephone Operations had approximately
119,354 long distance customers, which represented approximately
a 46.3% penetration of local access lines (or 60.9% when CCI
Texas&#146; 65,641 long distance customers are excluded). At
December&nbsp;31, 2003, Telephone Operations had approximately
49,699 long distance customers, which represented approximately
a 54.7% penetration of local access lines. We do not anticipate
significant growth in revenues for Telephone Operations due to
its primarily rural service area, but expect to continue to have
consistently strong cash flows due to relatively consistent
customer demand as a result of a generally supportive regulatory
environment and limited competition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We had success in growing Other Operations
revenues between 2002 and 2003 for several reasons. Due to its
financial difficulties and bankruptcy in 2002, McLeodUSA
initiated cost-cutting initiatives and reduced financial support
for all operations other than ICTC and, as a result, revenues
for Other Operations suffered. In 2003, following the
acquisition from McLeodUSA, management renewed its focus on
growing this segment. In addition, revenue growth was driven by
the award to Public Services by the State of Illinois of an
extension to the prison contract in December 2002 that nearly
doubled the number of prison sites served. In the near term, we
anticipate that Other Operations&#146; revenues will continue to
grow as it builds on the successes from the renewed focus by
management in 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Expenses</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our primary operating expenses consist of cost of
services, selling, general and administrative expenses and
depreciation and amortization.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Cost of Services and Products</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our cost of services includes the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">operating expenses relating to plant costs,
    including those related to the network and general support
    costs, central office switching and transmission costs and cable
    and wire facilities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">general plant costs, such as testing,
    provisioning, network, administration, power and engineering;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the cost of transport and termination of long
    distance and private lines outside our RLECs&#146; service area.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Telephone Operations has agreements with
McLeodUSA and other carriers to provide long distance transport
and termination services. These agreements contain various
commitments and expire at various times. Telephone Operations
believes it will meet all commitments in the agreements and
believes it will be able to procure services for future periods.
We are currently procuring services for future periods, and at
this time, the costs and related terms under which we will
purchase long distance transport and termination services have
not been determined. We, however, do not expect any material
adverse changes from any changes in any new service contract.
</FONT>

<P align="center"><FONT size="2">53
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Selling, General and Administrative
    Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Selling, general and administrative expenses
include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">selling and marketing expenses;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">expenses associated with customer care;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">billing and other operating support
    systems;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">corporate expenses.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Telephone Operations incurs selling and marketing
and customer care expenses from its customer service centers and
commissioned sales people. Our customer service centers are the
primary sales channels for residential and business customers
with one or two phone lines, whereas commissioned sales
representatives provide customized proposals to larger business
customers. In addition, we use customer retail centers for
various communications needs, including new telephone, Internet
and paging service purchases.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of our Other Operations businesses primarily
use an independent sales and marketing team comprised of
dedicated field sales account managers, management teams and
service representatives to execute our sales and marketing
strategy.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have operating support and other back office
systems that are used to enter, schedule, provision and track
customer orders, test services and interface with trouble
management, inventory, billing, collection and customer care
service systems for the local access lines in our operations. We
are in the process of migrating key business processes of CCI
Illinois and CCI Texas onto single, company-wide systems and
platforms. Our objective is to improve profitability by reducing
individual company costs through centralization, standardization
and sharing of best practices. We expect that our operating
support systems and customer care expenses will increase as we
integrate CCI Illinois&#146; and CCI Texas&#146; back office
systems. As of September&nbsp;30, 2004, we had spent
$2.3&nbsp;million on integration.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Depreciation and Amortization
    Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We recognize depreciation expenses for our
regulated telephone plant using rates and lives approved by the
ICC in Illinois and the PUCT in Texas. The provision for
depreciation on nonregulated property and equipment is recorded
using the straight-line method based upon the following useful
lives:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="89%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Years</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Buildings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5-35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Network and outside plant facilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5-30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture, fixtures, and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3-17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amortization expenses are recognized primarily
for our intangible assets considered to have finite useful lives
on a straight-line basis. In accordance to
SFAS&nbsp;No.&nbsp;142, <I>Goodwill and Other Intangible
Assets</I>, goodwill and intangible assets that have indefinite
useful lives are not amortized but rather are tested annually
for impairment. Because trade names have been determined to have
indefinite lives, they are not amortized. Software and customer
relationships are amortized over their useful lives of five and
ten years, respectively.
</FONT>

<P align="center"><FONT size="2">54
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following summarizes the revenues and
operating expenses from continuing operations for ICTC and
related business, the predecessor of CCI, for the years ended
December&nbsp;31, 2001 and 2002, and for CCI Holdings on a
consolidated basis for the year ended December&nbsp;31, 2003 and
for the nine months ended September&nbsp;30, 2003 and 2004, from
these sources:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="21%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Predecessor</FONT></B></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap>&nbsp;<B><FONT size="1">CCI Holdings</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Nine Months Ended September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">$</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">$</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">$</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">$</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">$</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenues</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenues</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenues</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenues</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenues</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="1">Revenues:</FONT></B></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Telephone Operations Local calling services
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">34.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">29.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">33.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">30.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">34.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">26.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">25.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">26.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">52.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">27.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Network access services
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">33.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">29.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">29.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">26.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">26.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">20.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">19.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">19.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">35.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Subsidies
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">30.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">16.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Long distance services
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">10.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">13.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Data and Internet services
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">13.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Other services
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">15.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Total Telephone Operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">79.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">69.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">76.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">69.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">90.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">68.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">67.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">68.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">161.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">84.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Other Operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">35.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">31.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">33.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">30.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">42.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">31.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">31.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">31.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">29.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">15.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Total operating revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">115.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">109.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">132.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">98.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">191.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="1">Expenses:</FONT></B></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Operating expenses(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Telephone Operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">47.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">41.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">46.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">42.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">54.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">41.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">41.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">42.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">92.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">48.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Other Operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">27.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">23.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">24.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">22.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">34.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">25.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">24.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">24.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">26.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">13.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">31.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">27.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">24.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">22.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">22.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">37.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">19.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">106.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">92.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">96.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">87.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">111.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">84.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">83.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">84.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">156.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">81.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">13.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">21.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">15.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">15.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">15.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">34.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">9.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">9.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">9.2</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">14.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Other income, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Income taxes expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5.4</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.3</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2.8</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3.7</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6.6</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8.0</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5.5</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3.9</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5.1</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">%</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">This category reflects costs of services and
    products and selling, general and administrative expenses line
    items set forth in the consolidated financial statement of
    income of CCI Holdings and the audited combined statements of
    income for ICTC and related business.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Results of Operations</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Nine Months Ended September&nbsp;30, 2004
    compared to September&nbsp;30, 2003</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Revenues</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Holdings revenues increased by 93.5%, or
$92.3&nbsp;million, to $191.0&nbsp;million in 2004 from
$98.7&nbsp;million in 2003. Approximately $89.2&nbsp;million of
the increase resulted from the inclusion of the results of
operations for CCI Texas since the April&nbsp;14, 2004
acquisition date. The remainder of the increase was primarily
due to increased subsidy payments in 2004.
</FONT>

<P align="center"><FONT size="2">55
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Telephone Operations Revenues</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Local calling services
</FONT></B><FONT size="2">revenues increased $26.8&nbsp;million,
to $52.5&nbsp;million in 2004 from $25.7&nbsp;million in 2003.
The increase resulted entirely from the inclusion of the results
of operations for CCI Texas since the April&nbsp;14, 2004
acquisition date. Excluding the impact of the TXUCV acquisition,
local calling services revenues declined $0.1&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Network access services
</FONT></B><FONT size="2">revenues increased $16.0&nbsp;million,
to $35.1&nbsp;million in 2004 from $19.1&nbsp;million in 2003.
Excluding the impact of the TXUCV acquisition, network access
services revenues decreased 7.3%, or $1.4&nbsp;million, to
$17.7&nbsp;million in 2004 from $19.1&nbsp;million in 2003.
During the last two years, the FCC instituted modifications to
our Illinois RLEC&#146;s cost recovery mechanisms, decreasing
implicit support, which allowed rural carriers to set interstate
network access charges higher than the actual cost of
originating and terminating calls, and increasing explicit
support through subsidy payments from the federal universal
service fund. The ICC similarly decreased intrastate network
access charges but did not offset these reductions with state
universal service fund subsidies.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Subsidies </FONT></B><FONT size="2">revenues
increased $26.0&nbsp;million, to $30.9&nbsp;million in 2004 from
$4.9&nbsp;million in 2003. Excluding the impact of the TXUCV
acquisition, subsidies revenues increased 104.1%, or
$5.1&nbsp;million, to $10.0&nbsp;million in 2004 from
$4.9&nbsp;million in 2003. The increase was primarily a result
of an increase in universal service fund support due in part to
normal subsidy settlement processes and in part due to the FCC
modifications to our Illinois RLEC&#146;s cost recovery
mechanisms described above in network access services revenues.
The subsidy settlement process relates to the process of
separately identifying regulated assets that are used to provide
interstate services, and therefore fall under the regulatory
regime of the FCC, from regulated assets used to provide local
and intrastate services, which fall under the regulatory regime
of the ICC. Since our Illinois RLEC is regulated under a rate of
return system for interstate revenues, the value of all assets
in the interstate rate base is critical to calculating this rate
of return and, therefore, the subsidies our Illinois RLEC will
receive. In 2004, our Illinois RLEC analyzed its regulated
assets and associated expenses and reclassified some of these
for purposes of regulatory filings. The net effect of this
reclassification was that our Illinois RLEC was able to recover
additional subsidy payments for prior years and for 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Long distance services
</FONT></B><FONT size="2">revenues increased $5.0&nbsp;million,
to $13.2&nbsp;million in 2004 from $8.2&nbsp;million in 2003.
Excluding the impact of the TXUCV acquisition, long distance
services revenues increased $0.1&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Data and Internet
</FONT></B><FONT size="2">revenues increased $7.1&nbsp;million,
to $13.7&nbsp;million in 2004 from $6.6&nbsp;million in 2003.
Excluding the impact of the TXUCV acquisition, services revenues
increased 7.6%, or $0.5&nbsp;million, to $7.1&nbsp;million in
2004 from $6.6&nbsp;million in 2003. The increase was due
primarily to an increase in the number of DSL subscribers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Other services
</FONT></B><FONT size="2">revenues increased $12.8&nbsp;million,
to $15.8&nbsp;million in 2004 from $3.0&nbsp;million in 2003.
Excluding the impact of the TXUCV acquisition, other services
revenues increased 6.7%, or $0.2&nbsp;million, to
$3.2&nbsp;million in 2004 from $3.0&nbsp;million in 2003. The
increase was due primarily to an increase in directory
advertising revenues at CCI Texas.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Other Operations Revenues</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other Operations revenues decreased 4.5%, or
$1.4&nbsp;million, to $29.8&nbsp;million in 2004 from
$31.2&nbsp;million in 2003. The decrease was due primarily to
the loss of a major telemarketing customer in 2004, a decline in
telecommunications business system sales and a slowdown in
operator services traffic.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Public Services
</FONT></B><FONT size="2">revenues increased 4.6%, or
$0.6&nbsp;million, to $13.6&nbsp;million in 2004 from
$13.0&nbsp;million in 2003. The increase was primarily due to an
extension of the prison contract awarded by the State of
Illinois Department of Corrections in December 2002 period
pursuant to which the number of prisons serviced by Public
Services nearly doubled. The new prison sites were implemented
during the first half of 2003. As a result, we did not receive
the revenue from these additional prison sites for the entire
nine months ended September&nbsp;30, 2003.
</FONT>

<P align="center"><FONT size="2">56
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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Operator Services
</FONT></B><FONT size="2">revenues decreased 16.7%, or
$1.2&nbsp;million to $6.0&nbsp;million in 2004 from
$7.2&nbsp;million in 2003. The decrease was primarily due to a
general decline in demand for these services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Market Response
</FONT></B><FONT size="2">revenues increased 3.8%, or
$0.2&nbsp;million, to $5.3&nbsp;million in 2004 from
$5.1&nbsp;million in 2003. The increase was primarily due to new
client growth and volume increases from existing telemarketing
and fulfillment programs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Business Systems
</FONT></B><FONT size="2">revenues decreased 8.7%, or
$0.4&nbsp;million, to $4.2&nbsp;million in 2004 from
$4.6&nbsp;million in 2003. The decrease was primarily due to the
weakened economy and general indecision or delay in equipment
purchases.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Mobile Services
</FONT></B><FONT size="2">revenues decreased 18.2%, or
$0.2&nbsp;million, to $0.9&nbsp;million in 2004 from
$1.1&nbsp;million in 2003. This decrease was primarily due to a
continuing erosion of the customer base for one-way paging
products as competitive alternatives are increasing in
popularity.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">CCI Holdings Operating Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Holdings operating expenses, increased
$52.8&nbsp;million, to $118.8&nbsp;million in 2004 from
$66.0&nbsp;million in 2003. Approximately $49.6&nbsp;million of
the increase resulted from the inclusion of the results of
operations for CCI Texas since the April&nbsp;14, 2004
acquisition date. The remainder of the increase was partially
due to expenses incurred in connection with our integration
activities. In the first nine months of 2004, integration costs
incurred by CCI Holdings were $2.3&nbsp;million. Similarly,
accounting, legal and other professional service fees have
increased by $1.3&nbsp;million.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Telephone Operations Operating
    Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Operating expenses for Telephone Operations
increased $50.8&nbsp;million, to $92.6&nbsp;million in 2004 from
$41.8&nbsp;million in 2003. Excluding the impact of the TXUCV
acquisition, operating expenses for Telephone Operations
increased 2.9%, or $1.2&nbsp;million, to $43.0&nbsp;million in
2004 from $41.8&nbsp;million in 2003. Integration costs incurred
by CCI Illinois of $0.9&nbsp;million and increased professional
service fees of $0.5&nbsp;million more than account for the
increase in operating expenses.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Other Operations Operating Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Operating expenses for Other Operations increased
8.3%, or $2.0&nbsp;million, to $26.2&nbsp;million in 2004 from
$24.2&nbsp;million in 2003. Costs of providing telemarketing and
fulfillment services increased by $0.5&nbsp;million. In
addition, commission expense on sales to prison systems
increased by $0.4&nbsp;million largely because this business
segment was in the start-up phase in the first part of 2003. An
increase in bad debt experience for prison system customers
contributed an additional $0.3&nbsp;million of expenses in the
first nine months of 2004. Corporate allocations, legal and
other fees have increased by $0.6&nbsp;million with the
increased size of the company.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Depreciation and Amortization</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Depreciation and amortization increased
$20.3&nbsp;million, to $37.5&nbsp;million in 2004 from
$17.2&nbsp;million in 2003. Excluding the impact of the TXUCV
acquisition, depreciation and amortization remained constant at
$17.2&nbsp;million in 2004 compared to 2003.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD width="3%"></TD>
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</TR>

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    <TD></TD>
    <TD>
    <I><FONT size="2">Income from Operations</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Income from operations increased
$19.2&nbsp;million to $34.7&nbsp;million in 2004 compared to
$15.5&nbsp;million in 2003. Excluding the impact of the TXUCV
acquisition, income from operations decreased 0.6% or
$0.1&nbsp;million to $15.4&nbsp;million in 2004 compared to
$15.5&nbsp;million in 2003 as increased operating expenses
offset the revenue increases.
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Interest Expense</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest expense increased $19.4&nbsp;million, to
$28.5&nbsp;million in 2004 from $9.1&nbsp;million in 2003. In
connection with the TXUCV acquisition, CCI Holdings refinanced
its CoBank credit facility resulting in a charge of
$4.2&nbsp;million to write-off unamortized deferred financing
costs. The remaining increase is primarily due to an increase in
long-term debt to help fund the TXUCV acquisition and an
increase in interest rates.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD width="3%"></TD>
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</TR>

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    <TD></TD>
    <TD>
    <I><FONT size="2">Other Income (Expense)</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other income increased $2.5&nbsp;million, to
$2.6&nbsp;million in 2004 from $0.1&nbsp;million in 2003 due
primarily to $2.0&nbsp;million of partnership income received
from minority interests in two cellular partnerships acquired in
the TXUCV acquisition.
</FONT>

<DIV>&nbsp;</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Income Taxes</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Provision for income taxes increased
$1.1&nbsp;million, to $3.7&nbsp;million in 2004 from
$2.6&nbsp;million in 2003. The effective income tax rate was
41.6% and 40.6% for the nine months ended September&nbsp;30,
2004 and 2003, respectively. A change in the earnings mix as a
result of the TXUCV acquisition contributed to a higher overall
effective rate.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Net Income</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net income increased $1.2&nbsp;million, to
$5.1&nbsp;million in 2004 from $3.9&nbsp;million in 2003. The
increase is primarily attributable to inclusion of the results
of operations of CCI Texas since the April&nbsp;14, 2004
acquisition date, offset by a lower net income of CCI Illinois
primarily due to increased interest expense from increased
borrowings.
</FONT>

<DIV>&nbsp;</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Year Ended December&nbsp;31, 2003 compared
    to December&nbsp;31, 2002</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Revenues</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our revenues increased by 20.4%, or
$22.4&nbsp;million, to $132.3&nbsp;million in 2003 from
$109.9&nbsp;million in 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Telephone Operations&#146; revenues increased
17.7%, or $13.6&nbsp;million, to $90.3&nbsp;million in 2003 from
$76.7&nbsp;million in 2002. The increase was due primarily to
the inclusion of long distance and data and Internet revenues
previously recognized by McLeodUSA.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other Operations&#146; revenues increased 26.5%,
or $8.8&nbsp;million, to $42.0&nbsp;million in 2003 from
$33.2&nbsp;million in 2002. The increase was due primarily to a
significant growth in Public Services revenues as a result of
the inclusion of additional prisons when the applicable contract
to provide telecommunications services to the State of Illinois
Department of Corrections was renewed.
</FONT>

<DIV>&nbsp;</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Telephone Operations Revenues</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Local calling services
</FONT></B><FONT size="2">revenues increased 3.0%, or
$1.0&nbsp;million, to $34.4&nbsp;million in 2003 from
$33.4&nbsp;million in 2002. The increase was due to an increase
in fees paid to our Illinois RLEC by wireless carriers for local
access. In addition, revenues from custom calling features and
voicemail increased $0.3&nbsp;million due primarily to the
success of selling service bundles. These increases were
partially offset by the impact of a reduction in local access
lines of 2,121 lines.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Network access services
</FONT></B><FONT size="2">revenues decreased 7.6%, or
$2.2&nbsp;million, to $26.8&nbsp;million in 2003 from
$29.0&nbsp;million in 2002. During the last two years, the FCC
instituted modifications to our Illinois RLEC&#146;s cost
recovery mechanisms, decreasing implicit support, which allowed
rural carriers to set interstate network access charges higher
than the actual cost of originating and terminating calls, and
increasing explicit support through subsidy payments from the
federal universal service fund. The ICC similarly
</FONT>

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<DIV align="left">
<FONT size="2">decreased intrastate network access charges but
did not offset these reductions with state universal service
fund subsidies.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Subsidies </FONT></B><FONT size="2">revenues
increased 46.3%, or $1.9&nbsp;million, to $6.0&nbsp;million in
2003 from $4.1&nbsp;million in 2002. The increase was a result
of an increase in federal universal service fund support due in
part to normal subsidy settlement processes and in part due to
the FCC modifications to our Illinois RLEC&#146;s cost recovery
mechanisms described above in network access services revenues.
The subsidy settlement process relates to the process of
separately identifying regulated assets that are used to provide
interstate services, and therefore fall under the regulatory
regime of the FCC, from regulated assets used to provide local
and intrastate services, which fall under the ICC for regulatory
purposes. Since our Illinois RLEC is regulated under a rate of
return system for interstate revenues, the value of all assets
in the interstate rate base is critical to calculating this rate
of return, and thus the extent to which our Illinois RLEC will
receive subsidy payments. In 2003, our Illinois RLEC analyzed
its regulated assets and reclassified some of these assets for
purposes of regulatory filings. The net effect of this
reclassification was that our Illinois RLEC was able to recover
additional subsidy payments for prior years and for 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Long distance services
</FONT></B><FONT size="2">revenues increased 635.7%, or
$8.9&nbsp;million, to $10.3&nbsp;million in 2003 from
$1.4&nbsp;million in 2002. Telephone Operations did not provide
interLATA long distance service in 2002, and instead this
service was offered by other divisions of McLeodUSA. The only
long distance service revenues included in 2002 was for
intraLATA long distance services offered by our Illinois RLEC.
At December&nbsp;31, 2003 Telephone Operations&#146; long
distance penetration was approximately 54.6%. LATAs are the 161
local access transport areas created to define the service areas
of the RBOCs by the judgment breaking up AT&#38;T. References to
interLATA long distance service mean long distance service
provided between LATAs and intraLATA refers to service within
the applicable LATA.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Data and Internet
</FONT></B><FONT size="2">services revenues increased 102.3%, or
$4.4&nbsp;million, to $8.7&nbsp;million in 2003 from
$4.3&nbsp;million in 2002. As with long distance services, while
certain portions of revenues for DSL and non-local private lines
was attributed to our Telephone Operations, the remainder of
revenues from data and Internet services was included in other
McLeodUSA divisions for 2002. Revenues from DSL service
increased 70.0%, or $0.7&nbsp;million, in 2003. Total DSL lines
in service increased 38.7% to approximately 7,951 lines as of
December&nbsp;31, 2003 from approximately 5,761 lines as of
December&nbsp;31, 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Other services
</FONT></B><FONT size="2">revenues decreased 8.9%, or
$0.4&nbsp;million, to $4.1&nbsp;million in 2003 from
$4.5&nbsp;million in 2002. The decrease was due primarily to a
reduction in billing and collection revenues.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Other Operations Revenues</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other Operations revenues increased 26.5%, or
$8.8&nbsp;million, to $42.0&nbsp;million in 2003 from
$33.2&nbsp;million in 2002. The increase was primarily due to
the extension of the prison contract awarded by the State of
Illinois Department of Corrections in December 2002 pursuant to
which the number of prisons serviced by Public Services nearly
doubled and, secondarily, a more concerted commitment from
management in 2003 to developing these services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Public Services
</FONT></B><FONT size="2">revenues increased 78.8%, or
$7.8&nbsp;million, to $17.7&nbsp;million in 2003 from
$9.9&nbsp;million in 2002. The increase was due to the extension
of the prison contract awarded by the State of Illinois
Department of Corrections in December 2002 pursuant to which the
number of prisons serviced by Public Services nearly doubled.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Operator Services
</FONT></B><FONT size="2">revenues decreased 20.4%, or
$2.3&nbsp;million to $9.0&nbsp;million in 2003 from
$11.3&nbsp;million in 2002. The decrease was due primarily to
decreases in revenues from general declines in demand.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Market Response
</FONT></B><FONT size="2">revenues increased 62.2%, or
$2.8&nbsp;million, to $7.3&nbsp;million in 2003 from
$4.5&nbsp;million in 2002. The increase was due to a renewed
commitment from management to serving third party customers and
a $500,000 investment in technology that allowed a larger sales
team to be more competitive in pursuing additional business
opportunities.
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Business Systems
</FONT></B><FONT size="2">revenues increased 13.6%, or
$0.8&nbsp;million, to $6.7&nbsp;million in 2003 from
$5.8&nbsp;million in 2002. The increase was due in part to the
ability to secure performance bonds necessary to bid on certain
structured wiring business opportunities which we were
previously unable to secure due to McLeodUSA&#146;s financial
difficulties. The increase was also due to a general improvement
in the demand for telecom equipment spending in our markets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Mobile Services
</FONT></B><FONT size="2">revenues decreased 6.6%, or
$0.1&nbsp;million, to $1.4&nbsp;million in 2003 from
$1.5&nbsp;million in 2002. This decrease was due to a continuing
shift in demand from residential customers for one-way paging
services to business customers who generate lower average
revenues per customer.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Operating Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our operating expenses increased 24.2%, or
$17.3&nbsp;million, to $88.8&nbsp;million in 2003 from
$71.5&nbsp;million in 2002. The increase was due primarily to
expenses incurred to generate new services. In addition,
expenses increased compared to 2002 due to the growth in its
continuing operations, expenses related to the acquisition of
ICTC and the related businesses, including the re-establishment
of the CCI brand, systems and other related separation expenses,
the hiring and retention of the management team and
$2.0&nbsp;million in professional services fees paid to our
existing equity investors.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Telephone Operations Operating
    Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Operating expenses for Telephone Operations for
2003 increased 16.6%, or $7.8&nbsp;million, to
$54.7&nbsp;million in 2003 from $46.9&nbsp;million in 2002.
Expenses associated with the initiation of our Telephone
Operations&#146; long distance services accounted for the
majority of the variance resulting in $6.5&nbsp;million of
direct costs associated with long distance services revenues and
data and Internet services revenues that were not included in
2002. Information technology and systems expenses increased
$1.3&nbsp;million in 2003 from $4.3&nbsp;million in 2002, as
ICTC and the related businesses were separated from McLeodUSA
and Telephone Operations invested in new systems and software.
Executive compensation increased $0.9&nbsp;million primarily due
to the hiring and retention of the management team. In addition,
2003 results include professional services fees paid to our
existing equity investors. Other expenses, primarily equipment
maintenance and office equipment rents, decreased from prior
year results slightly offsetting the increases described above.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Other Operations Operating Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Operating expenses for Other Operations increased
38.6%, or $9.5&nbsp;million, to $34.1&nbsp;million in 2003 from
$24.6&nbsp;million in 2002. The increase was due principally to
increased direct cost of sales associated with a higher revenues
and an increase in expenses due to management&#146;s efforts to
grow these other operations. Total commissions paid to the State
of Illinois Department of Corrections in connection with the
renewed prison contract increased $4.7&nbsp;million in 2003. In
addition, due to the credit characteristics of the prison
population served pursuant to the prison contracts, the increase
in the number of prisons served under the contract also had a
corresponding impact on bad debt expenses, which increased
proportionately, $1.3&nbsp;million from 2002. In addition,
expenses relating to the telemarketing and order fulfillment
business increased by $2.3&nbsp;million to $6.1&nbsp;million in
2003 from $3.8&nbsp;million in 2002 as a result of
management&#146;s effort to grow this business.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Depreciation and Amortization</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Depreciation and amortization decreased 8.2%, or
$2.0&nbsp;million, to $22.5&nbsp;million in 2003 from
$24.5&nbsp;million in 2002. The majority of the decrease was due
to the sale and leaseback of five buildings on December&nbsp;31,
2002, as further described in &#147;Certain Relationships and
Related Party Transactions&nbsp;&#151; LATEL Sale/
Leaseback&#148;. McLeodUSA&#146;s decision not to invest in the
Other Operations resulted in a reduction in capital expenditure
in 2001 and 2002 which decreased depreciation expenses
proportionately in 2003.
</FONT>

<P align="center"><FONT size="2">60
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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Income from Operations</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Income from operations increased 51.1%, or
$7.1&nbsp;million, to $21.0&nbsp;million in 2003 from
$13.9&nbsp;million in 2002. The increase was due to the addition
of long distance and data and Internet services of the type
which had previously been attributable to other McLeodUSA
divisions, resulting in $8.5&nbsp;million of incremental income
from operations for Telephone Operations in 2003. The increase
was offset by the expenses related to the acquisition of ICTC
and the related businesses, as well as the $2.0&nbsp;million of
professional services fees paid to our existing equity
investors, increased costs associated with the hiring and
retention of the management team and additional information
technology expenses of $1.3&nbsp;million relating to the
investment in information technology infrastructure necessary to
transition from McLeodUSA to CCI Holdings.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Interest Expense</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interest expense increased 644.0%, or
$10.3&nbsp;million, to $11.9&nbsp;million in 2003 from
$1.6&nbsp;million in 2002. The increase was due to the increased
interest incurred from borrowing under the CoBank credit
facility to fund, in part, the acquisition of ICTC and the
related businesses from McLeodUSA on December&nbsp;31, 2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Other Income (Expense)</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other income decreased 75.0%, or
$0.3&nbsp;million, to $0.1&nbsp;million in 2003 from
$0.4&nbsp;million in 2002 due to a general reduction in, and
intercompany elimination of, intrastate billing and collection
fees revenues.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Income Taxes</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Provision for income taxes decreased
$1.0&nbsp;million, to $3.7&nbsp;million, in 2003 from
$4.7&nbsp;million in 2002. The effective income tax rate for CCI
increased to 40.3% in 2003 from 36.8% in 2002. The effective
income tax rate for 2003 approximated the combined federal and
state rate of approximately 40%. In conjunction with the
acquisition on December&nbsp;31, 2002, we made an election under
the Internal Revenue Code that resulted in approximately
$167.4&nbsp;million of goodwill and other intangibles, which are
deductible ratably over a 15-year period.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Net Income</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net income decreased 31.2%, or $2.5&nbsp;million,
to $5.5&nbsp;million in 2003 from $8.0&nbsp;million in 2002. The
decrease is primarily attributable to increased interest expense
due to the borrowings incurred in connection with the
acquisition of the predecessor of CCI, offset by revenues growth
and additional income from operations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Year Ended December&nbsp;31, 2002 compared
    to December&nbsp;31, 2001</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Revenues</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our total revenues decreased 4.9%, or
$5.7&nbsp;million, to $109.9&nbsp;million in 2002 from
$115.6&nbsp;million in 2001. The decrease was due to the
following three principal factors:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">decreased implicit support from network access
    revenues to explicit subsidies which negatively impacted
    intrastate revenues;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the sale by ICTC of two non-contiguous and
    non-strategic exchanges with approximately 2,750 local access
    lines in the third quarter of 2001;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a decrease in the revenues of Other Operations
    resulting from the effects of cost cutting initiatives by
    McLeodUSA due to its bankruptcy and financial difficulties and a
    corresponding reduction in its operations.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">61
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Telephone Operations&#146; revenues decreased
3.9%, or $3.1&nbsp;million, to $76.7&nbsp;million in 2002 from
$79.8&nbsp;million in 2001. The decrease was due primarily to a
decline in network access revenues of $4.8&nbsp;million during
2002, which was partially offset by increased federal universal
service fund subsidies of $3.2&nbsp;million. In addition, as a
result of the sale of the two exchanges, the full year impact in
2002 decreased revenues by approximately $1.0&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other Operations&#146; revenues decreased 7.3%,
or $2.6&nbsp;million, to $33.2&nbsp;million in 2002 from
$35.8&nbsp;million in 2001. The decrease was due to McLeodUSA
significantly reducing spending and staffing in Other Operations
during the bankruptcy and sale process described above, which
directly impacted revenues throughout 2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Telephone Operations Revenues</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Local calling services
</FONT></B><FONT size="2">revenues decreased 2.9%, or
$1.0&nbsp;million, to $33.4&nbsp;million from $34.4&nbsp;million
in 2001. The decrease was due to the local access line loss
caused by the sale on September&nbsp;30, 2001 of the two
exchanges, which had a full year impact of approximately
$1.0&nbsp;million, which was partially offset by an increase in
sale of custom calling features and voicemail that increased
revenues by $0.2&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Network access services
</FONT></B><FONT size="2">revenues decreased 14.2%, or
$4.8&nbsp;million, to $29.0&nbsp;million in 2002 from
$33.8&nbsp;million in 2001. During the last two years, the FCC
instituted modifications to our Illinois RLEC&#146;s cost
recovery mechanisms, decreasing implicit support, which allowed
rural carriers to set interstate network access charges higher
than the actual cost of originating and terminating calls, and
increasing explicit support through subsidy payments from the
federal universal service fund. The ICC similarly decreased
intrastate network access charges, but did not offset these
reductions with state universal service fund subsidies.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Subsidies </FONT></B><FONT size="2">revenues
increased 355.6%, or $3.2&nbsp;million, to $4.1&nbsp;million in
2002 from $0.9&nbsp;million in 2001. The increase was due
primarily to ICTC qualifying for additional federal universal
service fund support of $1.6&nbsp;million in 2002 that it did
not qualify for in 2001. The remaining increase was due, in
part, to normal subsidy settlement processes and, in part, due
to the FCC modifications to our Illinois RLEC&#146;s cost
recovery mechanisms described above in network access services
revenues.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Long distance services
</FONT></B><FONT size="2">revenues decreased 33.3%, or
$0.7&nbsp;million, to $1.4&nbsp;million in 2002 from
$2.1&nbsp;million in 2001. The decrease was due primarily to a
reduction in rates resulting from competitive pricing pressure
and a decline in long distance minutes of use associated with
the sale of the two exchanges. The only long distance service
revenues included in 2002 and 2001 was for intraLATA long
distance services offered by our Illinois RLEC.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Data and Internet services
</FONT></B><FONT size="2">revenues increased 7.5%, or
$0.3&nbsp;million, to $4.3&nbsp;million in 2002 from
$4.0&nbsp;million in 2001. The increase was due to success in
selling new DSL services. The only revenues included in 2002 and
2001 for data and Internet services were revenues for DSL
non-local private lines offered by our Illinois RLEC. Total DSL
lines in service increased by 130.3% to approximately
5,761&nbsp;lines at December&nbsp;31, 2002 from approximately
2,501&nbsp;lines at December&nbsp;31, 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Other services
</FONT></B><FONT size="2">revenues were essentially unchanged in
2002 compared to 2001.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Other Operations Revenues</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Other Operations
</FONT></B><FONT size="2">revenues decreased&nbsp;7.3%, or
$2.6&nbsp;million, to $33.2&nbsp;million in 2002 from
$35.8&nbsp;million in 2001. The decrease was due to McLeodUSA
reducing its spending and staffing in these operations during
2002 due to its bankruptcy and the preparation of ICTC and the
related businesses for sale.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Public Services
</FONT></B><FONT size="2">revenues decreased 12.4%, or
$1.4&nbsp;million, to $9.9&nbsp;million in 2002 from
$11.3&nbsp;million in 2001. The decrease was due primarily to
the removal of approximately 700&nbsp;unprofitable public
payphones from service. Although revenues decreased as a result,
gross margins improved to 36.0% in 2002 from 32.3% in 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Operator Services
</FONT></B><FONT size="2">revenues increased 23.1%, or
$2.1&nbsp;million, to $11.3&nbsp;million in 2002 from
$9.2&nbsp;million in 2001. The increase was primarily due to
increased demand generated by McLeodUSA and by other customers.
</FONT>

<P align="center"><FONT size="2">62
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Market Response
</FONT></B><FONT size="2">revenues decreased 19.7%, or
$1.1&nbsp;million, to $4.5&nbsp;million in 2002 from
$5.6&nbsp;million in 2001. The decrease was due to McLeodUSA
shifting its efforts to maintaining existing contracts rather
than growing the business as evidenced by significant headcount
reductions, including the removal of the sales staff.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Business Systems
</FONT></B><FONT size="2">revenues decreased 25.3%, or
$2.0&nbsp;million, to $5.8&nbsp;million in 2002 from
$7.8&nbsp;million in 2001. The decrease was due to the general
business decline, cost reduction efforts relating to the closure
in 2002 of two sales offices in markets outside our Illinois
RLEC&#146;s service area and the inability to bid on certain
structured wiring business due to the failure to secure
performance bonds as a result of the bankruptcy and financial
difficulties of McLeodUSA.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Mobile Services
</FONT></B><FONT size="2">revenues decreased&nbsp;16.7%, or
$0.3&nbsp;million, to $1.5&nbsp;million in 2002 from
$1.8&nbsp;million in 2001. This decrease was due to a continuing
shift in demand from residential customers for one way paging
services to business customers who generally generate lower
average revenues per customer.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Operating Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our operating expenses decreased 4.5%, or
$3.4&nbsp;million, to $71.5&nbsp;million in 2002 from
$74.9&nbsp;million in 2001. The decrease was a direct result of
the cost-cutting initiatives in 2002 by McLeodUSA due to its
bankruptcy and financial difficulties.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Telephone Operations Operating
    Expense</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Operating expenses for Telephone Operations
decreased 1.9%, or $0.9&nbsp;million, to $46.9&nbsp;million in
2002 from $47.8&nbsp;million in 2001. While McLeodUSA was
committed to maintain certain levels of investment in ICTC, as a
direct result of their cost cutting initiatives corporate
services provided to ICTC were reduced.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Other Operations Operating Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Operating expenses for Other Operations decreased
9.2%, or $2.5&nbsp;million, to $24.6&nbsp;million in 2002 from
$27.1&nbsp;million in 2001. The decrease was a direct result of
the cost-cutting initiatives in 2002 by McLeodUSA due to its
bankruptcy and financial difficulties. Market Response closed
one of its two call centers in the second half of 2001 which had
a full year effect in 2002, and made staff reductions. Business
Systems closed two sales offices during 2002 and reduced
headcount by approximately&nbsp;32%, or 11 people, in the first
quarter of 2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Depreciation and Amortization</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Depreciation and amortization decreased 23.0%, or
$7.3&nbsp;million, to $24.5&nbsp;million in 2002 from
$31.8&nbsp;million in 2001. The majority of the decrease related
to the amortization of intangible assets resulting from the
adoption of SFAS&nbsp;No.&nbsp;142, at which time goodwill
amortization ceased. Depreciation on tangible assets was not
impacted because the consolidated base of depreciable assets had
remained fairly consistent over the previous years.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Income from Operations</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Income from operations increased 56.2%, or
$5.0&nbsp;million, to $13.9&nbsp;million in 2002 from
$8.9&nbsp;million in 2001. The increase was primarily due to the
elimination of goodwill amortization.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Other Income (Expense)</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other income decreased 93.1%, or
$5.4&nbsp;million, to $0.4&nbsp;million in 2002 from
$5.8&nbsp;million in 2001. In 2001, our Illinois Telephone
Operations recognized a $5.2&nbsp;million pre tax gain on the
sale of the two exchanges.
</FONT>

<P align="center"><FONT size="2">63
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Income Taxes</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Provision for income taxes decreased
$1.6&nbsp;million to $4.7&nbsp;million in 2002 from
$6.3&nbsp;million in 2001. The effective income tax rate was
36.8% in 2002 compared to 49.0% in 2001. The decrease in the
effective income tax rate was primarily the result of a
corresponding decrease in non-deductible goodwill amortization
of prior acquisitions.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Net Income</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net income increased 21.2%, or $1.4&nbsp;million,
to $8.0&nbsp;million in 2002 from $6.6&nbsp;million in 2001.
This increase is a result of the factors discussed above.
</FONT>

<P align="left">
<B><FONT size="2">Critical Accounting Policies</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Regulatory Accounting</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ICTC, Consolidated Communications of Texas
Company and Consolidated Communications of Fort&nbsp;Bend
Company as ILECs, follow the accounting for regulated
enterprises prescribed by Statement of Financial Accounting
Standards No.&nbsp;71, <I>Accounting for the Effects of Certain
Types of Regulation,</I> or SFAS&nbsp;No.&nbsp;71, which permits
rates (or tariffs) to be set at levels intended to recover
estimated costs of providing regulated services or products,
including capital costs. SFAS&nbsp;No.&nbsp;71 requires our
RLECs to depreciate wireline plant over the useful lives
approved by the regulators, which could be different than the
useful lives that would otherwise be determined by management.
SFAS&nbsp;No.&nbsp;71 also requires deferral of certain costs
and obligations based upon approvals received from regulators to
permit recovery of such amounts in future years. Criteria that
would give rise to the discontinuance of SFAS&nbsp;No.&nbsp;71
include (1)&nbsp;increasing competition restricting the wireline
business&#146; ability to establish prices to recover specific
costs and (2)&nbsp;significant changes in the manner in which
rates are set by regulators from cost-based regulation to
another form of regulation. We believe that management is
consistent in its application of these provisions and does not
foresee regulatory, economic, or competitive changes in the near
future that would necessitate a change in its method of
accounting. In analyzing the effects of discontinuing the
application of SFAS&nbsp;No.&nbsp;71, management has determined
that the useful lives of plant assets used for regulatory and
financial reporting purposes are consistent with accounting
principles generally accepted in the United States and,
therefore, any adjustments to the telecommunications plant would
be immaterial, as would be the write-off of regulatory assets
and liabilities.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Revenue Recognition</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Revenues are recognized when the corresponding
services are provided regardless of the period in which they are
billed. Recurring local service revenues are billed in advance
and recognition is deferred until the service has been provided.
Nonrecurring revenues, such as long distance toll charges and
other usage based billings, are billed in arrears and are
recognized when earned.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Revenues from billing and collection services
provided to long distance and other carriers, and commissions
from advertising sold in yellow and white pages directories are
recorded as miscellaneous revenues. These revenues are
recognized when the service has been provided or over the life
of the contract, as appropriate.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Long distance and data services, Internet access
provider charges, telemarketing and order fulfillment, operator
services and paging services are recognized monthly as services
are provided. Revenues from the sale and maintenance of customer
premise equipment are recognized when the service is provided or
over the life of the contract, as appropriate.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with SEC Staff Accounting Bulletin
No.&nbsp;104, <I>Revenue Recognition in Financial
Statements,</I> nonrecurring installation revenues are deferred
upon service activation and recognized over the expected life of
the customer relationship.
</FONT>

<P align="center"><FONT size="2">64
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Allowance for Uncollectible
    Accounts</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We evaluate the collectibility of our accounts
receivable based on a combination of factors. When we are aware
of a specific customer&#146;s inability to meet its financial
obligations, such as a bankruptcy filing or substantial
down-grading of credit scores, we record a specific allowance
against amounts due to set the net receivable to an amount we
believe reasonable to be collected. For all other customers, we
reserve a percentage of the remaining outstanding accounts
receivable balance as a general allowance based on a review of
specific customer balances, our trends and experience with prior
receivables, the current economic environment and the length of
time the receivables are past due. If circumstances change, we
will review the adequacy of the allowance and its estimates of
the recoverability of amounts due which could be reduced by a
material amount.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Goodwill and Intangible
    Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2001, the Financial Accounting Standards
Board, or FASB, issued Statement of Financial Accounting
Standards No.&nbsp;142, <I>Goodwill and Other Intangible
Assets,</I> or SFAS&nbsp;No.&nbsp;142, which requires that
effective January&nbsp;1, 2002, goodwill recorded in business
combinations cease amortizing. SFAS&nbsp;No.&nbsp;142 requires
that goodwill be reviewed for impairment using fair value
measurement techniques. Specifically, goodwill impairment is
determined using a two-step process. The first step of the
goodwill impairment test is to identify potential impairment by
comparing the fair value of the reporting unit to its carrying
value, including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is
not considered impaired and the second step of the impairment
test is unnecessary. If the fair value of the reporting unit is
less than the carrying value, the second step of the goodwill
impairment test calculation is performed to measure the amount
of the impairment charge. This step compares the implied fair
value of the reporting unit&#146;s goodwill with its carrying
value. The implied fair value of goodwill is determined in the
same manner as the amount of goodwill recognized in a business
combination. That is, the fair value of the reporting unit is
allocated to all of the assets and liabilities of that unit,
including any unrecognized intangible assets, as if the
reporting unit had been acquired in a business combination and
the fair value of the reporting unit was the purchase price paid
to acquire the reporting unit. If the implied fair value of
goodwill is less than its carrying value, goodwill must be
written down to its implied fair value.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Determining the fair value of a reporting unit
under the first step of the goodwill impairment test and
determining the fair value of individual assets and liabilities
of a reporting unit, including unrecognized intangible assets,
under the second step of the goodwill impairment test is
judgmental in nature and often involves the use of significant
estimates and assumptions. These estimates and assumptions could
have a significant impact on whether or not an impairment charge
is recognized and also the magnitude of any such charge. We
perform internal valuation analyses and consider other market
information that is publicly available. Estimates of fair value
are primarily determined using discounted cash flows. This
approach uses significant estimates and assumptions including
projected future cash flows, including timing, and the selection
of a discount rate that reflects the risk inherent in future
cash flows.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If our review indicates that an impairment of
goodwill exists, as determined based on a comparison of the
implied fair value of goodwill to its carrying value, we will
reduce the carrying value by the difference.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Useful Life of Property, Plant and
    Equipment</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We estimate the useful lives of property, plant
and equipment in order to determine the amount of depreciation
expense to be recorded during any reporting period. The majority
of our telecommunications plant, property and equipment is
depreciated using the group method, which develops a
depreciation rate based on the average useful life of a specific
group of assets, rather than the individual asset as would be
utilized under the unit method. The estimated life of the group
is based on historical experience with similar assets as well as
taking into account anticipated technological or other changes.
If technological changes were to occur more rapidly than
anticipated or in a different form than anticipated, the useful
lives assigned to these assets may need to be shortened,
resulting in the recognition of increased
</FONT>

<P align="center"><FONT size="2">65
</FONT>

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<DIV align="left">
<FONT size="2">depreciation expense in future periods. Likewise,
if the anticipated technological or other changes occur more
slowly than anticipated, the life of the group could be extended
based on the life assigned to new assets added to the group.
This could result in a reduction of depreciation expense in
future periods. We review these types of assets for impairment
when events or circumstances indicate that the carrying amount
may not be recoverable over the remaining lives of the assets.
In assessing impairment, we follow the provisions of Statement
of Financial Accounting Standards No.&nbsp;144, <I>Accounting
for the Impairment or Disposal of Long-Lived Assets,</I> or
SFAS&nbsp;No.&nbsp;144, utilizing cash flows that take into
account management&#146;s estimates of future operations.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Liquidity and Capital Resources</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">General</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Historically, our operating requirements have
been funded from cash flow generated from our business and
borrowings under credit facilities. As of and for the nine
months ended September&nbsp;30, 2004, we had $633.9&nbsp;million
of debt, exclusive of unused commitments.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Operating, Investing and Financing
    Activities</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Operating Activities</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the nine months ended September&nbsp;30, 2004
and 2003, CCI&nbsp;Holdings generated new cash from operating
activities of $60.3&nbsp;million and $18.4&nbsp;million,
respectively, an increase of $41.9&nbsp;million. Excluding the
impact of the TXUCV acquisition, CCI Holdings generated new cash
from operating activities of $19.5&nbsp;million and
$18.4&nbsp;million for the nine months ended September&nbsp;30,
2004 and 2003, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the years ended December&nbsp;31, 2003, 2002
and 2001, we generated net cash from operating activities of
$28.9&nbsp;million, $28.5&nbsp;million and $34.3&nbsp;million,
respectively. Comparing 2003 to 2002, the change in net cash
flows from operating activities increased $0.4&nbsp;million. For
2003, our net income before non-cash charges for depreciation
and amortization and other long-term deferred credits reflect
net cash provided of $2.4&nbsp;million, a $4.6&nbsp;million
decrease from $7.0&nbsp;million provided in 2002. In 2003, we
made estimated income tax payments of $2.0&nbsp;million for
which no comparable payments were made in 2002 and 2001. Net
cash flows from operating activities decreased $5.8&nbsp;million
when comparing 2002 to 2001. Net income before non-cash charges
for depreciation and amortization and other long-term deferred
credits in 2002 decreased $0.8&nbsp;million to $7.0&nbsp;million
from the $7.8&nbsp;million comparable in 2001. The primary
difference in 2002&nbsp;net cash from operating activities
compared to 2001 is the change in accounts receivable. In 2001,
that decrease in accounts receivable generated cash of
$4.2&nbsp;million whereas the change in accounts receivable in
2002 resulted in a net use of cash of $0.7&nbsp;million.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Investing Activities</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the nine months ended September&nbsp;30, 2004
and September&nbsp;30, 2003, net cash used in investing
activities was $541.3&nbsp;million and $293.3&nbsp;million,
respectively. Cash used for acquisitions totaled
$523.9&nbsp;million and $284.8&nbsp;million for the nine months
ended September&nbsp;30, 2004 and 2003, respectively. Capital
expenditures accounted for $17.3&nbsp;million and
$8.9&nbsp;million for the nine months ended September&nbsp;30,
2004 and 2003, respectively. The increase in capital spending
during 2004 is primarily due to the increased size of our
operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the year ended December&nbsp;31, 2003, net
cash used in investing activities was $296.1&nbsp;million,
primarily due to the acquisition from McLeodUSA. For the year
ended December&nbsp;31, 2003, capital expenditures accounted for
$11.3&nbsp;million in cash used by investing activities. For the
year ended December&nbsp;31, 2002, we used $14.1&nbsp;million in
cash for investing activities, all of which was due to capital
expenditures. Over the three years ended December&nbsp;31, 2003,
we used $38.5&nbsp;million in cash for capital investments. Of
that total, 73.2%, or $28.2&nbsp;million, was for the expansion
or upgrade of outside plant facilities and switching assets.
</FONT>

<P align="center"><FONT size="2">66
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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Financing Activities</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the nine months ended September&nbsp;30,
2004, net cash provided by financing activities was
$526.1&nbsp;million compared to $285.7&nbsp;million of net cash
provided by financing activities for the nine months ended
September&nbsp;30, 2003. In connection with the TXUCV
acquisition in April 2004, we incurred $637.0 of new long-term
debt, repaid $186.3&nbsp;million of debt and received
$89.0&nbsp;million in net capital contributions from our
existing equity investors. To fund the ICTC acquisition in 2003,
we received $283&nbsp;million from equity and debt issuances and
approximately $9.2&nbsp;million in proceeds from the sale of the
building subject to the LATEL sale/leaseback described under
&#147;Certain Relationships and Related Party
Transactions&nbsp;&#151; LATEL Sale/ Leaseback&#148;. Long-term
debt of $7.2&nbsp;million was also repaid in the first nine
months of 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the year ended December&nbsp;31, 2003, net
cash provided by financing activities was $277.4&nbsp;million.
The majority was from financing obtained to fund the ICTC
acquisition during the nine months ended September&nbsp;30, 2003
described above. After settling the purchase consideration,
funds from financing activities were also used to repay
$10.2&nbsp;million of outstanding borrowings under the CoBank
credit facility in 2003. For the years ended December&nbsp;31,
2002, and December&nbsp;31, 2001, net cash used in financing
activities was $16.6 and $18.9&nbsp;million, respectively. 2002
and 2001 financing activities were primarily attributable to
funds required to settle intercompany net receivables with
McLeodUSA.
</FONT>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debt and
Capital Leases</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On the closing of the TXUCV acquisition, CCI
terminated its CoBank credit facility, Texas Holdings and CCI
severally entered into, and borrowed under, the existing credit
facilities, we issued the senior notes and CCV assumed the
former TXUCV capital leases. In connection with this offering,
we expect to amend and restate the existing credit facilities
and redeem&nbsp;35.0% of the outstanding principal amount of our
senior notes pursuant to an optional redemption provision in the
indenture.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Existing Credit Facilities and Amended and
    Restated Credit Facilities</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On April&nbsp;14, 2004, CCI and Texas Holdings
entered into the existing credit facilities pursuant to which
CCI borrowed an aggregate of $170.0&nbsp;million,
$50.0&nbsp;million under the term loan&nbsp;A facility and
$120.0&nbsp;million under the term loan&nbsp;B facility, and
Texas Holdings borrowed an aggregate of $267.0&nbsp;million,
$72.0&nbsp;million under the term loan&nbsp;A facility and
$195.0&nbsp;million under the term loan&nbsp;B facility. In
addition, the existing credit facilities also provided for a
$30.0&nbsp;million revolving credit facility, that was available
to both CCI and Texas Holdings in the same proportion as
borrowings under the term loan facilities, none of which had
been drawn as of September&nbsp;30, 2004. Borrowings under the
existing credit facilities were secured by substantially all of
the assets of CCI (except ICTC, which is contingent upon
obtaining the consent of the ICC for ICTC to guarantee
$195.0&nbsp;million of the borrowings) and Texas Holdings.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On October&nbsp;22, 2004, we entered into an
amended and restated credit agreement that, among other things,
converted all borrowings then outstanding under the term
loan&nbsp;B facility into approximately $314.0&nbsp;million of
aggregate borrowings under a new term loan&nbsp;C facility. The
term loan&nbsp;C facility is substantially identical to the term
loan&nbsp;B facility, except that the applicable margin for
borrowings through April&nbsp;1, 2005 is 1.5% with respect to
base rate loans and 2.5% with respect to London Inter-Bank Offer
Rate, or LIBOR, loans. Thereafter, provided certain credit
ratings are maintained, the applicable margin will be 1.25% for
base rate loans and 2.25% for LIBOR loans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The borrowings under the existing credit
facilities bore interest at a rate equal to an applicable margin
plus, at the borrowers&#146; election, either a &#147;base
rate&#148; or LIBOR. The applicable margin was based upon the
borrowers&#146; total leverage ratio. As of September&nbsp;30,
2004, the applicable margin for interest rates on LIBOR based
loans was 2.5% on the term loan&nbsp;A facility and 2.75% on the
term loan&nbsp;B facility. The applicable margin for the
alternative base rate loans was 1.5%&nbsp;per year for the
revolving loan facility and term loan&nbsp;A facility and 1.75%
for the term loan&nbsp;B facility. At September&nbsp;30, 2004,
the weighted average interest rate, including swaps, on our term
debt was 5.2%&nbsp;per annum. At October&nbsp;22, 2004, the date
on
</FONT>

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<DIV align="left">
<FONT size="2">which our existing credit facilities were amended
and restated to, among other things, convert all borrowings
under the term loan&nbsp;B facility into borrowings under a term
loan&nbsp;C facility, the weighted average interest rate of our
borrowings under the term loan&nbsp;C facility was 4.36%.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Concurrently with the closing of this offering,
we expect to amend and restate our existing credit facilities
with a group of lenders, including Credit Suisse First Boston,
acting through its Cayman Islands branch, an affiliate of Credit
Suisse First Boston&nbsp;LLC, an underwriter in this offering,
providing for a total of up to $419.6&nbsp;million in new term
and revolving credit facilities, which we refer to as the
amended and restated credit facilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently expect the amended and restated
credit facilities will provide financing of $419.6&nbsp;million,
consisting of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an increased $389.6&nbsp;million term loan&nbsp;C
    facility maturing on October&nbsp;14, 2011; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a $30.0&nbsp;million new revolving credit
    facility maturing on April&nbsp;14, 2010.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The terms of the amended and restated credit
facilities have not yet been agreed upon, and the descriptions
set forth in this prospectus represent our current expectations
regarding the terms of these facilities. The definitive terms of
the amended and restated credit facilities could differ from
those described in this prospectus, and those differences could
be material. For a more complete description of the expected
terms of the amended and restated credit facilities, see
&#147;Description of Indebtedness&nbsp;&#151; Amended and
Restated Credit Facilities&#148;.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to repay in full the
$118.7&nbsp;million of debt under our term loan&nbsp;A facility
(plus any revolving debt, which we anticipate will be zero) upon
the consummation of the amendment and restatement. Upon the
closing of the amended and restated credit facilities and such
repayment, we expect to have a total of $389.6&nbsp;million
outstanding under the term loan&nbsp;C facility and no debt
outstanding under the revolving credit facility.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Senior Notes</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the TXUCV acquisition, we and
Consolidated Communications Texas Holdings, Inc. issued
$200.0&nbsp;million in aggregate principal amount of senior
notes. The senior notes are our senior unsecured obligations.
Following the reorganization, CCI Holdings will succeed to the
obligations of Consolidated Communications Texas Holdings, Inc.
under the indenture and Homebase under its non-recourse
guarantee. In addition, we expect that the lenders under the
amended and restated credit facilities will release us, as
successor to Homebase, from that guarantee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The indenture contains customary covenants that
restrict our, and our restricted subsidiaries&#146; ability to,
incur debt and issue preferred stock, make restricted payments
(including paying dividends on, redeeming, repurchasing or
retiring our capital stock), enter into agreements restricting
our subsidiaries&#146; ability to pay dividends, make loans or
transfer assets to us, create liens, sell or otherwise dispose
of assets, including capital stock of subsidiaries, engage in
transactions with affiliates, engage in sale and leaseback
transactions, engage in business other than telecommunications
businesses and consolidate or merge. For a more complete
description of the indenture, see &#147;Description of
Indebtedness&nbsp;&#151; Senior Notes&#148;.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Covenant Compliance</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that our new amended and restated
credit agreement will be and the indenture governing our senior
notes are material agreements, that the covenants contained in
these agreements are material terms of these agreements and that
the information presented below about these covenants is
material to investors&#146; understanding of our financial
condition and liquidity. In addition, the breach of covenants in
our amended and restated credit facilities, which will be based
on ratios that include EBITDA as a component, could result in a
default under these facilities, allowing the lenders to elect to
declare all amounts borrowed due and payable, and, as a result,
and possibly resulting in a default under our indenture.
</FONT>

<P align="center"><FONT size="2">68
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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that our amended and restated credit
facilities will restrict our ability to pay dividends directly
in proportion to the amount of Bank EBITDA that we generate and
our compliance with a total net leverage ratio, among other
things. We are also restricted from paying dividends under the
indenture governing our senior notes. However, the indenture
restriction is significantly less restrictive than the
restriction we expect will be contained in our amended and
restated credit facilities. Under the amended and restated
credit facilities, we expect the total net leverage ratio
(defined as total debt minus the lesser of (x)&nbsp;our
consolidated cash in excess of $5&nbsp;million and
(y)&nbsp;$25&nbsp;million) to Bank EBITDA will be tested
quarterly. If the total net leverage ratio is greater
than &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;:1.0, we will be required to
suspend dividends on our common stock unless otherwise
permitted, among other things. As a result of the above, the
presentation of Bank EBITDA and the total net leverage ratio is
appropriate to provide additional information to investors to
demonstrate compliance with, and our ability to pay dividends
under, the applicable covenants.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="65%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Twelve Months</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(unaudited)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bank EBITDA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$122.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">$132.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total net leverage ratio
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.2:1.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.9:1.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">For a more complete description of Bank EBITDA,
the total net leverage ratio and related provisions, see
&#147;Description of Indebtedness&nbsp;&#151; Amended and
Restated Credit Facilities.&#148; In addition, the amended and
restated credit agreement is an exhibit to the registration
statement of which this prospectus forms a part.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Bank EBITDA is different than EBITDA that is
derived solely from GAAP components. Bank EBITDA should not be
construed as alternatives to net income (loss), cash flows from
operations or net cash from operating or investing activities as
defined by GAAP, and it is not necessarily indicative of cash
available to fund our cash needs as determined in accordance
with GAAP. In addition, not all companies use identical
calculations, and this presentation may not be comparable to
other similarly titled measures of other companies.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">GECC Capital Leases</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Texas is a party to a Master Lease Agreement
with GECC, as further described in &#147;Description of
Indebtedness&nbsp;&#151; GECC Capital Leases&#148; elsewhere in
this prospectus.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Capital Requirements</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2004, we currently expect that our primary
uses of cash and capital will consist of the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">capital expenditures for CCI Holdings of
    approximately $33.8&nbsp;million for network, central offices
    and other facilities and information technology for operating
    support and other systems;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">approximately $14.0&nbsp;million in aggregate to
    integrate and restructure the operations of CCI Illinois and CCI
    Texas following the TXUCV acquisition, of which we had spent
    $2.3&nbsp;million on integration as of September&nbsp;30, 2004;
    and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">scheduled principal and interest payments on our
    long-term debt.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The expected one-time integration and
restructuring costs of approximately $14.0&nbsp;million in
aggregate for 2004 and 2005 will be in addition to certain
additional ongoing costs we will incur to expand certain
administrative functions, such as those relating to SEC
reporting and compliance, and do not take into account other
potential cost savings of and expenses of the TXUCV acquisition.
We do not expect to incur costs relating to the TXUCV
integration after 2005.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Beyond 2004 and 2005, we will require significant
cash to service and repay debt and make capital expenditures. In
the future, we will assess the need to expand our network and
facilities based on several
</FONT>

<P align="center"><FONT size="2">69
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">criteria, including the expected demand for
access lines and communications services, the cost and expected
return on investing to develop new services and technologies and
competitive and regulatory factors. In the future, we also
expect to assess the cost and benefit of selected acquisitions,
joint ventures and strategic alliances as market conditions and
other factors warrant. Absent major changes in the technology
that we employ, we believe that our current network is capable
of providing the next generation of broadband service with
minimum capital investment.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The ICC and the PUCT could require our Illinois
and Texas RLECs to make minimum amounts of capital expenditures
and could limit the amount of cash available to transfer from
our RLECs to us. In connection with ICTC&#146;s guarantee of
CCI&#146;s CoBank credit facility in December 2002, the ICC
issued an order which imposed a minimum capital expenditure
requirement on our Illinois RLEC of $9.0&nbsp;million per year
and $30.0&nbsp;million for the three years ending
December&nbsp;31, 2005 and restricted the amount of cash that
our Illinois RLEC could transfer to its parent company, CCI to
its free cash flow, as defined in the order. In 2003, both of
our Texas RLECs elected to be governed under an incentive
regulatory regime, which obligated each of them to make capital
expenditures for network infrastructure in exchange for immunity
from adjustment to many of their rates. The ICC&#146;s minimum
capital expenditure requirements and restrictions on cash
transfers terminated upon repayment and termination of the
CoBank credit facility in connection with the acquisition of
TXUCV, and we believe our Texas RLECs have met the current
requirements for capital expenditures on network infrastructure.
However, the ICC and the PUCT could impose additional or other
restrictions of this type in the future. In particular, the ICC,
but not the PUCT, will review, and we will be required to
receive the approval of the ICC to effect the reorganization. In
connection with the ICC&#146;s review of the reorganization, the
ICC could impose various conditions as part of its approval of
the reorganization, including restrictions on cash transfers
from our Illinois RLEC to us and other requirements (such as a
prohibition on distributions by ICTC for a reporting year to the
extent that ICTC fails to meet or exceed agreed benchmarks for a
majority of seven service quality metrics for the prior
reporting year). In addition, we expect that in our amended and
restated credit facilities we will agree to use our reasonable
efforts as promptly as reasonably practicable after the closing
of these facilities to obtain the consent of the ICC for ICTC to
guarantee $195.0&nbsp;million of the obligations of the
borrowers under these facilities and grant a security interest
in its respective properties securing $195.0&nbsp;million of
borrowings. If such an order is granted, it will also likely
require ICTC to make a minimum dollar amount of capital
expenditures and limit its ability to pay dividends to CCI based
on a dollar amount tied to free cash flow. As a result of the
above, any requirements or restrictions imposed by the ICC or
PUCT could limit the amount of cash that is available to be
transferred from our RLECs to us.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, our existing credit facilities
restrict all payments to us during the continuance of a payment
default and also restrict payments to us for a period of up to
180&nbsp;days during the continuance of a non-payment default.
The existing credit facilities also limit the amounts we may
spend on capital expenditures between 2004 and 2011. We are
limited to aggregate capital expenditures of $40.0&nbsp;million
in 2004 and $45.0&nbsp;million in each following year. In the
event the full amount allotted to capital expenditures is not
spent during a fiscal year, the remaining balance may be carried
forward to the following year only. However, the carried forward
balance may not be utilized until such time as the amount
originally established as the capital expenditure limit for such
year has been fully utilized. Our amended and restated credit
facilities are currently expected to include similar
restrictions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that cash flow from operating
activities, together with our existing cash and borrowings
available under the amended and restated credit facilities, will
be sufficient for approximately the next twelve months to fund
our currently anticipated requirements for dividends, debt
service and repayments, capital expenditures and the costs of
integrating TXUCV into our business. After 2005, our ability to
fund these requirements 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
do so will be subject to prevailing economic conditions and to
financial, business, regulatory, legislative and other factors,
many of which are beyond our control.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may be unable to access the cash flow of our
subsidiaries since certain of our subsidiaries are parties to
credit or other borrowing agreements that restrict the payment
of dividends or making
</FONT>

<P align="center"><FONT size="2">70
</FONT>

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<DIV align="left">
<FONT size="2">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&#146; ability to pay dividends or advance cash in
any other manner to us.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">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. We cannot
assure you that we will generate sufficient cash flow from
operations in the future, that anticipated revenue growth will
be realized or that future borrowings or equity contributions
will be available in amounts sufficient to provide adequate
working capital, service our indebtedness or make anticipated
capital expenditures. 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 projected financial condition and
results of operations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Surety Bonds</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the ordinary course of business, we enter into
surety, performance and similar bonds. As of September&nbsp;30,
2004, we had approximately $2.7&nbsp;million of these types of
bonds outstanding.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Table of Contractual Obligations&nbsp;&#38;
    Commitments</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of September&nbsp;30, 2004, our material
contractual cash obligations and commitments would have been:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="27"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="27" align="center" nowrap><B><FONT size="1">Payments Due by Period</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="27" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2005</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2006</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2007</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2008</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Thereafter</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="27"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="27" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">519,629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">973</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">503,083</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,031</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,736</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,781</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,072</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,735</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital leases(b)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,314</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">127</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">527</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">563</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minimum purchase contract(c)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,254</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">363</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pension and other post-retirement obligations(d)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,718</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,079</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,902</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,161</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,357</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total contractual cash obligations and commitments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">566,167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,346</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,631</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,528</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,891</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">514,175</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(a)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">This item consists of loans expected to be
    outstanding under the amended and restated credit facilities and
    our senior notes. The amended and restated credit facilities
    consist of a $389.6&nbsp;million term loan&nbsp;C facility
    maturing on October&nbsp;14, 2011, which will be drawn in full
    on the closing of this offering, and a $30.0&nbsp;million
    revolving credit facility maturing on April&nbsp;14, 2010, which
    is expected to be fully available but undrawn immediately
    following the closing of this offering. See &#147;Description of
    Indebtedness&nbsp;&#151; Amended and Restated Credit
    Facilities&#148;.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(b)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">This item consists of $1.3&nbsp;million of
    capital leases entered into by CCI Texas with GECC. The cash
    purchase price was reduced by the outstanding principal amount
    of these capital leases. See &#147;Description of
    Indebtedness &nbsp;&#151; GECC Capital Leases&#148;.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(c)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">As of September&nbsp;30, 2004, the minimum
    purchase contract was a 60-month High-Capacity Term Payment Plan
    agreement with Southwestern Bell, dated November&nbsp;25, 2002.
    The agreement requires CCI Texas to make monthly purchases of at
    least $33,000 from Southwestern Bell on a take-or-pay basis. The
    agreement also provides for an early termination charge of 45.0%
    of the monthly minimum commitment multiplied by the number of
    months remaining through the expiration date of
    November&nbsp;25, 2007. As of September&nbsp;30, 2004, the
    potential early termination charge was approximately
    $0.6&nbsp;million.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">71
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(d)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Pension funding is an estimate of our minimum
    funding requirements through 2004 to provide pension benefits
    for employees based on service through 2003. Obligations
    relating to other post retirement benefits are based on
    estimated future benefit payments. Our estimates are based on
    forecasts of future benefit payments which may change over time
    due to a number of factors, including life expectancy, medical
    costs and trends and on the actual rate of return on the plan
    assets, discount rates, discretionary pension contributions and
    regulatory rules. See Note&nbsp;E (Post Retirement Benefit
    Plans) to the consolidated financial statements of TXUCV and
    Note&nbsp;8 (Pension Costs and Other Post Retirement Benefits)
    of CCI Holdings consolidated financial statements.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Impact of Inflation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The effect of inflation on our financial results
has not been significant in the periods presented.
</FONT>

<P align="left">
<B><FONT size="2">Recent Accounting Pronouncements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2003, the FASB issued FIN&nbsp;46,
<I>Consolidation of Variable Interest Entities</I>, the primary
objective of which is to provide guidance on the identification
of entities for which control is achieved through means other
than voting rights, defined as variable interest entities, and
to determine when and which business enterprise should
consolidate the variable interest entity as the &#147;primary
beneficiary&#148;. This new model applies when either
(1)&nbsp;the existing equity investors, if any, do not have a
controlling financial interest or (2)&nbsp;the equity investment
at risk is insufficient to finance that entity&#146;s activities
without additional financial support. In addition, FIN&nbsp;46
requires additional disclosures. CCI Illinois does not expect
FIN&nbsp;46 to have a material impact on its investment in
unconsolidated subsidiaries.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2003, the U.S.&nbsp;Congress enacted
the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 that will provide a prescription drug subsidy
beginning in 2006 to companies that sponsor post-retirement
health care plans that provide drug benefits. Additional
legislation is anticipated that will clarify whether a company
is eligible for the subsidy, the amount of the subsidy available
and the procedures to be followed in obtaining the subsidy. In
May 2004, the FASB issued Staff Position&nbsp;106-2
&#147;Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of
2003&#148;, which provides guidance on the accounting and
disclosure for the effects of this Act. We have determined that
our post-retirement prescription drug plan is actuarially
equivalent and intend to reflect the impact beginning on
July&nbsp;1, 2004.
</FONT>

<P align="left">
<B><FONT size="2">Quantitative and Qualitative Disclosures About
Market Risk</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are exposed to market risk from changes in
interest rates on our long-term debt obligations. We estimate
our market risk using sensitivity analysis. Market risk is
defined as the potential change in the fair value of a
fixed-rate debt obligation due to hypothetical adverse change in
interest rates and the potential change in interest expense on
variable rate long-term debt obligations due to a change in
market interest rates. The fair value on long-term debt
obligations is determined based on discounted cash flow
analysis, using the rates and the maturities of these
obligations compared to terms and rates currently available in
long-term debt markets. The potential change in interest expense
is determined by calculating the effect of the hypothetical rate
increase on the portion of variable rate debt that is not hedged
through the interest swap agreements described below and does
not assume changes in our capital structure. As of
September&nbsp;30, 2004, 66.5% of our long-term debt obligations
would have been fixed rate and approximately 33.5% would have
been variable rate obligations not subject to interest rate swap
agreements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of September&nbsp;30, 2004, we would have had
$389.6&nbsp;million, including $174.0&nbsp;million of current
maturities, of variable rate debt outstanding under the amended
and restated credit facilities. Our exposure to fluctuations in
interest rates would have been limited by interest rate swap
agreements that would effectively convert a portion of the
variable rate debt to a fixed-rate basis, thus reducing the
impact of interest rate changes on future interest expenses. As
of September&nbsp;30, 2004, we would have had interest rate swap
agreements covering $215.6&nbsp;million of aggregate principal
amount of our variable rate debt at
</FONT>

<P align="center"><FONT size="2">72
</FONT>

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<DIV align="left">
<FONT size="2">fixed LIBOR rates ranging from 2.99% to 3.35% and
expiring on December&nbsp;31, 2006, May&nbsp;19, 2007 and
December&nbsp;31, 2007. As of September&nbsp;30, 2004, the fair
value of the interest rate swaps would have amounted to a
liability of $0.7&nbsp;million, net of taxes.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of September&nbsp;30, 2004, we would have had
$130.0&nbsp;million of aggregate principal amount of fixed rate
long-term debt obligations with an estimated fair market value
of $133.3&nbsp;million based on the overall weighted average
interest rate of our fixed rate long-term debt obligations of
9.75% and an overall weighted maturity of 7.5&nbsp;years,
compared to rates and maturities currently available in
long-term debt markets. Market risk is estimated as the
potential loss in fair value of our fixed rate long-term debt
resulting from a hypothetical increase of 10.0% in interest
rates. Such an increase in interest rates would have resulted in
an approximately $3.1&nbsp;million decrease in the fair value of
our fixed rate long-term debt. As of September&nbsp;30, 2004, we
would have had $174.0&nbsp;million of variable rate debt not
covered by the interest rate swap agreements. If market interest
rates averaged&nbsp;1.0% higher than the average rates that
prevailed from January&nbsp;1, 2004 through September&nbsp;30,
2004, interest expense would have increased by approximately
$1.3&nbsp;million for the period.
</FONT>

<P align="center"><FONT size="2">73
</FONT>

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<DIV align="left">
<A name='113'></A>
</DIV>

<!-- link1 "MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CCI TEXAS" -->

<P align="center">
<B><FONT size="2">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION</FONT></B>

<DIV align="center">
<B><FONT size="2">AND RESULTS OF OPERATIONS&nbsp;&#151; CCI
TEXAS</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">We present below Management&#146;s Discussion
and Analysis of Financial Condition and Results of Operations of
CCI Texas. The following discussion should be read in
conjunction with the historical consolidated financial
statements and notes and other financial information related to
CCV (formerly TXUCV) appearing elsewhere in this
prospectus.</FONT></I>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">CCI Texas&#146; Business</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Texas is an established rural local exchange
company that provides communications services to residential and
business customers in Texas. As of September&nbsp;30, 2004,
CCI&nbsp;Texas would have been the 18th largest local telephone
company in the United States had it been a separate company,
based on industry sources, with approximately 169,472 local
access lines and approximately 14,276&nbsp;DSL lines in service.
CCI Texas&#146; main source of revenues is its local telephone
businesses in Texas, which offers an array of services,
including local dial tone, custom calling features, private line
services, long distance, dial-up and high-speed Internet access,
carrier access and billing and collection services.
CCI&nbsp;Texas also operates complementary businesses, including
publishing telephone directories and offering wholesale
transport services on a fiber optic network.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Beginning in 1999, CCI&nbsp;Texas began operating
a CLEC business in a number of local markets in Texas. The CLEC
business grew to more than 58,000&nbsp;lines in service by the
end of 2001, at which time CCI&nbsp;Texas reevaluated its
strategic direction and decided to refocus on its RLEC business.
During the subsequent 18&nbsp;months, CCI&nbsp;Texas
systematically exited certain of its less profitable CLEC
markets, ceased service to residential customers and
concentrated on making the CLEC profitable by focusing solely on
business customers within a limited number of geographic
markets. In late 2002, CCI&nbsp;Texas decided to exit the CLEC
business entirely, placed its CLEC assets and customer base for
sale and classified all CLEC assets and liabilities as held for
sale. In 2003, CCI&nbsp;Texas continued to rationalize its
business plan and, in March 2003, CCI&nbsp;Texas sold the
majority of its remaining CLEC customer base and assets to
Grande Communications. By the end of March 2003, with the
exception of a small number of remaining CLEC customers who were
in the process of transitioning to other carriers,
CCI&nbsp;Texas had effectively exited the CLEC business. As a
result of the foregoing, our financial results as of and for the
year ended December&nbsp;31, 2003 are not directly comparable to
prior periods.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CLEC revenues, reflected in Exited Operations,
represent primarily local access revenues and features
attributable to CLEC customers. In addition, some CLEC customers
also subscribed to other CCI Texas services including long
distance and dial-up Internet. For the relevant periods, the
revenues from CLEC customers associated with these products are
included in the relevant product categories listed above.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2002, as a part of CCI&nbsp;Texas&#146;
refocus on its Texas RLECs, CCI&nbsp;Texas initiated a process
to sell its transport business. The transport assets were
consequently classified as held for sale at the end of 2002. In
early 2003, it became apparent that a sale of the entire company
was likely and the decision was made to cease efforts to sell
the transport network as a separate entity. Consequently, in
June 2003, the transport assets were reclassified as held and
used.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">TXUCV Acquisition</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to April&nbsp;14, 2004, TXUCV had been a
direct, wholly owned subsidiary of Pinnacle One, which is owned
by TXU Corp. When the acquisition was consummated on
April&nbsp;14, 2004, Homebase, through its indirect, wholly
owned subsidiary Texas Holdings, acquired all of the capital
stock of TXUCV. Texas Holdings was formed solely for the purpose
of acquiring TXUCV. TXUCV was subsequently renamed CCV.
</FONT>

<P align="center"><FONT size="2">74
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Revenues</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the year ended December&nbsp;31, 2003, 85.1%
of CCI&nbsp;Texas&#146; $194.8&nbsp;million of revenues were
derived from local and long distance voice and data services and
associated carrier access fees and subsidies associated with
customers within CCI Texas&#146; Texas RLECs&#146; service
areas. Of the remaining 14.9% of revenues, $10.4&nbsp;million,
or 5.3%, was derived from directory advertising and publishing,
$12.8&nbsp;million, or 6.6%, was derived from transport
services, primarily to other carriers, and $5.9&nbsp;million, or
3.0%, was associated with products or services that
CCI&nbsp;Texas no longer offers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, CCI&nbsp;Texas experienced a slight
decline in its number of local access lines of 0.3%, or 441 from
approximately 172,083 local access lines to approximately
171,642 local access lines. This decline was comprised of a 1.8%
decline in residential access lines to approximately 116,862
access lines partially offset by business line growth of 3.3% to
approximately 54,780 business access lines at the end of the
year. We believe that the principal reason our Texas RLEC lost
local access lines in this period was due to the weak economy in
Texas. In addition, we believe we lost local access lines due to
the disconnection of second telephone lines by our residential
customers in connection with their substituting DSL or cable
modem service for dial-up Internet access and wireless service
for wireline service. Furthermore, CCI Texas implemented a more
stringent disconnect policy for non-paying customers in July
2003 following the consolidation of CCI Texas&#146; two local
billing systems. Partially offsetting some of this residential
decline was an increase in housing starts in the suburban parts
of our Texas RLECs&#146; service areas.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Texas&#146; number of DSL subscribers grew
substantially in 2003, compared to 2002. We believe this growth
was due to CCI&nbsp;Texas&#146; strong focus on selling DSL
service, including the deployment of a customer
self-installation kit. DSL lines in service increased 59.8% to
approximately 8,668 lines as of December&nbsp;31, 2003 from
approximately 5,423 lines as of December&nbsp;31, 2002. CCI
Texas&#146; penetration rate for DSL lines in service was 5.1%
of our Texas RLECs&#146; local access lines December&nbsp;31,
2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In October 2003, CCI Texas initiated a new
campaign to market service bundles. While CCI&nbsp;Texas offered
limited service bundles prior to 2003, this initiative was
subsequently marketed more aggressively and took advantage of
increased pricing flexibility associated with the change from a
Chapter&nbsp;59 to Chapter&nbsp;58&nbsp;state regulatory
election. See &#147;Regulation&nbsp;&#151; State Regulation of
CCI Texas&#148;. Between the introduction of five service
bundles in October 2003 and December&nbsp;31, 2003, CCI Texas
sold over 7,500 service bundles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2002, CCI&nbsp;Texas began to sell and publish
its yellow and white pages directories in-house. Until then,
CCI&nbsp;Texas had contracted with a third party provider to
sell, publish and distribute its directories. As compensation
for selling and publishing the directories, CCI&nbsp;Texas had
previously paid this contractor a portion of the directory
revenues on a revenue share basis of between 32.5% and 35.5%.
The first directory that CCI Texas produced in-house was the
Lufkin directory published in August 2002, which was followed by
the Conroe directory in February 2003 and the Katy directory in
April 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Texas&#146; transport business has remained
relatively stable despite the general pricing pressure in the
wholesale transport business nationwide. This stability is
partly due to the relative lack of competition on some of
CCI&nbsp;Texas&#146; routes and CCI Texas having built fiber
routes directly to some significant carrier customers. In 2002,
CCI&nbsp;Texas began to investigate selling the transport
network and, consequently did not focus on aggressively growing
this part of its business. In light of TXU Corp.&#146;s decision
to sell the entire company in 2003, CCI&nbsp;Texas continued to
manage the transport network in a maintenance mode and did not
make any significant investments in the network. We intend to
continue to evaluate the opportunities for growing the transport
business going forward.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to focus on continuing to increase the
revenues per access line in our Texas RLECs&#146; service areas
primarily generated from local dial tone, long distance, custom
calling features and data and Internet services. Our primary
focus will be to increase our DSL penetration and the bundling
of local access, custom calling features, long distance,
voicemail and DSL. We expect that the sale of communications
services to customers in our Texas RLECs&#146; service areas
will continue to provide the predominant share of
CCI&nbsp;Texas&#146; revenues.
</FONT>

<P align="center"><FONT size="2">75
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Expenses</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Operating expenses include network operating cost
and selling, general and administrative expenses. They have
fluctuated over the past three years because
CCI&nbsp;Texas&#146; business strategy has undergone several
significant changes. The exit from the CLEC line of business
contributed to a significant reduction in the size of the
company and led to expense reductions primarily in employee
expenses and network circuit and operating costs. Several
significant systems projects contributed to higher costs
historically than we anticipate will be the case in the future.
These projects included a financial system restructuring and
conversion, the integration of the Consolidated Communications
of Fort Bend Company billing and operations systems and projects
designed to automate procedures and processes. The establishment
of a more significant headquarters presence in Irving, Texas and
the relocation of many functions from the field to Irving also
generated incremental cost.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Network Operating Costs</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Texas&#146; cost of services includes:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">expenses related to plant costs, including those
    related to network and general support costs, central office
    switching and transmission costs, and cable and wire facilities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">general plant costs, such as testing,
    provisioning, network, administration, power and
    engineering;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the cost of transport and termination of long
    distance and private lines outside our Texas RLECs&#146; service
    areas.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Texas operates a dedicated long distance
switch in Dallas and transports the majority of its long
distance traffic to this switch over its transport network.
Historically, CCI Texas was a party to several long distance
contracts for the purchase of wholesale long distance minutes
that involved minimum volume commitments and that, at times,
resulted in above market rate average costs per minute for long
distance services. CCI Texas has since terminated all such
contracts requiring minimum volume commitments and now has
considerably greater flexibility in its ability to select long
distance carriers for its traffic and to manage a variety of
carriers in order to minimize its cost of long distance minutes.
CCI Texas&#146; cost of providing long distance service is
currently significantly lower than the average in 2003, and CCI
Texas believes that it will be able to continue providing long
distance services to its subscribers more profitably than it has
been able to do historically.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Selling, General and Administrative
    Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Selling, general and administrative expenses
include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">selling and marketing expenses;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">expenses associated with customer care;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">billing and other operating support
    systems;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">corporate expenses.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Texas markets to residential customers and
small business customers primarily through its customer service
centers and to larger business customers through a dedicated,
commissioned sales force. The transport and directory divisions
use dedicated sales forces.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Texas has operating support and other back
office systems that are used to enter, schedule, provision and
track customer orders, test services and interface with trouble
management, inventory, billing, collection and customer care
service systems for the local access lines in our Texas
RLECs&#146; operations. We maintain an information technology
staff based in Irving, Conroe and Lufkin who maintain and update
our various systems.
</FONT>

<P align="center"><FONT size="2">76
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are in the process of migrating key business
processes of CCI Illinois and CCI Texas onto single,
company-wide systems and platforms. Our objective is to improve
profitability by reducing individual company costs through
centralization, standardization and sharing of best practices.
We expect that our operating support systems costs will increase
temporarily as we integrate CCI Illinois&#146; and CCI
Texas&#146; back office systems. As of September&nbsp;30, 2004,
$1.4&nbsp;million and $0.9&nbsp;million has been spent on
integration in Texas and Illinois, respectively.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Depreciation and amortization
    expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Texas recognizes depreciation expenses for
our regulated telephone plant and equipment and nonregulated
property and equipment using the straight-line method. The
depreciation rates and depreciable lives for regulated telephone
plant and equipment are approved by the PUCT. CCI Texas&#146;
depreciable assets have the following useful lives:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="89%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Years</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Buildings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15-35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Network and outside plant facilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5-30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture, fixtures, and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3-17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amortization expenses were recognized on goodwill
over its useful life, normally 15 to 40&nbsp;years prior to
January&nbsp;1, 2002. Beginning January&nbsp;1, 2002, CCI Texas
implemented SFAS&nbsp;No.&nbsp;142, <I>Goodwill and Other
Intangible Assets. </I>SFAS&nbsp;No.&nbsp;142 requires that
goodwill and intangible assets that have indefinite useful lives
not be amortized, but rather be tested annually for impairment.
CCI Texas conducted impairment tests and recorded impairment
losses of $13.2&nbsp;million and $18.0&nbsp;million respectively
for 2003 and 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following summarizes revenues and operating
expenses from continuing operations for TXUCV, the predecessor
of CCV, for the years ended December&nbsp;31, 2001, 2002 and
2003. The results of operations presented herein for all periods
prior to the acquisition are sometimes referred to as the
results of operations of the predecessor.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="33%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">$</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">$</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">$</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenues</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenues</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenues</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Revenues(1)</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Local calling services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Network access services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Subsidies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long distance services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Data and Internet services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Directory publishing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Transport services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Exited services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating Revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">207.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">214.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">194.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">77
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="36%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">$</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">$</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">$</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenues</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenues</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenues</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Expenses</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">184.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">186.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">133.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other charges(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">234.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">346.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">161.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">180.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(132.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(61.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total other (expense)&nbsp;income, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(Loss) income before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(128.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(59.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income tax (benefit) expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(38.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(89.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(41.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">This category corresponds to the line items
    presented under &#147;Business&nbsp;&#151; CCI Texas&#148; and
    provides more detail than that presented in the consolidated
    statement of operations and comprehensive loss of TXUCV. See the
    consolidated financial statements of TXUCV.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">This line item includes network operating costs
    and selling, general and administrative expenses.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">This line item includes restructuring, asset
    impairment and other charges and goodwill impairment charges.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Results of Operations</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Year ended December&nbsp;31, 2003 compared
    to December&nbsp;31, 2002</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Revenues</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Texas&#146; total revenues decreased by 9.3%,
or $19.9&nbsp;million, to $194.8&nbsp;million in 2003 from
$214.7&nbsp;million in 2002. The decrease was primarily due to
CCI Texas&#146; exit from the CLEC business.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Local services revenues
</FONT></B><FONT size="2">increased 3.5%, or $1.9&nbsp;million,
to $56.2&nbsp;million in 2003 from $54.3&nbsp;million in 2002.
The increase was primarily due to the success of targeted
promotions of custom calling features.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Network access revenues
</FONT></B><FONT size="2">decreased 2.8%, or $1.0&nbsp;million,
to $35.2&nbsp;million in 2003 from $36.2&nbsp;million in 2002.
During the last two years, the FCC instituted certain
modifications to our Texas RLECs&#146; cost recovery mechanisms,
decreasing implicit support, which allowed rural carriers to set
interstate network access charges higher than the actual cost of
originating and terminating calls, and increasing explicit
support through subsidy payments from the federal universal
service fund.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Subsidies </FONT></B><FONT size="2">revenues
increased 30.2%, or $9.6&nbsp;million, to $41.4&nbsp;million in
2003 from $31.8&nbsp;million in 2002. The increase was due in
part to the subsidy settlement processes resulting in the
recovery of additional subsidy payments associated with prior
years and 2003. Since our Texas RLECs are regulated under a rate
of return mechanism for interstate revenues, the value of assets
in the interstate rate base is critical to calculating this rate
of return and therefore, the subsidies our Texas RLECs will
receive. During 2003, the Texas RLECs recognized revenues of
$6.4&nbsp;million of receipts from the federal universal service
fund that were attributable to 2002 and 2001, which was a larger
out-of-period adjustment than in prior years. The receipts were
the result of filings CCI Texas made in 2003 that updated prior
year cost studies and reclassified certain asset and expense
categories for regulatory purposes. The increase was also due to
the FCC modifications to our Texas RLECs cost recovery
mechanisms described above in network access service revenues.
</FONT>

<P align="center"><FONT size="2">78
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Long distance services
</FONT></B><FONT size="2">revenues decreased by 33.3%, or
$6.7&nbsp;million, to $13.4&nbsp;million in 2003 from
$20.1&nbsp;million in 2002 due to decreased minutes of use and a
change in the average rate per minute due to customers selecting
lower rate plans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Data and Internet services
</FONT></B><FONT size="2">revenues increased by 4.3%, or
$0.6&nbsp;million, to $14.7&nbsp;million in 2003 from
$14.1&nbsp;million in 2002. The increase was primarily due to
increased sales of DSL service. Growth in sales of DSL lines of
59.8% in 2003 contributed to a penetration of 5.1%, or
approximately 8,668 DSL lines in service, as of
December&nbsp;31, 2003. The increase was offset by a decrease in
dial-up Internet service driven by the substitution by customers
of high speed Internet access and a decrease in dial-up and DSL
customers as a result of CCI Texas exiting the CLEC business.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Directory Publishing
</FONT></B><FONT size="2">revenues increased by 8.3%, or
$0.8&nbsp;million, to $10.4&nbsp;million in 2003 from
$9.6&nbsp;million in 2002. The increase was in part due to the
transition from a third party sales force to an internal sales
force for the sale of advertising for yellow and white pages
directories, beginning with the publication of the Lufkin
directory in August 2002 and followed by Conroe in February 2003
and Katy in April 2003. This transition resulted in increased
sales productivity and higher revenues due to the termination of
revenue sharing with the previous publisher of between 32.5% and
35.5%. Since CCI Texas recognizes the revenues from each
directory over the 12-month life of the directory, 2003 revenues
still reflect a combination of outsourced and in-house directory
operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Transport services
</FONT></B><FONT size="2">revenues remained flat in 2003 with no
significant customer gains or losses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Other services
</FONT></B><FONT size="2">revenues decreased by 20.0%, or
$1.2&nbsp;million, to $4.8&nbsp;million in 2003 from
$6.0&nbsp;million in 2002. The decrease was due to a reduction
in equipment sales to our CLEC customers and the termination of
the pager product line.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Exited services
</FONT></B><FONT size="2">revenues decreased 80.3%, or
$24.1&nbsp;million, to $5.9&nbsp;million in 2003 from
$30.0&nbsp;million in 2002. The decrease was due to decreases in
revenues from the exit of the CLEC business and from lower
revenues from wholesale long distance service. Of this amount,
$19.6&nbsp;million was related to the local service revenues
from the CLEC business and $4.5&nbsp;million was related to the
wholesale long distance service resulting from the exit from
these businesses.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Operating Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Operating expenses decreased by 28.2%, or
$52.5&nbsp;million, to $133.8&nbsp;million in 2003 from
$186.3&nbsp;million in 2002. The decrease was due principally to
the following factors.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Network costs decreased primarily as a result of
    CCI Texas having substantially exited the CLEC business by the
    end of March 2003, which led to the removal of leased circuit
    costs from SBC and other carriers.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Related to the exit from the CLEC business, total
    headcount decreased by 161 to 644 as of December&nbsp;31, 2003.
    CCI Texas estimates that the actual expense of salaries and
    benefits for these employees was approximately $4.4&nbsp;million
    in addition to the $4.4&nbsp;million in severance costs CCI
    Texas incurred in connection with these terminations.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Bad debt expense decreased by $11.0&nbsp;million
    from $10.2&nbsp;million in 2002 to a $0.8&nbsp;million benefit
    in 2003. This was primarily due to (1)&nbsp;a re-evaluation of
    the bad debt reserve from $5.0&nbsp;million at year-end 2002,
    which included a $2.7&nbsp;million reserve for MCI accounts
    receivable due to the bankruptcy of MCI&#146;s parent, Worldcom,
    Inc., to $1.5&nbsp;million at year-end 2003 and (2)&nbsp;a
    decrease in bad debt write-offs to $2.3&nbsp;million in 2003,
    which decrease primarily related to the exit from the CLEC
    business.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Non-CLEC network costs decreased due to process
    improvements and network optimization projects. Process
    improvements were related to implementation of an automated
    system for tracking circuit costs payable to other carriers,
    including a monthly feed to the general ledger. Network
    optimization projects included renegotiation of contracts with
    long distance and other carriers,
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">79
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    <FONT size="2">which eliminated monthly minimum usage fees. In
    addition, network costs decreased due to the removal of circuits
    in connection with the exit from the wholesale long distance
    business.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Operating expenses decreased due to one-time
    system consolidation projects in 2002 that were not experienced
    in 2003. This decrease, however, was partially offset by
    expenses associated with a one-time software development project
    to enhance CCI Texas&#146; customer billing system in connection
    with the sale process.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The incurrence of $1.4&nbsp;million of one-time
    transaction costs, including financial and legal expenses
    associated with preparing TXUCV for sale.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In addition, $2.4&nbsp;million in retention
    bonuses that were paid to key employees to facilitate the sales
    transaction process while running the day to day operations of
    the business.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Depreciation and Amortization</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Depreciation and amortization expense decreased
19.8%, or $8.1&nbsp;million, to $32.9&nbsp;million in 2003 from
$41.0&nbsp;million in 2002 primarily due to the decrease in
depreciable asset base resulting from the impairment write-down
of the transport and CLEC assets. In connection with the
impairment, TXUCV recorded a $90.3&nbsp;million write-down of
the net book value of its transport and CLEC depreciable assets
from $98.3&nbsp;million to $8.0&nbsp;million.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Other Charges</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other charges decreased 88.8%, or
$106.0&nbsp;million, to $13.4&nbsp;million in 2003 from
$119.4&nbsp;million in 2002. This decrease is primarily due to
asset impairment and restructuring charges for the CLEC and
transport business of $0.2&nbsp;million in 2003 compared to
$101.4&nbsp;million in 2002. In accordance with
SFAS&nbsp;No.&nbsp;142, CCI Texas conducted impairment tests on
October&nbsp;1, 2003 and October&nbsp;1, 2002 and, as a result
of TXU&#146;s decision in 2003 to sell TXUCV for a known price
and CCI Texas&#146; decision to exit the CLEC and transport
businesses, recognized on its consolidated financial statements,
goodwill impairment losses of $13.2&nbsp;million and
$18.0&nbsp;million, respectively for the years ended
December&nbsp;31, 2003 and 2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Other Income (Expense)</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other income (expense)&nbsp;decreased 217.9%, or
$8.5&nbsp;million, to $(4.6)&nbsp;million from
$3.9&nbsp;million. The decrease was primarily due to a decrease
in interest expense of $2.1&nbsp;million (net of allowance for
funds used during construction), a decrease in minority interest
of $8.9&nbsp;million which resulted from the large transport
impairment charges recorded in 2002, which was offset by an
increase in partnership income of $0.4&nbsp;million. Partnership
income is primarily derived from a minority interest in two
cellular partnerships as further described in
&#147;Business&nbsp;&#151; CCI Texas&nbsp;&#151; Cellular
Partnerships&#148;.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Income Tax Expense (Benefit)</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Income tax expense increased by 132.4%, or
$50.7&nbsp;million, to $12.4&nbsp;million in 2003 from
$(38.3)&nbsp;million in 2002. Of this increase,
$48.3&nbsp;million was due to the federal income tax effect of
the increase in income before income taxes of
$138.2&nbsp;million primarily due to the significant one-time
charges in 2002 discussed above. Related to this increase was
the increase in state franchise tax of $4.8&nbsp;million and the
tax effect on minority interest of $3.1&nbsp;million. The
remaining $(5.5)&nbsp;million of the change was primarily due to
permanent differences and a change in the valuation reserve. See
Note&nbsp;D (Income Taxes) to the audited consolidated financial
statements of TXU Communications Ventures Company and
Subsidiaries.
</FONT>

<P align="center"><FONT size="2">80
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Year Ended December&nbsp;31, 2002 Compared
    to December&nbsp;31, 2001</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Revenues</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Texas&#146; total operating revenues
increased by 3.5%, or $7.2&nbsp;million, to $214.7&nbsp;million
in 2002 from $207.5&nbsp;million in 2001. The increase was
primarily due to an increase in average CLEC access lines from
40,930 to 43,023. As described above, all CLEC operations were
substantially sold or exited by the end of March 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Local calling services
</FONT></B><FONT size="2">revenues increased 3.4%, or
$1.8&nbsp;million, to $54.3&nbsp;million in 2002, from
$52.5&nbsp;million in 2001. The increase was due to an increase
in sales of custom calling features and a 1.3% increase in total
local access lines to 172,083 lines for the year ended
December&nbsp;31, 2002 from 169,894 lines for the year ended
December&nbsp;31, 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Network access services
</FONT></B><FONT size="2">revenues decreased by 2.2%, or
$0.8&nbsp;million, to $36.2&nbsp;million in 2002 from
$37.0&nbsp;million in 2001. The decrease was the result of a
decrease in minutes of use, which was partially offset by an
increase in end user subscriber line charges. In addition,
during 2001 and 2002, the FCC instituted certain modifications
to our Texas RLECs&#146; cost recovery mechanisms, decreasing
implicit support, which allowed rural carriers to set interstate
network access charges higher than the actual cost of
originating and terminating calls, and providing explicit
support through subsidy payments from the federal universal
service fund.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Subsidies </FONT></B><FONT size="2">increased
by 11.2%, or $3.2&nbsp;million, to $31.8&nbsp;million in 2002
from $28.6&nbsp;million in 2001. The increase was due in part to
the FCC modifications to our Texas RLECs&#146; cost recovery
mechanisms described above in network access services revenues
and due to an increase in federal universal service fund
payments due to higher operating expenses and plant investment
in 2002 compared with the national average.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Long distance services
</FONT></B><FONT size="2">revenues decreased by 14.1%, or
$3.3&nbsp;million, to $20.1&nbsp;million in 2002 from
$23.4&nbsp;million in 2001. The decrease was due to a decrease
in minutes of use.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Data and Internet services
</FONT></B><FONT size="2">revenues decreased by 5.4%, or
$0.8&nbsp;million, to $14.1&nbsp;million in 2002 from
$14.9&nbsp;million in 2001 due to a change in sales focus to
higher margin products which was partially offset by an increase
in DSL sales and a modest increase in dial-up Internet service.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Directory Publishing
</FONT></B><FONT size="2">revenues increased 15.7%, or
$1.3&nbsp;million, to $9.6&nbsp;million in 2002 from
$8.3&nbsp;million in 2001. The increase was due to increased
advertising sales. The improvement was partially attributable to
bringing the sales and production functions in-house during 2002
as described above, resulting in a partial year recognition of
higher revenues on the Lufkin directory from its publication in
August 2002 through the end of the year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Transport services
</FONT></B><FONT size="2">revenues increased by 22.3%, or
$2.3&nbsp;million, to $12.6&nbsp;million in 2002 from
$10.3&nbsp;million in 2001. The increase was primarily due to an
increase in one-time revenues associated with new service orders
by existing customers and some incremental recurring revenues
from existing and new customers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Other services
</FONT></B><FONT size="2">revenues decreased by 28.6%, or
$2.4&nbsp;million, to $6.0&nbsp;million in 2002 from
$8.4&nbsp;million in 2001. The decrease was primarily due to
non-recurring equipment sales in 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Exited services
</FONT></B><FONT size="2">revenues increased by 24.5%, or
$5.9&nbsp;million, to $30.0&nbsp;million in 2002 from
$24.1&nbsp;million in 2001. The increase was due to increased
CLEC sales.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Operating Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Total operating expenses increased by 1.1%, or
$2.0&nbsp;million, to $186.3&nbsp;million in 2002 from
$184.3&nbsp;million in 2001. The increase was due to the
following factors: selling, general and administrative expenses
increased due to increased expenditures made in anticipation of
future RLEC acquisitions and expenses related to the relocation
of the TXUCV corporate headquarters, including costs for
employee severance and relocation expenses. Informational
technology costs increased due to systems consolidation
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">projects, including the consolidation of select
billing systems. Bad debt expense increased as the result of a
$2.7&nbsp;million reserve for MCI receivables and a more
stringent policy for calculating reserves. Offsetting the above
were large cost reductions during 2002 related to CLEC
activities due to exiting non-profitable markets and holding the
CLEC operations for sale. As a result of these activities, net
headcount dropped by 397, to 823 employees at December&nbsp;31,
2002 from 1,220 employees at December&nbsp;31, 2001.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Depreciation and Amortization</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Depreciation and amortization expense decreased
by 18.3%, or $9.2&nbsp;million, to $41.0&nbsp;million in 2002
from $50.2&nbsp;million in 2001. The decrease was primarily due
to the elimination of goodwill amortization of
$13.7&nbsp;million recorded in 2001. SFAS&nbsp;No.&nbsp;142 was
adopted by CCI Texas on January&nbsp;1, 2002 requiring the
discontinuation of goodwill amortization.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Other Income (Expense)</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other income (expense)&nbsp;decreased 425.0%, or
$5.1&nbsp;million, to $3.9&nbsp;million of income in 2002 from
$(1.2)&nbsp;million of expense in 2001. The decrease was
primarily due to a decrease in interest expense of
$3.6&nbsp;million (net of an allowance for funds used during
construction), an increase in minority interest of
$7.5&nbsp;million which resulted from the transport impairment
charges recorded in 2002 and a decrease in partnership income of
$0.8&nbsp;million. These were offset by a decrease in the gain
on sale of property and investments of $5.6&nbsp;million
primarily related to the sale of an 18.0% interest in a cellular
partnership other than CCI Texas&#146; continuing investment in
GTE Mobilnet of South Texas, L.P. and GTE Mobilnet of Texas
RSA&nbsp;#17, L.P. in December 2001. See Note&nbsp;H
(Investments in Nonaffiliated Companies) to the audited
Consolidated Financial Statements of TXU Communications Ventures
Company and Subsidiaries. Partnership income is primarily
derived from a minority interest in the two continuing cellular
partnerships.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Income Tax Expense (Benefit)</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Income tax benefit increased 507.9%, or
$32.0&nbsp;million, to $(38.3)&nbsp;million in 2002 from
$(6.3)&nbsp;million in 2001. Of this increase,
$34.7&nbsp;million was associated with the federal income tax
effect of the decrease in income before taxes of
$99.9&nbsp;million. Related to this was the decrease in state
franchise tax of $3.5&nbsp;million and the tax effect on
minority interest of $2.6&nbsp;million. The remaining
$(8.8)&nbsp;million of the increase was primarily due to
permanent differences and a decrease in the valuation reserve.
</FONT>

<P align="left">
<B><FONT size="2">Critical Accounting Policies and Use of
Estimates</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Regulatory Accounting</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications of Texas Company and
Consolidated Communications of Fort&nbsp;Bend Company, as ILECs,
follow the accounting for regulated enterprises prescribed by
SFAS&nbsp;No.&nbsp;71, Accounting for the Effects of Certain
Types of Regulation, which permits rates (or tariffs) to be set
to levels intended to recover estimated costs of providing
regulated services or products, including capital costs.
SFAS&nbsp;No.&nbsp;71 requires our Texas RLECs to depreciate
wireline plant over the useful lives approved by the regulators,
which could be different than the useful lives that would
otherwise be determined by management. SFAS&nbsp;No.&nbsp;71
also requires deferral of certain costs and obligations based
upon approvals received from regulators to permit recovery of
such amounts in future years. Criteria that would give rise to
the discontinuance of SFAS&nbsp;No.&nbsp;71 include
(1)&nbsp;increasing competition restricting the wireline
business&#146; ability to establish prices to recover specific
costs and (2)&nbsp;significant changes in the manner in which
rates are set by regulators from cost-based regulation to
another form of regulation. Management believes the company is
consistent in the application of these provisions and does not
foresee regulatory, economic, or competitive changes in the near
future that would necessitate a change in its method of
accounting. In analyzing the effects of discontinuing the
application of SFAS&nbsp;No.&nbsp;71, management has determined
that the useful lives of plant assets used for regulatory and
financial reporting purposes are consistent with accounting
principles generally accepted in the United States and,
therefore, any adjustments to
</FONT>

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<DIV align="left">
<FONT size="2">telecommunications plant would be immaterial, as
would be the write-off of regulatory assets and liabilities.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Revenue Recognition</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Revenues are recognized when the corresponding
services are provided regardless of the period in which they are
billed. Recurring local service revenues are billed in advance,
and recognition is deferred until the service has been provided.
Nonrecurring revenues, such as long distance toll charges and
other usage based billings, is billed in arrears and is
recognized when earned.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Revenues from billing and collection services
provided to long distance and other carriers, and advertising
sold in telephone directories is recorded as miscellaneous
revenues. These revenues are recognized when the service has
been provided or over the life of the contract, as appropriate.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Long distance and data and Internet services are
recognized monthly as services are provided. Revenues from the
sale and maintenance of customer premise equipment is recognized
when the service is provided or over the life of the contract as
appropriate.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Allowance for Uncollectible
    Accounts</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We evaluate the collectibility of CCI Texas&#146;
accounts receivable based on a combination of factors. When we
are aware of a specific customer&#146;s inability to meet its
financial obligations, such as a bankruptcy filing or
substantial down-grading of credit scores, CCI Texas&#146;
records a specific allowance against amounts due to set the net
receivable to an amount it believes reasonable to be collected.
For all other customers, CCI Texas reserves a percentage of the
remaining outstanding accounts receivable balance as a general
allowance based on a review of specific customer balances,
company trends and experience with prior receivables, the
current economic environment and the length of time the
receivables are past due. If circumstances change, CCI Texas
will review the adequacy of the allowance, and its estimates of
the recoverability of amounts due it could be reduced by a
material amount.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Goodwill and Intangible
    Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2001 FASB issued Statement of Financial
Accounting Standards No.&nbsp;142, Goodwill and Other Intangible
Assets, or SFAS&nbsp;No.&nbsp;142, which requires that effective
January&nbsp;1, 2002, goodwill recorded in business combinations
cease amortizing. SFAS&nbsp;No.&nbsp;142 requires that goodwill
be reviewed for impairment using fair value measurement
techniques. Specifically, goodwill impairment is determined
using a two-step process. The first step of the goodwill
impairment test is used to identify potential impairment by
comparing the fair value of the reporting unit to its carrying
value, including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired and the second step of the impairment
test is unnecessary. If the fair value of the reporting unit is
less than the carrying value, the second step of the goodwill
impairment test calculation is performed to measure the amount
of the impairment charge. The second step of the goodwill
impairment test compares the implied fair value of the reporting
unit&#146;s goodwill with its carrying value. The implied fair
value of goodwill is determined in the same manner as the amount
of goodwill recognized in a business combination. That is, the
fair value of the reporting unit is allocated to all of the
assets and liabilities of that unit (including any unrecognized
intangible assets) as if the reporting unit had been acquired in
a business combination and the fair value of the reporting unit
was the purchase price paid to acquire the reporting unit. If
the implied fair value of goodwill is less than its carrying
value, goodwill must be written down to its implied fair value.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Determining the fair value of a reporting unit
under the first step of the goodwill impairment test and
determining the fair value of individual assets and liabilities
of a reporting unit (including unrecognized intangible assets)
under the second step of the goodwill impairment test is
judgmental in nature and often involves the use of significant
estimates and assumptions. These estimates and assumptions could
have a significant impact on whether or not an impairment charge
is recognized and also the magnitude of any such charge. We
perform internal valuation analyses and consider other market
information that is publicly
</FONT>

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<FONT size="2">available. Estimates of fair value are primarily
determined using discounted cash flows. This approach uses
significant estimates and assumptions including projected future
cash flows (including timing) and the selection of a discount
rate that reflects the risk inherent in future cash flows.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon completion of our initial assessment in
January 2002, we determined that no write-down in the carrying
value of goodwill was required. CCI&nbsp;Texas conducted
impairment tests on October&nbsp;1, 2003 and October&nbsp;1,
2002 and, as a result of TXU Corp.&#146;s decision in 2003 to
sell TXUCV for a known price and CCI&nbsp;Texas&#146; decision
to exit the CLEC and transport businesses recognized on its
consolidated financial statements, impairment losses of
$13.2&nbsp;million and $18.0&nbsp;million, respectively, for the
years ended December&nbsp;31, 2003 and 2002.
</FONT>

<DIV>&nbsp;</DIV>

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    <B><I><FONT size="2">Pension and Postretirement
    Benefits</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The amounts recognized in the financial
statements related to pension and postretirement benefits are
determined on an actuarial basis utilizing several critical
assumptions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A significant assumption used in determining our
pension and postretirement benefit expense is the expected
long-term rate of return on plan assets. In 2003, we used an
expected long-term rate of return of 8.5%. We continue to
believe that 8.5% is an appropriate rate of return for our plan
assets given our investment strategy and will continue to use
this assumption for 2004. The projected portfolio mix of the
plan assets is developed in consideration of the expected
duration of related plan obligations and as such is balanced
between equity investments and fixed income securities. Our
investment policy is to invest approximately 50% of the pension
assets in equity funds with the remainder being invested in
fixed income funds and cash equivalents. The expected return on
plan assets is determined by applying the expected long-term
rate of return to the market-related value of plan assets. The
actual return on our equity portfolio has been significantly
below expected return levels due to overall equity market
conditions in 2001 and 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Another significant estimate is the discount rate
used in the annual actuarial valuation of pension and
postretirement benefit plan obligations. In determining the
appropriate discount rate at year-end, we considered the current
yields on high quality corporate fixed-income investments with
maturities corresponding to the expected duration of the benefit
obligations. As of December&nbsp;31, 2003, the discount rate
utilized was 6.25%.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the acquisition of TXUCV, TXU
Corp. contributed $2.9&nbsp;million to TXUCV&#146;s pension
plan. We expect to contribute $3.2&nbsp;million to the pension
plan and $1.0&nbsp;million to our other post-retirement benefits
plan in 2005.
</FONT>

<DIV>&nbsp;</DIV>

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    <B><I><FONT size="2">Useful Life of Property, Plant and
    Equipment</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We estimate the useful lives of property, plant
and equipment in order to determine the amount of depreciation
expense to be recorded during any reporting period. The majority
of our telecommunications plant, property and equipment is
depreciated using the group method, which develops a
depreciation rate based on the average useful life of a specific
group of assets, rather than the individual asset as would be
utilized under the unit method. The estimated life of the group
is based on historical experience with similar assets as well as
taking into account anticipated technological or other changes.
If technological changes were to occur more rapidly than
anticipated or in a different form than anticipated, the useful
lives assigned to these assets may need to be shortened,
resulting in the recognition of increased depreciation expense
in future periods. Likewise, if the anticipated technological or
other changes occur more slowly than anticipated, the life of
the group could be extended based on the life assigned to new
assets added to the group. This could result in a reduction of
depreciation expense in future periods. We review these types of
assets for impairment when events or circumstances indicate that
the carrying amount may not be recoverable over the remaining
lives of the assets. In assessing impairment, we follow the
provisions of Statement of Financial Accounting Standards
No.&nbsp;144, <I>Accounting for the Impairment or Disposal of
Long-Lived Assets</I>, or SFAS&nbsp;No.&nbsp;144, utilizing cash
flows which take into account management&#146;s estimates of
future operations.
</FONT>

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<A name='115'></A>
</DIV>

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<P align="center">
<B><FONT size="2">BUSINESS</FONT></B>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are an established rural local exchange
company that provides communications services to residential and
business customers in Illinois and in Texas. As of
September&nbsp;30, 2004, we were the 16th largest local
telephone company in the United States, based on industry
sources, with approximately 257,726 local access lines and
approximately 24,385 DSL lines in service. Our main sources of
revenues are our local telephone businesses in Illinois and
Texas, which offer an array of services, including local dial
tone, custom calling features, private line services, long
distance, dial-up and high-speed Internet access, carrier access
and billing and collection services. We also operate a number of
complementary businesses. In Illinois, we provide additional
services such as telephone services to county jails and state
prisons, operator and national directory assistance and
telemarketing and order fulfillment services. In Texas, we
publish telephone directories and offer wholesale transport
services on a fiber optic network.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of the subsidiaries through which we operate
our local telephone businesses is classified as an RLEC under
the Telecommunications Act. Our RLECs are ICTC, Consolidated
Communications of Fort&nbsp;Bend Company and Consolidated
Communications of Texas Company. RLECs are typically
characterized by stable operating results and consistently
strong cash flows and operate in generally supportive regulatory
environments. In addition, because our RLECs primarily provide
service in rural areas, competition for local telephone service
has been limited due to the generally unfavorable economics of
constructing and operating competitive systems in these areas.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We had $327.1 and $244.9&nbsp;million of revenues
for the year ended December&nbsp;31, 2003 and for the nine
months ended September&nbsp;30, 2004, respectively. We had a
$9.5&nbsp;million net loss for the year ended December&nbsp;31,
2003 and $8.5&nbsp;million of net income for the nine months
ended September&nbsp;30, 2004, respectively.
</FONT>

<P align="left">
<B><FONT size="2">Our Strengths</FONT></B>

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    <B><I><FONT size="2">Consistently Strong Cash
    Flows</FONT></I></B></TD>
</TR>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our RLEC&#146;s have generated consistently
strong cash flows from operating activities due to relatively
consistent customer demand for our services. Historically,
demand for telephone services from residential and small
business customers in rural parts of the United States has been
stable. The stability of demand, combined with a generally
supportive regulatory environment and limited competition, has
allowed our RLECs to generate predictably strong cash flows from
operating activities. We believe these conditions will continue
to exist.
</FONT>

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    <B><I><FONT size="2">Favorable Regulatory
    Environment</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of the subsidiaries through which we operate
our local telephone businesses is classified as an RLEC under
the Telecommunications Act. As a result, we are exempt from some
of the more burdensome interconnection and unbundling
requirements that have affected larger ILECs. Also, we benefit
from federal and Texas state subsidies designed to promote
widely available, quality telephone service at affordable prices
in rural areas, which are also referred to as universal service.
In 2003, CCI Illinois received $6.0&nbsp;million from the
federal universal service fund and CCI Texas received an
aggregate $41.4&nbsp;million from the federal universal service
fund and the Texas universal service fund. Of the
$41.4&nbsp;million received by CCI Texas, $6.4&nbsp;million
represented the recovery of additional subsidy payments from the
universal service fund for prior periods, which was a larger
out-of-period adjustment than in prior years. In the aggregate,
the $47.4&nbsp;million comprised 14.5% of our revenues in 2003,
after the effect of TXUCV acquisition. For the nine months ended
September&nbsp;30, 2004, CCI&nbsp;Illinois received
$10.0&nbsp;million from the federal universal service fund,
$2.7&nbsp;million of which represented the recovery of
additional subsidy payments from the federal universal service
fund for prior periods and CCI&nbsp;Texas received an aggregate
$11.9&nbsp;million from the federal universal service fund and
the Texas universal service fund, $2.7&nbsp;million of which
represented the recovery of additional subsidy payments from the
federal universal
</FONT>

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<FONT size="2">service fund for prior periods. In the aggregate,
the $21.9&nbsp;million comprised 8.9% of revenues for the nine
months ended September&nbsp;30, 2004.
</FONT>
</DIV>

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    <B><I><FONT size="2">Attractive Markets&nbsp;and Limited
    Competition</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The geographic areas in which our RLECs operate
are characterized by a balanced mix of stable, insular
territories in which we have limited competition and growing
suburban areas where we expect our business to grow in tandem.
Currently, we have limited competition for voice services from
wireless carriers and cable providers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Lufkin, Texas and central Illinois markets
have experienced nominal population growth over the past decade.
As of September&nbsp;30, 2004, 136,289 or approximately 53% of
our 257,726 local telephone access lines were located in these
markets. We have experienced limited competition in these
markets because the low customer density and high residential
component discourage the significant capital investment required
to offer service over a competing network.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Conroe, Texas and Katy, Texas markets are
suburban areas located on the outskirts of the Houston
metropolitan area that have experienced above-average population
and business employment growth over the past decade as compared
to Texas and the United States as a whole. According to the most
recent census, the median household income in the primary county
in our Conroe market was over $50,000&nbsp;per year and in our
Katy market was over $60,000&nbsp;per year, both significantly
higher than the median household income in Texas of
$39,927&nbsp;per year. As of September&nbsp;30, 2004, 121,437 or
approximately 47% of our 257,726 local access lines, were
located in these markets.
</FONT>

<DIV>&nbsp;</DIV>

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    <B><I><FONT size="2">Technologically Advanced
    Network</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have invested significantly in the last
several years to build a technologically advanced network
capable of delivering a broad array of reliable, high quality
voice and data and Internet services to our customers on a
cost-effective basis. For example, as of September&nbsp;30,
2004, approximately 90% of our total local access lines in both
Illinois and Texas are DSL-capable (excluding access lines
already served by other high speed connections). The service
options we are able to provide over our existing network allow
us to generate additional revenues per customer. We believe our
current network in Illinois is capable of supporting video with
limited additional capital investment.
</FONT>

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    <TD>
    <B><I><FONT size="2">Broad Service Offerings and Bundling of
    Services</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We offer our customers a single point of contact
for access to a broad array of voice and data and Internet
services. For example, we offer all of our customers custom
calling features, such as caller name and number identification,
call forwarding and call waiting. In addition, we offer
value-added services such as teleconferencing and voicemail.
These service options allow us to generate additional revenues
per customer.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also generate additional revenues per customer
by bundling services. Bundling enables us to provide a more
complete package of services to our customers at a relatively
small incremental cost to us. We believe the bundling of
services results in increased customer loyalty and higher
customer retention. As of September&nbsp;30, 2004, our Illinois
Telephone Operations had over 6,300 customers who subscribed to
service bundles that included local service, custom calling
features and voicemail and approximately 1,900 additional
customers who subscribed to service bundles that included local
service, custom calling features, voicemail and Internet access.
This represents an increase of approximately 21% over the number
of Illinois customers who subscribed to service bundles as of
December&nbsp;31, 2003. Our Texas Telephone Operations
introduced a new campaign to market service bundles and sold
over 7,500 new service bundles between their introduction in
October 2003 and December 2003 and over 7,900 for the nine
months ended September&nbsp;30, 2004.
</FONT>

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    <TD>
    <B><I><FONT size="2">Experienced Management Team with Proven
    Track Record</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">With an average of approximately 20&nbsp;years of
experience in both regulated and non-regulated
telecommunications businesses, our management team has
demonstrated the ability to deliver profitable growth while
providing high levels of customer satisfaction. Specifically,
our management team has:
</FONT>
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    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">particular expertise in providing superior
    quality services to rural customers in a regulated environment;
    </FONT></TD>
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    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a proven track record of successful business
    integrations, including the integration of ICTC and several
    related businesses, including long distance and private line
    services, into McLeodUSA in 1998;&nbsp;and
    </FONT></TD>
</TR>

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    <TD>&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a proven track record of launching and growing of
    new, regulated services, such as long distance and DSL services,
    and complementary services, such as operator and telemarketing
    and order fulfillment services.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Business Strategy</FONT></B>

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    <B><I><FONT size="2">Improve Operating Efficiency and Maintain
    Capital Expenditure Discipline</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since acquiring ICTC and the related businesses
in December 2002, we have made significant operating and
management improvements. We have centralized many of our
business and back office functions for our Illinois Telephone
Operations. By providing these centrally managed resources to
our Illinois operating companies, we have allowed our management
and customer service functions to focus on their business and to
better serve our customers in a cost-effective manner. We intend
to continue to seek and implement more cost efficient methods of
managing our business, including sharing best practices across
our operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe we have successfully managed the
capital expenditures for our Illinois Telephone Operations in
order to optimize our returns, while appropriately allocating
resources to allow us to maintain and upgrade our network. We
intend to maintain our capital expenditure discipline across our
company.
</FONT>

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    <TD>
    <B><I><FONT size="2">Increase Revenues Per
    Customer</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will continue to focus on increasing our
revenues per customer, primarily by seeking to increase our DSL
service&#146;s market penetration, increasing the sale of other
value-added services and encouraging customers to subscribe for
service bundles. We believe that this strategy enables us to
provide a more complete package of services to our customers and
increase our revenues per customer at a relatively small
incremental cost to us.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of September&nbsp;30, 2004, our Illinois RLEC
had over 6,300 customers who subscribed to service bundles that
included local service, custom calling features and voicemail
and approximately 1,900 additional customers who subscribed to
service bundles that included these services and Internet
access. This represents an increase of approximately 21% over
the number of Illinois customers who subscribed to service
bundles as of December&nbsp;31, 2003. Our Texas Telephone
Operations introduced a new campaign to market service bundles
and sold over 7,500 new service bundles between their
introduction in October 2003 and December 2003 and over 7,900
for the nine months ended September&nbsp;30, 2004. As of
September&nbsp;30, 2004, approximately 20,200 customers in Texas
have subscribed to our service bundles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are expanding our service bundle in Illinois
with the introduction of an all-digital video service. Having
made the necessary upgrades to our network and purchased
programming content, we intend to launch digital video service
in the first quarter of 2005 in our key Illinois exchanges:
Mattoon; Charleston; and Effingham. Initial customer feedback
has been positive, and management believes that video will
enhance the competitive appeal of our service bundle and
increase revenue per customer.
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We plan to use innovative marketing strategies
for enhanced, ancillary services and to continue to offer new
applications and technologies. By building on our long-standing
relationships with our customers while continuing to offer new
services, we believe we can continue to generate strong revenues
and cash flow.
</FONT>

<P align="left">
<B><I><FONT size="2">Build on our Reputation for High Quality
Service</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will seek to continue to build on our strong
reputation, which dates to 1894 in Illinois and 1898 in Texas.
We plan to do this by continuing to offer a broad array of high
quality telecommunications services and consistent, high quality
customer service. We have consistently exceeded all ICC and PUCT
quality of service requirements, and we believe we can continue
this standard of excellence throughout the company. We will
continue to focus on building long-term relationships with our
customers by having an active local presence. We believe these
strategies will lead to high levels of customer loyalty and
increased demand for our services in Illinois and Texas.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Selective
Acquisitions</I></FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to pursue a disciplined process of
selective acquisitions of access lines from Regional Bell
Operating Companies and other rural local exchange carriers, as
well as acquiring providers of businesses complementary to ours,
such as dial-up and DSL Internet access services. Over the past
five years, Regional Bell Operating Companies have divested a
significant number of access lines nationwide and are expected
to continue these divestitures in order to focus on larger
markets. We also believe there may be attractive opportunities
to acquire rural local exchange carriers. For example, in
Illinois and Texas, there are approximately 90 rural local
exchange carriers serving a fragmented market representing
approximately 1.5&nbsp;million total access lines. Our
acquisition criteria include:
</FONT>
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    <FONT size="2">attractiveness of the markets;
    </FONT></TD>
</TR>

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    <TD>&nbsp;</TD>
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    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">quality of the network;
    </FONT></TD>
</TR>

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    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our ability to integrate the acquired company
    efficiently;
    </FONT></TD>
</TR>

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    <TD>&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">potential operating synergies;&nbsp;and
    </FONT></TD>
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    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the potential of any proposed transaction to
    permit increased dividends on our common stock.
    </FONT></TD>
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<P align="left">
<B><FONT size="2">History of the Company</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Founded in 1894 as the Mattoon Telephone Company
by the great-grandfather of our Chairman, Mr.&nbsp;Lumpkin, CCI
Illinois began as one of the nation&#146;s first independent
telephone companies. After several subsequent acquisitions, the
Mattoon Telephone Company was incorporated as the Illinois
Consolidated Telephone Company, or ICTC, on April&nbsp;10, 1924.
On September&nbsp;24, 1997, McLeodUSA acquired the predecessor
of CCI.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Lumpkin family has been continuously involved
in managing CCI Illinois since inception, including the period
during which it was owned by McLeodUSA, when Mr.&nbsp;Lumpkin
served as Vice Chairman of McLeodUSA and Chairman of ICTC. In
December 2002, Mr.&nbsp;Lumpkin, through his affiliated entity
Central Illinois Telephone, together with Providence Equity and
Spectrum Equity, purchased the capital stock and assets of ICTC
and several related businesses from McLeodUSA for
$271.2&nbsp;million and assumed specified liabilities. CCI
Holdings was formed on March&nbsp;22, 2002 as an acquisition
vehicle for the purpose of acquiring ICTC and several related
businesses from McLeodUSA.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV began operations in November 1997 with the
acquisition by TXU Corp. of Lufkin-Conroe Communications, a
fourth-generation family-owned business founded in 1898. The
RLEC subsidiary of Lufkin-Conroe Communications was renamed TXU
Communications Telephone Company. In August 2000, TXU Corp.
contributed the parent company of Fort&nbsp;Bend Telephone
Company, a family-owned business based in Katy, Texas which
began operations in 1914, to TXUCV. Beginning in 1999, TXUCV
began operating a CLEC in a number of local markets within
Texas. In late 2001, TXUCV decided to
</FONT>

<P align="center"><FONT size="2">88
</FONT>

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<DIV align="left">
<FONT size="2">refocus its business strategy on its Texas RLECs.
TXUCV systematically exited its CLEC markets, culminating in the
sale of some of its CLEC operations to Texas-based Grande
Communications in March 2003 and the termination of the
remainder of its CLEC operations by June 2003.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On April&nbsp;14, 2004, we acquired TXUCV, an
indirect, wholly owned subsidiary of TXU Corp., for a cash
purchase price of $527.0&nbsp;million, subject to adjustment.
Texas Holdings, a Delaware corporation, was formed on
October&nbsp;8, 2003 for the sole purpose of acquiring TXUCV
from TXU Corp. TXUCV was subsequently renamed to CCV.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Holdings is a holding company with no income
from operations or assets except for the capital stock of CCI
and Texas Holdings. Instead, all of our operations are conducted
through CCI and its consolidated subsidiaries, referred to as
CCI Illinois, and Texas Holdings and its consolidated
subsidiaries, referred to as CCI Texas.
</FONT>

<P align="left">
<B><FONT size="2">Telephone Operations</FONT></B>

<P align="left">
<B><I><FONT size="2">Illinois</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Illinois Telephone Operations consist of
local telephone, long distance and data and Internet services
and serves residential and business customers in central
Illinois. As of September&nbsp;30, 2004, our Illinois Telephone
Operations had approximately:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">88,254 local access lines in service, of which
    approximately 64% served residential customers and 36% served
    business customers;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">61% long distance penetration of its local access
    lines;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">8,038 dial-up Internet customers;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">10,109 DSL lines, which represented an
    approximately 11.5% penetration of total local access lines.
    Approximately 90% of our total local access lines in Illinois,
    excluding local access lines already served by other high speed
    connections, are DSL-capable.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, our Illinois Telephone Operations
generated $90.3&nbsp;million of revenues and $28.2&nbsp;million
from cash flows from operating activities. For the nine months
ended September&nbsp;30, 2004, our Illinois Telephone Operations
generated $71.9&nbsp;million of revenues and $17.6&nbsp;million
of cash flows from operating activities. As of
September&nbsp;30, 2004, our Illinois Telephone Operations had
total assets of $245.5&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following chart summarizes the primary
sources of revenues for Illinois Telephone Operations for the
nine months ended September&nbsp;30, 2004.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of Net</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenue of Illinois</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Revenue Source</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Telephone&nbsp;Operations</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Local Calling Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">35.6%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offers the local customer the ability to
    originate and receive an unlimited number of calls within a
    defined local calling area. The customer is charged a flat
    monthly fee for basic service, including local calls, and
    service charges for custom calling features, value added
    services and local private line services.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">89
</FONT>

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<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of Net</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenue of Illinois</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Revenue Source</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Telephone&nbsp;Operations</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Network Access Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">24.6%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offers long distance and other carriers the
    opportunity to use our Illinois network to originate or
    terminate long distance calls in our Illinois service area.
    Network access charges are paid by the long distance or other
    carriers to our Illinois Telephone Operations and are regulated
    by the FCC and the ICC. These revenues also include special
    access and certain regulated, end-user charges.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Subsidies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">13.9%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Our Illinois Telephone Operations receive federal
    subsidy payments designed to promote widely available, quality
    telephone service at affordable prices in rural areas.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long Distance Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">11.6%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offers intrastate and interstate long distance
    services provided to local customers in Illinois who subscribe
    to our Telephone Operations&#146; long distance services.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Data and Internet Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">9.9%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offers DSL, non-local private line service,
    dial-up Internet access and frame relay networks and related
    enhanced Internet services.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4.4%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offers other services, including billing and
    collection services and commissions from the sale of advertising
    for yellow and white pages directories.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The percentages of revenues listed above have
been adjusted to eliminate intra-company revenues and provide
more detail than that presented in the consolidated statement of
income of CCI. See consolidated financial statements of CCI and
audited combined financial statements of ICTC and the related
businesses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Local calling services
</FONT></B><FONT size="2">include dial tone and local calling
services. Our Illinois Telephone Operations generally charge
residential and business customers a fixed monthly rate for
access to the network and for originating and receiving
telephone calls within their local calling area, which is the
geographic area established for administration and pricing of
telecommunications services. Custom calling features consist of
caller name and number identification, call forwarding and call
waiting. Value added services consist of teleconferencing and
voicemail. For custom calling features and value added services,
our Illinois Telephone Operations usually charge a flat monthly
fee, which varies depending on the type of service. In addition,
our Illinois Telephone Operations offer local private lines
providing direct connections between two or more local locations
primarily to business customers at flat monthly rates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Network access services
</FONT></B><FONT size="2">allow the origination or termination
of calls in our Illinois service area for which our Telephone
Operations charge long distance or other carriers network access
charges, which are regulated. Network access fees also apply to
private lines provisioned between a customer in our Illinois
service area and a location outside of our Illinois service
area. For long distance calls, our Illinois Telephone Operations
bill the long distance or other carrier on a per minute or per
minute, per mile usage basis. For private lines, our Illinois
Telephone Operations bill the long distance or other carrier at
a flat monthly rate. Included in this category are subscriber
line charges paid by the end user.
</FONT>

<P align="center"><FONT size="2">90
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Illinois Telephone Operations record the
details of the long distance and private line calls through its
carrier access billing system and bills the applicable carrier
on a monthly basis. The network access charge rates for
intrastate long distance calls and private lines within Illinois
are regulated and approved by the ICC, whereas the access charge
rates for interstate long distance calls and private lines are
regulated and approved by the FCC.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subsidies consist of federal subsidies designed
to promote widely available, quality telephone service at
affordable prices in rural areas. The subsidies are allocated
and distributed to our Illinois Telephone Operations from funds
to which telecommunications providers, including local, long
distance and wireless carriers, must contribute on a monthly
basis. Funds are distributed to our Illinois Telephone
Operations on a monthly basis based upon our costs for providing
local service in Illinois. Unlike our Texas Telephone
Operations, our Illinois Telephone Operations receive federal
but not state subsidies.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Long distance services in Illinois include
services provided to subscribers to long distance plans to
originate calls that terminate outside the caller&#146;s local
calling area. For this service, our Illinois Telephone
Operations charges its subscribers a combination of subscription
and usage fees.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Data and Internet services include revenues from
non-local private lines and the provision of access to the
Internet by DSL, T-1 lines and dial-up access. Our Illinois
Telephone Operations also offer a variety of data connectivity
services, including frame relay networks. Frame relay networks
are public data networks commonly used for local area network to
local area network communications as an alternative to private
line data communications. In addition, our Illinois Telephone
Operations offer enhanced Internet services, which include basic
web site design and hosting, content feeds, domain name
services, e-mail services and obtaining Internet protocol
addresses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other services includes revenues from billing and
collection services. Our Illinois Telephone Operations also
receive what is referred to as revenue retention payments. These
payments are essentially a commission on advertising revenues
paid to ICTC by The Yell Group, which publishes yellow and white
pages directories for our Illinois service area.
</FONT>

<P align="left">
<B><I><FONT size="2">Texas</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Texas Telephone Operations serve residential
and business customers in east Texas and rural and suburban
areas surrounding Houston. As of September&nbsp;30, 2004, our
Texas Telephone Operations had approximately:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">169,472 local access lines in service, of which
    approximately 67% served residential customers and 33% served
    business customers;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">39% long distance penetration of its local access
    lines in Texas;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">14,971 dial-up Internet customers;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">14,276 DSL lines, which represented an
    approximately 8.4% penetration of total local access lines.
    Approximately 90% of our total local access lines, excluding
    local access lines already served by other high speed
    connections, are DSL-capable.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Texas Telephone Operations also include the
following complementary businesses:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Directory Publishing</FONT></B><FONT size="2">
sells directory advertising and publishes yellow and white pages
directories in and around our Texas RLECs&#146; service areas.
The directories are each published once per year and have a
combined circulation in excess of 400,000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Transport Services</FONT></B><FONT size="2">
provides connectivity to customers within Texas over a fiber
optic transport network consisting of approximately 2,500
route-miles of fiber. This transport network supports our long
distance, Internet access and data services in Texas and
provides bandwidth on a wholesale basis to third party
customers, including national long distance and wireless
carriers. The transport network includes fiber owned by
Consolidated Communications Transport Company, a wholly owned
subsidiary of CCV and East Texas Fiber Line Incorporated, a
corporation in which our Texas Telephone Operations own a 63.0%
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">equity interest. In addition, Consolidated
Communications Transport Company owns a 39.1% equity interest
in, and is the managing partner of, Fort&nbsp;Bend Fibernet, a
partnership.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Cellular
Partnerships.</FONT></B><FONT size="2"> Our Texas Telephone
Operations hold equity interests in the following two cellular
partnerships:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">GTE Mobilnet of South Texas, which serves the
    greater Houston metropolitan area. Our Texas Telephone
    Operations own 2.3% of the equity of this partnership. In 2003
    and for the nine months ended September&nbsp;30, 2004, our Texas
    Telephone Operations recognized income of $1.8&nbsp;million and
    $1.8&nbsp;million, respectively, and received cash distributions
    totaling $0.7&nbsp;million and $3.2&nbsp;million, respectively,
    from this partnership.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">GTE Mobilnet of Texas RSA&nbsp;#17, which serves
    rural areas in and around Conroe, Texas. Our Texas Telephone
    Operations own 17.0% of the equity of this partnership. In 2003
    and for the nine months ended September&nbsp;30, 2004, our Texas
    Telephone Operations recognized income of $1.4&nbsp;million and
    $1.3&nbsp;million, respectively, and received cash distributions
    totaling $1.2&nbsp;million and $0.5&nbsp;million, respectively,
    from this partnership.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">San&nbsp;Antonio MTA, L.P., a wholly owned
partnership of Cellco Partnership (doing business as Verizon
Wireless), is the general partner for both partnerships.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, our Texas Telephone Operations generated
$194.8&nbsp;million of revenues and $75.1&nbsp;million from cash
flows from operating activities on a historical basis. For the
nine months ended September&nbsp;30, 2004, our Texas Telephone
Operations generated $143.1&nbsp;million of revenues and
$46.1&nbsp;million of cash flows from operating activities. As
of September&nbsp;30, 2004, our Texas Telephone Operations had
total assets of $734.6&nbsp;million on an historical basis.
</FONT>

<P align="center"><FONT size="2">92
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following chart summarizes the primary
sources of revenues for our Texas Telephone Operations for the
nine months ended September&nbsp;30, 2004.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="37%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of Net</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Revenue of Our</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Revenue Source</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Texas Telephone Operations</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Local Calling Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">30.6</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offers the local customer in Texas the ability to
    originate and receive an unlimited number of calls within a
    defined local calling area. The customer is charged a flat
    monthly fee for basic service, including local calls, and
    service charges for custom calling features, voicemail and local
    private line services.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Network Access Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">19.5</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offers long distance and other carriers the
    opportunity to use our Texas network to originate or terminate
    long distance calls in our Texas service areas. Network access
    charges are paid by the long distance or other carriers to our
    Texas Telephone Operations and are regulated by the FCC and
    PUCT. These revenues also include special access and certain
    regulated, end user charges.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Subsidies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">22.3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Our Telephone Operations in Texas receive federal
    and state subsidy payments designed to promote widely available,
    quality telephone service at affordable prices in rural areas.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long Distance Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5.8</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offers intrastate and interstate long distance
    services provided to local customers who subscribe to our long
    distance services in Texas.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Data and Internet Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">7.3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offers DSL, non-local private line service,
    dial-up Internet access, Asynchronous Transfer Mode, or ATM,
    based services and frame relay networks and related enhanced
    Internet services.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Directory Publishing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5.8</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offers the sale of directory advertising and
    publishes yellow and white pages directories in and around our
    Texas service areas.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Transport Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5.7</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offers connectivity to customers within Texas
    over a fiber-optic transport network.
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3.0</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offers other services, including equipment sales
    and billing and collection services.
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">93
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The percentages of revenues listed above have
been adjusted to eliminate intra-company revenues and provides
more detail than that presented in the consolidated statement of
operations and comprehensive loss of CCV. See the Consolidated
Financials Statements of CCV and its predecessor, TXUCV.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Local call services include dial tone and local
calling services. Our Texas Telephone Operations generally
charge residential and business customers a fixed monthly rate
for access to the network and for originating and receiving
telephone calls within their local calling areas. Custom calling
and other features include caller name and number
identification, call forwarding, call waiting and voicemail. For
custom calling features, our Texas Telephone Operations usually
charge a flat monthly fee, which varies depending on the type of
service. In addition, our Texas Telephone Operations offer local
private lines providing direct connections between two or more
local locations primarily to business customers at flat monthly
rates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Network access services allow the origination or
termination of calls in our Texas service areas for which our
Texas Telephone Operations charge long distance or other
carriers network access charges. The network access fees also
apply to private lines provisioned between a customer in one of
our Texas service areas and a location outside of such service
area. For long distance calls, our Texas Telephone Operations
bill the long distance or other carrier on a per minute or per
minute per mile usage basis. For private lines, our Texas
Telephone Operations bill the long distance or other carrier at
a flat monthly rate. Included in this category are subscriber
line charges paid by the end user.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Texas Telephone Operations record the details
of the long distance and private line calls through its carrier
access billing system and bills the applicable carrier on a
monthly basis. The network access charge rates for intrastate
long distance calls and private lines within Texas are regulated
and approved by the PUCT, whereas the access charge rates for
interstate long distance calls and private lines are regulated
and approved by the FCC.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Subsidies </FONT></B><FONT size="2">consist of
federal and state subsidies designed to promote widely
available, quality telephone service at affordable prices in
rural areas. The federal and state subsidies are allocated and
distributed to our Texas Telephone Operations from funds to
which telecommunications providers, including local, long
distance and wireless carriers, must contribute on a monthly
basis. Funds are distributed to our Texas Telephone Operations
on a monthly basis based upon our costs for providing local
service.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Long distance services
</FONT></B><FONT size="2">include services provided to Texas
subscribers to our long distance plans to originate calls that
terminate outside the caller&#146;s local calling area. For this
service, our Texas Telephone Operations charge their subscribers
a combination of subscription and usage fees.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Data and Internet services
</FONT></B><FONT size="2">includes revenues from non-local
private lines and the provision of access to the Internet by
DSL, T-1 lines and dial-up access. Our Texas Telephone
Operations also offer a variety of data connectivity services,
including ATM services and frame relay networks. ATM is a
high-speed switching technique used to transmit voice, data and
video. In addition, our Texas Telephone Operations offer
enhanced Internet services, which include domain name services,
obtaining Internet protocol addresses, e-mail services and web
site and hosting services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Directory Publishing
</FONT></B><FONT size="2">includes revenues from the sale of
directory advertising and the publication of yellow and white
pages directories in and around our Texas service areas.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Transport services
</FONT></B><FONT size="2">includes revenues from the sale of
transmission services for high-capacity data circuits over a
fiber-optic transport network within Texas.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Other services
</FONT></B><FONT size="2">includes revenues from equipment sales
and billing and collection services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Exited services </FONT></B><FONT size="2">are
services that are no longer offered by our Texas Telephone
Operations, including the CLEC operations and wholesale long
distance services.
</FONT>

<P align="center"><FONT size="2">94
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<B><FONT size="2">Other Operations</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Other Operations consist of the following
complementary businesses:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><FONT size="2">Public Services</FONT></B><FONT size="2">
    provides local and long distance service and automated collect
    calling from county jails and state prisons in Illinois under
    multi-year contracts as described under
    &#147;&#151;&nbsp;Customers and Markets&#148;. These services
    include fraud control, customer service, call management and
    technical field support. The range of customized applications
    include institution-specific branding, call time and dollar
    limits, 3-way call detection, Personal Identification Number
    System, call blocking and screening, public defender access,
    call restriction application, on-site training, fully automated
    collect calls, touch tone and rotary dial acceptable, inmate
    tested equipment and monitors and recorders. Public Services
    also provides payphone services to approximately 356 payphones
    in our Illinois service area.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><FONT size="2">Operator Services</FONT></B><FONT size="2">
    offers both live and automated local and long distance operator
    assistance in Texas and national directory assistance on a
    wholesale and retail basis to ILECs, CLECs, long distance
    companies and payphone providers. Operator Services also
    provides specialized message center services and corporate and
    governmental attendant services and private corporate directory
    assistance and messaging services to corporations and government
    agencies.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><FONT size="2">Market Response</FONT></B><FONT size="2">
    provides telemarketing and order fulfillment services to
    customers nationwide. Our order fulfillment services provide our
    clients with the ability to quickly and cost-effectively meet
    their customers&#146; requests for shipment of information and
    products. Typically, these customers are responding to a
    direct-response advertising campaign by the Internet, mail or
    telephone.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><FONT size="2">Business Systems</FONT></B><FONT size="2">
    sells, installs and maintains telecommunications equipment and
    wiring to residential and business customers in our Illinois
    service area and in nearby, larger markets including Champaign,
    Decatur and Springfield, Illinois. This operation allows us to
    cross-sell our services to many of our business customers in
    Illinois, such as colleges, hospitals and secondary schools.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <B><FONT size="2">Mobile Services</FONT></B><FONT size="2">
    provides one-way messaging service to residential and business
    customers. The basic paging capability has been supplemented
    with other complimentary mobile information services, including
    Internet, 800 service, info-text and voicemail.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, our Other Operations in Illinois
generated $42.0&nbsp;million of revenues and $0.7&nbsp;million
from cash flows from operating activities. For the nine months
ended September&nbsp;30, 2004, our Other Telephone Operations in
Illinois generated $29.9&nbsp;million of revenues and
$1.9&nbsp;million of cash flows from operating activities. As of
September&nbsp;30, 2004, our Other Operations in Illinois had
total assets of $71.6&nbsp;million.
</FONT>

<P align="left">
<B><I><FONT size="2">Customers and Markets</FONT></I></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Illinois</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our local telephone markets consist of
35&nbsp;geographically contiguous exchanges serving
predominantly small towns and rural areas in an approximately
2,681&nbsp;square mile area in central Illinois. An exchange is
a geographic area established for administration and pricing of
telecommunications services. Our Illinois Telephone Operations
is the incumbent provider of basic telephone services within
these exchanges, with approximately 88,254&nbsp;local access
lines, or approximately 33&nbsp;lines per square mile, as of
September&nbsp;30, 2004. Approximately 64% of our local access
lines serve residential customers and the remainder serve
business customers. Our business customers, 75.8% of which have
one to three lines, are predominantly in the light manufacturing
and services industries or are universities and hospitals.
AT&#38;T and McLeodUSA accounted for approximately 14.0% and
12.5%, of the revenues of our Illinois Telephone Operations in
2003 and for the nine months ended September&nbsp;30, 2004,
respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The local telephone markets served by our
Illinois Telephone Operations include all or a substantial
percentage of five counties: Coles, Christian, Montgomery,
Effingham and Shelby. According to the
</FONT>

<P align="center"><FONT size="2">95
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">U.S.&nbsp;Census 2000, the population in these
counties has grown slightly in the last ten years, which is
consistent with our belief that these markets are mature and
stable.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Key Illinois Market Data</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We list below selected data from the
U.S.&nbsp;Census 2000, together with our number of local access
lines in Illinois as of September&nbsp;30, 2004.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Coles</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Christian</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Montgomery</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Effingham</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shelby</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Totals</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2000 Census Data
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">County Population (2000)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,196</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,372</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,652</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,264</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">n/a</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">176,377</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">County Population CAGR 1990-2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.30</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.27</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.03</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.78</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">n/a</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">n/a</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">County Median Household Income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,561</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,123</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">n/a</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">n/a</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Market Territory (sq. miles)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">531</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">662</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">357</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,681</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Local Access Lines
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Residence
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,576</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,731</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,174</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Business
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,694</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,953</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,613</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,206</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,016</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,092</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,171</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,127</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,254</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Number of Exchanges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of the counties in which our Illinois
Telephone Operations operate consists of predominantly small
towns and agricultural areas with a mix of small businesses. Our
two largest exchanges in Illinois are Mattoon and Charleston,
which are in Coles County. Effingham County&#146;s largest town
is Effingham, which is our Illinois Telephone Operations&#146;
third largest exchange, tied for seventh place in Site Selection
Magazine&#146;s March 2003 ranking of the best U.S.&nbsp;small
town for corporate facilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Illinois Telephone Operations&#146; largest
network access customers include AT&#38;T, McLeodUSA and MCI,
collectively representing 14.9% and 13.8% of our Illinois
Telephone Operations&#146; revenues for 2003 and the nine months
ended September&nbsp;30, 2004, respectively.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Texas</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our 21&nbsp;exchanges in Texas serve three
principal geographic markets, Conroe, Lufkin and Katy, Texas in
an approximately 2,054&nbsp;square mile area. Lufkin is located
in east Texas and Katy and Conroe are located in the suburbs of
Houston and adjacent rural areas. Our Texas Telephone Operations
is the incumbent provider of basic telephone services within
these exchanges, with approximately 169,472 local access lines,
or approximately 83&nbsp;lines per square mile, as of
September&nbsp;30, 2004. As of September&nbsp;30, 2004,
approximately 67% of our Texas local access lines served
residential customers and the remainder served business
customers. Our Texas business customers, approximately 82% of
which have one to three lines, are predominately in the
manufacturing and retail industries, and our largest business
customers are hospitals, local governments and school districts.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The local telephone markets served by our Texas
Telephone Operations include all or parts of three counties:
Angelina, Fort&nbsp;Bend and Montgomery. The population growth
within Fort&nbsp;Bend and Montgomery has outpaced both the Texas
and U.S.&nbsp;national averages. According to data from the
U.S.&nbsp;Census 2000, the population of these counties grew by
3.6% annually between 1990 and 2000. This compares to a growth
rate of 1.9% for Texas and 1.2% for the United States during the
same period. In addition, according to the most recent census,
the weighted average median household income in our three Texas
markets was $55,298, which was higher than the average for
Texas, which was $39,927, and for the United States, which was
$42,148.
</FONT>

<P align="center"><FONT size="2">96
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Key Texas Market Data</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In Texas we list below selected data from the
U.S.&nbsp;Census 2000, together with our number of local access
lines as of September&nbsp;30, 2004.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="41%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Conroe Market</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Lufkin Market</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Katy Market</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Montgomery</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Angelina</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Fort&nbsp;Bend</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">County)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">County)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">County)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Totals</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2000 Census Data
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">County Population (2000)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">293,768</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">354,452</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">728,350</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">County Population CAGR 1990-2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">County Median Household Income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Market Territory (sq. miles)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">433</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">541</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Local Access Lines<BR>
    Residential
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,057</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,663</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,292</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Business
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,978</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,018</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,035]</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,419</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">169,472</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Number of Exchanges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Conroe market is located primarily in
Montgomery County and is centered approximately 40&nbsp;miles
north of Houston on Interstate&nbsp;I-45. Parts of the Conroe
operating territory extend south to within 28&nbsp;miles of
downtown Houston, including parts of the affluent suburb of The
Woodlands. Major industries in this market include education,
health care, manufacturing, retail and social services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Lufkin market is centered primarily in
Angelina County in east Texas approximately 120&nbsp;miles
northeast of Houston and extends into three neighboring
counties. Lufkin is the largest town within this market, which
also includes the towns of Diboll, Hudson and Huntington. The
area is a center for the lumber industry. Other significant
industries include education, health care, manufacturing, retail
and social services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Katy market is located in parts of
Fort&nbsp;Bend, Harris, Waller and Brazoria counties and is
centered approximately 30&nbsp;miles west of downtown Houston
along the busy and expanding I-10 corridor. The majority of the
Katy market is considered part of metropolitan Houston with
major industries including administrative, education, health
care, management, professional, retail, scientific and waste
management services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Some of our largest network access customers in
Texas include AT&#38;T, MCI and Sprint.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Directory Publishing
</FONT></B><FONT size="2">sells advertising and publishes yellow
and white pages directories in our Texas service areas and
neighboring communities, with approximately 78% of yellow and
white pages revenues as of September&nbsp;30, 2004 derived from
customers within our Texas service areas. Directory Publishing
customers are primarily small- to medium-sized local businesses
and companies in surrounding service areas and large national
accounts that advertise nationally in local yellow and white
pages directories.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Transport Services
</FONT></B><FONT size="2">provides connectivity in and between
major markets in Texas, including Austin, Corpus Christi,
Dallas, Fort&nbsp;Worth, Houston, San&nbsp;Antonio and many
second- and third-tier markets in-between these centers. Major
third party customers in Texas include some of the largest
national wireless and long distance carriers, such as Cingular
Wireless and AT&#38;T.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Other Operations</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Public Services </FONT></B><FONT size="2">has
provided service to inmates in Illinois state correctional
facilities since 1990 and is currently providing service to
53&nbsp;state and county correctional institutions. In 2003 and
for the nine months ended September&nbsp;30, 2004, over 93.3%
and 92.8%, respectively, of Public Services revenues, which was
over 39.3% and 42.2% respectively of our Other Operations&#146;
revenues over the same periods, was derived from a contract with
the Department of Corrections of the State of Illinois. Under
the contract,
</FONT>

<P align="center"><FONT size="2">97
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">the State of Illinois does not pay Public
Services directly, but rather, Public Services bills and
collects revenue from the called parties and rebates commissions
to the State of Illinois based on this revenue. In 2003 and for
the nine months ended September&nbsp;30, 2004, the actual
commissions paid by Public Services to the State of Illinois
under this contract was approximately $9.2&nbsp;million and
$7.1&nbsp;million, respectively. The initial term of the
contract expires on June 2007, with five additional one-year
extensions available at the State of Illinois&#146; option.
Public Services currently serves 40 of 46 Illinois state
correctional facilities pursuant to this contract.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Operator Services
</FONT></B><FONT size="2">offers service to callers nationwide.
McLeodUSA represented 51.0% and 50.3% of Operator Services
revenues for 2003 and for the nine months ended
September&nbsp;30, 2004, respectively, which was 10.9% and 10.1%
respectively of our Other Operations&#146; revenues over the
same periods.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Market Response
</FONT></B><FONT size="2">provides telemarketing and order
fulfillment services to customers nationwide. The State of
Illinois represented 55.1% and 45.8% of Market Response&#146;s
revenues, which was 9.6% and 8.1% of our Other Operations&#146;
revenues during 2003 and for the nine months ended
September&nbsp;30, 2004, respectively, and 4.7% and 3.2% was
derived from McLeodUSA over the same periods. Revenues derived
from the State of Illinois related to a contract with the
Illinois State Toll Highway Authority pursuant to which Market
Response distributed to customers and provided customer service
for transponders used for electronic toll collection on
Illinois&#146; toll-roads. In May 2004, the State of Illinois
informed us that it had awarded the renewal of this contract to
another provider. Market Response ended its provision of service
to the Illinois State Toll Highway Authority in September 2004.
While the recent non-renewal of the contract with the Illinois
State Toll Highway Authority will have a material impact on the
revenues generated by our Market Response business in the
near-term, we do not expect the loss of this contract to have a
material adverse impact on our results of operations as a whole.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Business Systems
</FONT></B><FONT size="2">sells, installs and maintains
telecommunications equipment and wiring primarily in our
Illinois service area and nearby cities. Revenues are derived
from equipment sales and maintenance contracts. Most of Business
Systems&#146; equipment sales are telephone systems and
associated wiring to small business customers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Mobile Services
</FONT></B><FONT size="2">provides paging services as a
convenience to some of our Illinois Telephone Operations&#146;
emergency medical and government customers in and around our
Illinois service area.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003 and for the nine months ended
September&nbsp;30, 2004, 49.4% and 50.8%, respectively, of the
revenues of our Other Operations were derived from our
relationships with various agencies of the State of Illinois,
principally the Department of Corrections and the Toll Highway
Authority. Overall, during 2003 and for the nine months ended
September&nbsp;30, 2004, 16.5% and 14.9%, respectively, of our
revenues were derived from our various relationships with the
State of Illinois. In addition, Public Services receives
revenues from various counties in Illinois. Our
predecessor&#146;s relationship with the Department of
Corrections and the Toll Highway Authority have existed since
1990 and 1997, respectively, despite changes in government
administrations. Nevertheless, obtaining contracts from
government agencies is challenging, and government contracts,
like our contracts with the State of Illinois, often include
provisions that are favorable to the government in ways that are
not standard in private commercial transactions. Specifically,
each of our contracts with the State of Illinois:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">includes provisions that allow the respective
    state agency and county to terminate the contract without cause
    and without penalty under some circumstances;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">is subject to decisions of state agencies and
    counties that are subject to political influence on renewal;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">gives the State of Illinois the right to renew
    the contract at its option but does not give us the same
    right;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">could be cancelled if state funding becomes
    unavailable.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">98
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<B><I><FONT size="2">Sales and Marketing</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Key components of overall sales and marketing
strategy in our Telephone Operations have included the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">positioning itself as a single point of contact
    for customers&#146; telecommunications needs;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">providing its customers with a broad array of
    voice and data services and bundling services where possible;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">providing excellent customer service, including
    providing 24-hour, 7-day a week centralized customer support to
    coordinate installation of new services, repair and maintenance
    functions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">developing and delivering new services;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">with respect to our Illinois Telephone
    Operations, leveraging the history of CCI Illinois and its
    involvement with its local communities and expanding
    &#147;Consolidated Communications&#148; and
    &#147;Consolidated&#148; brand recognition, subject to
    regulatory and strategic business considerations and, with
    respect to our Texas Telephone Operations, leveraging the
    history of CCI Texas and its involvement with its local
    communities.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have combined the management teams for sales
and marketing for our Illinois and Texas Telephone Operations
into a single centralized organization. Our combined strategy is
focused on:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">accelerating DSL service penetration in all of
    our service areas;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">cross-selling our services;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">developing additional services to maximize
    revenues and increase revenues per customer;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">increasing customer loyalty through superior
    customer service, local presence and motivated service
    employees;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">leveraging the telemarketing, order fulfillment
    and directory-assistance capabilities to provide functions that
    are currently being outsourced by our Texas Telephone
    Operations, a process that has already begun with the migration
    of Texas directory assistance traffic to the system in Illinois
    in May 2004.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Telephone Operations</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Illinois Telephone Operations currently have
two main sales channels: customer service centers and
commissioned sales people. Our Illinois customer service centers
are the primary sales channels for residential and business
customers with one or two phone lines, whereas commissioned
sales representatives provide customized proposals to larger
business customers. In addition, our customers can also visit
customer retail centers for various communications needs,
including new telephone, Internet and paging service purchases.
We believe that customer service centers have helped decrease
our customers&#146; late payments and bad debt due to their
ability to pay their bills easily at these centers. Our Illinois
Telephone Operations&#146; sales efforts are supported by direct
mail, bill inserts, newspaper advertising, public relations
activities, sponsorship of community events and website
promotions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Texas Telephone Operations currently have two
main sales channels: customer service centers and commissioned
sales people. Our Texas customer service centers are the primary
sales channels for residential customers and business customers
with one or two phone lines, whereas commissioned sales people
provide customized proposals to larger businesses. In addition,
field service technicians in Texas are trained in customer
service and are provided with incentives to cross-sell
additional services to customers. Our sales efforts in Texas are
supported by local print and electronic media advertising, and
also by bill inserts, door hangers, special promotional
activities and sponsorship of community events.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Directory Publishing in Texas is supported by a
dedicated sales force, which spends a certain number of months
each year focused on each of the directory markets in order to
maximize the advertising sales in
</FONT>

<P align="center"><FONT size="2">99
</FONT>

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<DIV align="left">
<FONT size="2">each directory. We believe the directory business
has been an efficient tool for marketing our other services in
Texas and for promoting brand development and awareness.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Transport Services has a sales force that
consists of commissioned sales people specializing in wholesale
transport products.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Other Operations</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of our Other Operations businesses primarily
use an independent sales and marketing team comprised of
dedicated field sales account managers, management teams and
service representatives to execute our sales and marketing
strategy. These efforts are supported by attendance at industry
trade shows and leadership in industry groups including the
United States Telecom Association, the Associated Communications
Companies of America and the Independent Telephone and
Telecommunications Alliance.
</FONT>

<P align="left">
<B><I><FONT size="2">Information Technology and Support
Systems</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our information technology and support systems
staff is a seasoned organization that supports day-to-day
operations and develops system enhancements. The technology
supporting our Telephone Operations is centered on a core of
commercially available and internally maintained systems.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have developed detailed plans to migrate key
business processes of our Illinois and Texas Telephone
Operations onto single, company-wide systems and platforms. Our
objective is to improve profitability by reducing individual
company costs through the sharing of best practices,
centralization or standardization of functions and processes and
the use of technologies and systems that provide for greater
efficiencies. A number of key billing, network provisioning,
network management and workforce management systems of our
Illinois and Texas Telephone Operations already use common
software and hardware platforms, and we have successfully
completed large-scale customer and billing migration projects in
the last five years in both Illinois and Texas. We believe our
core operating systems and hardware platform will have
significant scalability.
</FONT>

<P align="left">
<B><I><FONT size="2">Network Architecture and
Technology</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our local network in Illinois and Texas is based
on a carrier serving area architecture. Carrier serving area
architecture is a structure that allows access equipment to be
placed closer to customer premises enabling the customer to be
connected to the equipment over shorter copper loops than would
be possible if all customers were connected directly to the
carrier&#146;s main switch. The access equipment is then
connected back to that switch on a high capacity fiber circuit,
resulting in extensive fiber deployment throughout the network.
The access equipment is sometimes referred to as a digital loop
carrier and the geographic area that it serves is the carrier
serving area.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have begun the integration of the our long
distance networks in Illinois and Texas and are leveraging the
combined usage of the two networks to obtain reduced costs of
transport and termination from wholesale vendors of those
services. A single engineering team is responsible for the
overall architecture and interoperability of the various
elements in the combined network of our Illinois and Texas
Telephone Operations. Currently, our Illinois Telephone
Operations have a network operations center in Mattoon, which
monitors network performance 24&nbsp;hours per day,
365&nbsp;days per year. We believe this network operations
center allows our Illinois and Texas Telephone Operations to
maintain high network performance standards. Our goal is to
interconnect the Illinois and Texas network operations centers,
using common network systems and platforms where possible. We
expect this will allow us to share weekend and after-hours
coverage between markets and more efficiently allocate personnel
to manage fluctuations in our workload volumes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our network in Illinois is supported by three
advanced 100% digital switches, with a fiber network connecting
33 of our 35 exchanges and 69 of our 103 field-deployed
carriers. These switches provide all of our Illinois local
telephone customers with access to custom calling features,
value-added services and
</FONT>

<P align="center"><FONT size="2">100
</FONT>

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<DIV align="left">
<FONT size="2">dial-up Internet access. In addition,
approximately 87% of our Telephone Operations&#146; total local
access lines in Illinois, excluding local access lines already
served by other high speed connections, are served by exchanges
or carriers equipped with digital subscriber line access
multiplexers, or DSLAMs, and are within distance limitations for
providing DSL service. DSLAMs are devices designed to separate
voice-frequency signals from DSL traffic. Our Illinois Telephone
Operations have two additional switches, one primarily dedicated
to long distance service and the other primarily dedicated to
Public Services and Operator Services.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In early 2004, we commenced the network
improvements needed to support the introduction of an
all-digital video service that is functionally similar to a
digital cable television offering in our Illinois markets of
Mattoon, Charleston and Effingham. We have since completed the
initial capital investments necessary to provide these services
in these Illinois markets and have begun to test market this
product. Other than the provision of success-based set-top boxes
to subscribers, we do not anticipate having to make any material
capital upgrades to our network infrastructure in connection
with our introduction of home video services in these markets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Texas network is supported by advanced 100%
digital switches, with fiber network connecting all of our 21
exchanges and 68% of our wire centers. These switches provide
all of our Texas local telephone customers with access to custom
calling features. In addition, as of September&nbsp;30, 2004,
approximately 90% of our Texas total local access lines,
excluding local access lines already served by other high speed
connections, were served by exchanges or carriers are equipped
with DSLAMs and were within distance limitations for providing
DSL service. Our Texas Telephone Operations also dedicate a
separate switch for the provision of long distance service.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Texas transport network consists of
approximately 2,500 route-miles of fiber optic cable.
Approximately 56% of this network consists of cable sheath owned
by our Texas Telephone Operations, either directly or through
our majority-owned subsidiary East Texas Fiber Line Incorporated
and a partnership partly owned by us, Fort&nbsp;Bend Fibernet.
For most of the remaining route-miles of the network, we
purchased strands on third-party fiber networks pursuant to
contracts commonly known as indefeasible rights of use. In
limited cases, our Texas Telephone Operations also leases
capacity on third-party fiber networks to complete routes, in
addition to these fiber routes.
</FONT>

<P align="left">
<B><I><FONT size="2">Employees</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of September&nbsp;30, 2004, we had a total of
1,338 employees, of which 787 employees are from CCI Illinois,
(661 of which were full-time and 126 of which were part-time)
and of which 551 employees are from our Texas Telephone
Operations, (547 of which were full-time and four of which were
part-time).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Of the 787 employees of CCI Illinois, 313
employees are attributable to our Illinois RLEC. 341 of our
full-time employees and 124&nbsp;part-time employees are
represented by the International Brotherhood of Electrical
Workers. The current collective bargaining agreement expires on
November&nbsp;15, 2005. We believe management currently has a
good relationship with our Illinois union and non-union
employees. In addition, at September&nbsp;30, 2004, Market
Response had 135 temporary employees hired through a local
temporary employment agency.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Approximately 223 of the employees located in
Lufkin or Conroe, are represented by a collective bargaining
agreement with the Communications Workers of America, which
expired on October&nbsp;16, 2004. On November&nbsp;4, 2004, our
Texas Telephone Operations reached an agreement with the union
that was subsequently ratified by its membership. In the winter
of 2003, a union expansion campaign was initiated in Katy but
was unsuccessful. We are not aware of any further attempts to
organize employees in Texas. We believe that management
currently has a good relationship with our Texas union and
non-union employees.
</FONT>

<P align="center"><FONT size="2">101
</FONT>

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<P align="left">
<B><I><FONT size="2">Properties</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our headquarters and most of the administrative
offices for our Illinois Telephone Operations are located in
Mattoon, Illinois.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The properties that our Illinois Telephone
Operations lease are pursuant to leases that expire at various
times between 2004 and 2007. The following chart summarizes the
principal facilities owned or leased in Illinois as of
September&nbsp;30, 2004.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="63%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Owned/</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Approx.</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Location</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Primary Use</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Leased</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Sq. Ft.</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Charleston
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Illinois Telephone Operations Communications
    Center and Market Response Offices(1)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Leased</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">33,987</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effingham
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Office and Illinois Telephone Operations
    Communications Center
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Leased</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mattoon
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Sales and Administration Office(1)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Leased</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">30,687</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mattoon
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Corporate Headquarters(1)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Leased</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">49,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mattoon
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Operator Services and Operations
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">36,263</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mattoon
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Archive
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">9,097</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mattoon
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Operations and Distribution Center(1)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Leased</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">30,883</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mattoon
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Communications Center
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Leased</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5,677</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mattoon
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Market Response Order Fulfillment(2)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Leased</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mattoon
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10,086</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Taylorville
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Operations and Branch Distribution Center(1)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Leased</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">14,655</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Taylorville
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Office and Illinois Telephone Operations
    Communications Center
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">15,934</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Taylorville
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Operator Services Call Center(2)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Leased</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">11,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In 2002, our Illinois Telephone Operations sold
    these facilities to, and leased them back from, LATEL, LLC, or
    LATEL, an entity affiliated with Mr.&nbsp;Lumpkin. For more
    information about these arrangements, see &#147;Certain
    Relationships and Related Party Transactions&nbsp;&#151; LATEL
    Sale/ Leaseback&#148;.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">All properties listed above other than these two
    properties are used by both Illinois Telephone Operations and
    Other Operations. These two properties are used by Other
    Operations only.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to the facilities listed above, our
Illinois Telephone Operations own or have the right to use 181
additional properties consisting of central offices, remote
switching sites and buildings, tower sites, small offices,
storage sites and parking lots. Some of the facilities listed
above also serve as central office locations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Texas Telephone Operations expect to continue
to execute its current strategy of moving all employees into
owned space, with the exception of the offices in Irving and the
long distance switch location in Dallas, and canceling or
subletting leased office space. The properties that our Texas
Telephone Operations leases are pursuant to leases that expire
at various times between 2004 and 2015. Our Texas Telephone
Operations have recently initiated legal proceedings to
terminate our office lease in Irving, Texas. We do not believe,
however, that any liability that may result from such lease
termination would have a material adverse effect on our results
of operations or financial conditions in Texas.
</FONT>

<P align="center"><FONT size="2">102
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following chart summarizes the principal
facilities owned or leased in Texas as of September&nbsp;30,
2004:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="63%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Owned/</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Approx.</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Location</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Primary Use</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Leased</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Sq. Ft.</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Brookshire
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Conroe
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Regional Office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">51,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Conroe
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warehouse&nbsp;&#38; Plant
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">28,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Conroe
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dallas
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Leased</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5,997</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Irving
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Current Texas Headquarters&nbsp;&#151;
    Administration
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Leased</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">44,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Katy
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Regional Office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">6,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Katy
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Office (Electric Shop)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Katy
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warehouse
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">13,983</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Katy
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5,733</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lufkin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Regional Office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">30,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lufkin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Business Office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23,190</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lufkin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warehouse
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">14,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lufkin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Office and Data Center
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">11,920</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lufkin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">8,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lufkin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Office and Parking Area
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">7,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Needville
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Office
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Owned</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">6,649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Rosenberg
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Storage
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">Leased</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="25%" align="left" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to the facilities listed above, our
Texas Telephone Operations own or have the right to use 275
additional properties consisting of cabinet/pop sites, central
offices, remote switching sites and buildings, small offices,
tower sites, storage sites and parking lots. Some of the
facilities listed above also serve as central office locations.
</FONT>

<P align="left">
<B><I><FONT size="2">Legal Proceedings</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently and from time to time, are subject
to claims arising in the ordinary course of business. Our
Illinois Telephone Operations are not currently subject to any
such claims that we believe could reasonably be expected to have
a material adverse effect on our results of operation or
financial condition in Illinois.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, on March&nbsp;5, 2004, Michael Hinds
filed a claim against our existing equity investors, Homebase
and Texas Holdings, among others, in the district court of
Harris County, Texas asserting various contract and tort claims
relating to an alleged oral agreement to provide Mr.&nbsp;Hinds
with compensation and investment opportunities in connection
with the acquisition of TXUCV. Although we believe that this
suit is without merit and intend to vigorously defend our
position, we cannot predict at this time the outcome of this
matter.
</FONT>

<P align="left">
<B><FONT size="2">Industry Overview and Competition</FONT></B>

<P align="left">
<B><I><FONT size="2">Local Exchange Market</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The telecommunications industry is comprised of
companies involved in the transmission of voice, data and video
communications over various media and through various
technologies. There are two predominant types of local telephone
service providers, or carriers, in the telecommunications
industry: ILECs and CLECs. An ILEC refers to the regional bell
operating companies, which were the local telephone companies
created from the break up of AT&#38;T in 1984 and independent
telephone companies,
</FONT>

<P align="center"><FONT size="2">103
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">such as Cincinnati Bell Inc. and Sprint&#146;s
local telephone division, which sell local telephone service.
These ILECs were the traditional monopoly providers of local
telephone service prior to the break up of AT&#38;T. Within the
ILEC sector, there are RLECs, such as our local telephone
operations that operate primarily in rural areas, and regional
bell operating companies, such as SBC and Verizon
Communications. Each of our subsidiaries that operates our local
telephone businesses is classified as an ILEC and a RLEC under
the Telecommunications Act. A CLEC is a competitor to local
telephone companies that has been granted permission by a state
regulatory commission to offer local telephone service in an
area already served by an ILEC.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">RLEC Cost Structure and
Competition</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, telecommunications service in rural
areas is more costly to provide than service in urban areas
because the lower customer density necessitates higher capital
expenditures on a per customer basis. In rural areas, local
access line density is relatively low, typically less than 100
local access lines per square mile versus urban areas that can
be in excess of 300 local access lines per square mile. This low
customer density in rural areas means that switching and other
facilities serve few customers. It also means that a given
length of cable, connecting the telephone company office to end
users, serves fewer customers than it would in a more densely
populated area. As a result, the average operating and capital
cost per line is higher for RLECs than non-rural operators. An
industry source estimates that the total investment cost per
loop for rural operators is $5,000, compared to $3,000 for
non-rural carriers. The amount is estimated to be as high as
$10,000 for the smallest rural carriers. The RLECs&#146; higher
cost structure has two important consequences.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The first consequence is that it is generally not
commercially viable to overbuild an RLEC. In urban areas, where
population density is higher, some CLECs have built redundant
wireline telephone networks within the incumbent provider&#146;s
service territory. These facilities-based CLECs compete with the
incumbent providers on their own stand-alone networks. Because
it is comparatively more expensive to build a redundant network
in rural areas, overbuilding is less common in RLEC service
territories.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The second consequence associated with the
RLEC&#146;s higher cost structure is the existence of federal
and state subsidies designed to promote widely available,
quality telephone service at affordable prices in rural areas.
This is accomplished through two principal mechanisms. The first
mechanism is through network access fees that regulators
historically have allowed to be set at higher rates in rural
areas than the actual cost of originating or terminating
interstate and intrastate calls. The second mechanism is through
explicit transfers to RLECs via the universal service fund and
state funds such as the Texas universal service fund.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Furthermore, RLECs face less regulatory oversight
than the larger carriers and are exempt from the more burdensome
interconnection requirements of the Telecommunications Act such
as unbundling of network elements, information sharing and
co-location.
</FONT>

<DIV>&nbsp;</DIV>

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    <I><FONT size="2">Wireline Competition</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Despite the barriers to entry for voice services
described above, RLECs face some competition for voice services
from new market entrants, such as cable providers, CLECs and
electric utility companies. Cable providers are entering the
telecommunications market by upgrading their networks with fiber
optics and installing facilities to provide fully interactive
transmission of broadband voice, data and video communications.
Electric utility companies have existing assets and low cost
access to capital that may allow them to enter a market rapidly
and accelerate network development. Increased competition could
lead to price reductions, reduced operating margins and loss of
market share. While we have limited competition for voice
services from cable providers and electric utilities for basic
voice services, we cannot guarantee that we will not face
increased competition from such providers in the future.
</FONT>

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    <I><FONT size="2">Wireless Competition</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">RLECs are facing increasing competition for voice
services from wireless carriers. In particular, the FCC&#146;s
new number portability rules may result in increased competition
from wireless providers. As of May 2004, the FCC required RLECs
to allow consumers to move a phone number from a wireline phone
to a wireless phone. Generally, RLECs face less wireless
competition than non-rural providers of voice services because
wireless networks in rural areas are generally less developed
than in urban areas. Our Texas RLECs&#146; service areas in
Conroe and Katy, Texas are exceptions to this general rule due
to their proximity to Houston and, as a result, are facing
increased competition from wireless service providers. Although
we do not believe that wireless technology represents a
significant threat to our RLECs in the near term, we expect to
face increased competition from wireless carriers as technology,
wireless network capacity and economies of scale improve,
wireless service prices continue to decline and subscribers
continue to increase.
</FONT>

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    <I><FONT size="2">VOIP Competition</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">VOIP service is increasingly being embraced by
all industry participants, including AT&#38;T, SBC and Time
Warner. VOIP service essentially involves the routing of voice
calls, at least in part, over the Internet through packets of
data instead of transmitting the calls over the existing
telephone system. While current VOIP applications typically
complete calls using ILEC infrastructure and networks, as VOIP
services obtain acceptance and market penetration and technology
advances further, a greater quantity of communication may be
placed without the use of the telephone system. On
March&nbsp;10, 2004, the FCC issued a Notice of Proposed
Rulemaking with respect to IP-enabled Services. Among other
things, the FCC is considering whether VOIP Services are
regulated telecommunications services or unregulated information
services. We cannot predict the outcome of the FCC&#146;s
rulemaking or the impact on the revenues of our RLECs. The
proliferation of VOIP, particularly to the extent such
communications do not utilize our RLECs&#146; networks, may
result in an erosion of our customer base and loss of access
fees and other funding.
</FONT>

<DIV>&nbsp;</DIV>

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    <I><FONT size="2">Internet Competition</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Internet services market in which our company
operates is highly competitive and there are few barriers to
entry. Industry sources expect competition to intensify.
Internet services, meaning both Internet access (wired and
wireless) and on-line content services, are provided by cable
providers, Internet service providers, long distance carriers
and satellite-based companies. Many of these companies provide
direct access to the Internet and a variety of supporting
services to businesses and individuals. In addition, many of
these companies offer on-line content services consisting of
access to closed, proprietary information networks. Cable
providers and long distance carriers, among others, are
aggressively entering the Internet access markets. Both have
substantial transmission capabilities, traditionally carry data
to large numbers of customers and have a billing system
infrastructure that permits them to add new services. Satellite
companies are also offering broadband access to the Internet. We
expect that competition for Internet services will increase.
</FONT>

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    <I><FONT size="2">Long Distance Competition</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The long distance telecommunications market is
highly competitive. Competition in the long distance business is
based primarily on price, although service bundling, branding,
customer service, billing service and quality play a role in
customers&#146; choices.
</FONT>

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    <I><FONT size="2">Other Competition</FONT></I></TD>
</TR>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our other lines of business are subject to
substantial competition from local, regional and national
competitors. In particular, our directory publishing and
transport businesses operate in competitive markets. We expect
that competition as a general matter in our businesses will
continue to intensify as new technologies and new services are
offered. Our businesses operate in a competitive environment
where
</FONT>

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<FONT size="2">long-term contracts are either not the norm or
have cancellation clauses that allow quick termination of the
agreements. Where long-term contracts are common, they are being
renewed with shorter duration terms. Customers in these
businesses can and do change vendors frequently. Customer
business failures and consolidation of customers through mergers
and buyouts can cause loss of customers.
</FONT>
</DIV>

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    <I><FONT size="2">Related Risks</FONT></I></TD>
</TR>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our ability to compete successfully in our
markets will depend on several factors, including the following:
</FONT>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">how well we market our existing services and
    develop new technologies;
    </FONT></TD>
</TR>

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    <TD>&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the quality and reliability of our network and
    service;&nbsp;and
    </FONT></TD>
</TR>

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    <TD>&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">on our ability to anticipate and respond to
    various competitive factors affecting the telecommunications
    industry, including a changing regulatory environment that may
    affect us differently from our competitors, pricing strategies
    by competitors, changes in consumer preferences, demographic
    trends and economic conditions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect competition to intensify as a result of
new competitors and the development of new technologies,
products and services. In addition, we believe that the
traditional dividing lines between different telecommunications
services will be blurred and that mergers and strategic
alliances may allow one telecommunications provider to offer
increased services or access to wider geographic markets. Some
or all of these risks may cause us to have to spend
significantly more in capital expenditures than we currently
anticipate to keep existing and attract new customers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Some of our voice and data competitors, such as
cable providers, Internet access providers, wireless service
providers and long distance carriers such as AT&#38;T, MCI and
Sprint, have brand recognition and financial, personnel,
marketing and other resources that are significantly greater
than ours. In addition, due to consolidation and strategic
alliances within the telecommunications industry, we cannot
predict the number of competitors that will emerge, especially
as a result of existing or new federal and state regulatory or
legislative actions. Increased competition from existing and new
entities could lead to price reductions, loss of customers,
reduced operating margins or loss of market share.
</FONT>

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<A name='116'></A>
</DIV>

<!-- link1 "REGULATION" -->

<P align="center">
<B><FONT size="2">REGULATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">The following summary does not describe all
present and proposed federal, state and local legislation and
regulations affecting the telecommunications industry. Some
legislation and regulations are currently the subject of
judicial proceedings, legislative hearings and administrative
proposals that could change the manner in which this industry
operates. Neither the outcome of any of these developments, nor
their potential impact on us, can be predicted at this time.
Regulation can change rapidly in the telecommunications
industry, and these changes may have an adverse effect on us in
the future. See &#147;Risk Factors&nbsp;&#151; Regulatory
Risks&#148;.</FONT></I>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The telecommunications industry in which we
operate is subject to extensive federal, state and local
regulation. Pursuant to the Telecommunications Act, federal and
state regulators share responsibility for implementing and
enforcing statutes and regulations designed to encourage
competition and the preservation and advancement of 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
RLECs, to the extent they are used to provide, originate or
terminate interstate or international communications. State
regulatory commissions, such as the ICC in Illinois and the PUCT
in Texas, generally exercise jurisdiction over these 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 RLECs.
In addition, municipalities and other local government agencies
regulate the public rights-of-way necessary to install and
operate networks.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The FCC has the authority to condition, modify,
cancel, terminate or revoke our operating authority for failure
to comply with applicable federal laws or rules, regulations and
policies of the FCC. Fines or other penalties also may be
imposed for any of these violations. In addition, the states
have the authority to sanction our RLECs or to revoke our
certifications if we violate relevant laws or regulations.
</FONT>

<P align="left">
<B><FONT size="2">Federal Regulation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our RLECs must comply with the Communications Act
of 1934, as amended, or the Communications Act, which requires,
among other things, that telecommunications carriers offer
services at just and reasonable rates and on non-discriminatory
terms and conditions. The amendments to the Communications Act
enacted in 1996 and contained in the Telecommunications Act
dramatically changed, and are expected to continue to change,
the landscape of the telecommunications industry.
</FONT>

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    <B><I><FONT size="2">Removal of Entry Barriers</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The central aim of the Telecommunications Act is
to open local telecommunications markets to competition while
enhancing universal service. Prior to the enactment of the
Telecommunications Act, many states limited the services that
could be offered by a company competing with an ILEC. The
Telecommunications Act preempts these state and local laws.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Telecommunications Act imposes a number of
interconnection and other requirements on all local
communications providers. All telecommunications carriers have a
duty to interconnect directly or indirectly with the facilities
and equipment of other telecommunications carriers. Local
exchange carriers, including our RLECs, are required to:
</FONT>
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    <FONT size="2">allow others to resell their services;
    </FONT></TD>
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    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">where feasible, provide number portability;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">ensure dialing parity, whereby consumers can
    choose their local or long distance telephone company over which
    their calls will automatically route without having to dial
    additional digits;
    </FONT></TD>
</TR>

</TABLE>

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    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
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    <FONT size="2">ensure that competitors&#146; customers receive
    nondiscriminatory access to telephone numbers, operator service,
    directory assistance and directory listing;
    </FONT></TD>
</TR>

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    <TD>&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">afford competitors access to telephone poles,
    ducts, conduits and rights-of-way;&nbsp;and
    </FONT></TD>
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    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">establish reciprocal compensation arrangements
    for the transport and termination of telecommunications traffic.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Furthermore, the Telecommunications Act imposes
on ILECs, other than RLECs that maintain their so-called
&#147;rural exemption&#148;, additional obligations, by
requiring them to:
</FONT>
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    <FONT size="2">negotiate any interconnection agreements in good
    faith;
    </FONT></TD>
</TR>

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    <TD>&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">interconnect their facilities and equipment with
    any requesting telecommunications carrier, at any technically
    feasible point, at nondiscriminatory rates and on
    nondiscriminatory terms and conditions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">provide nondiscriminatory access to unbundled
    network elements, commonly known as UNEs, such as local loops,
    switches and transport facilities, at any technically feasible
    point, at nondiscriminatory rates and on nondiscriminatory terms
    and conditions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">offer their retail services for resale at
    discounted wholesale rates;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">provide reasonable notice of changes in the
    information necessary for transmission and routing of services
    over the ILEC&#146;s facilities or in the information necessary
    for interoperability;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">provide, at rates, terms and conditions that are
    just, reasonable and nondiscriminatory, for the physical
    co-location of equipment necessary for interconnection or access
    to UNEs at the premises of the ILEC.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The unbundling requirements, while not applicable
to our RLECs as long as they maintain their rural exemption,
have been some of the most controversial requirements of the
Telecommunications Act. The FCC has generally required ILECs to
lease a wide range of unbundled network elements to CLECs to
enable delivery of services to the competitor&#146;s customers,
either in combination with the CLEC&#146;s network or as a
recombined service offering on an unbundled network element
platform, commonly known as the UNE Platform, or UNEP. These
unbundling requirements, and the duty to offer UNEs to
competitors, imposed substantial costs on, and resulted in
customer attrition for, the ILECs that had to comply with these
requirements. A recent decision by the U.S.&nbsp;Court of
Appeals for the D.C. Circuit vacated several components of the
latest FCC ruling concerning ILECs&#146; obligations to offer
UNEs and UNEPs to competitors, effective June&nbsp;30, 2004. The
FCC has indicated that it intends to issue its revised rules
prior to the end of 2004. We cannot predict the timing or nature
of any subsequent rulings the FCC may issue on these topics as a
result of the Court of Appeals&#146; or other court decisions.
</FONT>

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    <B><I><FONT size="2">Rural Exemption</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of the subsidiaries through which we operate
our local telephone businesses is an ILEC, but is also
classified as a rural telephone company, commonly known as a
RLEC, under the Telecommunications Act. The Telecommunications
Act exempts rural telephone companies, such as our RLECs, from
certain of the more burdensome interconnection requirements such
as unbundling of network elements, information sharing and
co-location.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As to each of our RLECs, the ICC or PUCT can
remove the applicable rural exemption if the RLEC receives a
bona fide request for full interconnection and the state
commission determines that the request is technically feasible,
not unduly economically burdensome and consistent with universal
service requirements. We are not aware of any interconnection
request inconsistent with our RLECs&#146; status as rural
telephone companies.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If the ICC or PUCT rescinds the applicable rural
exemption in whole, or in part, for any of our RLECs or if the
applicable state commission does not allow us adequate
compensation for the costs of
</FONT>

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<FONT size="2">providing the interconnection or UNEs, our
administrative and regulatory costs could significantly increase
and we could suffer a significant loss of customers to existing
or new competitors.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

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    <TD>
    <B><I><FONT size="2">Access Charges</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A significant portion of our RLECs&#146; revenues
come from network access charges paid by long distance and other
carriers for originating or terminating calls within our
RLECs&#146; service areas. The amount of network access charge
revenues our RLECs receive is based on rates set by federal and
state regulatory commissions, and these rates are subject to
change at any time. The FCC regulates the prices our RLECs may
charge for the use of our local telephone facilities in
originating or terminating interstate and international
transmissions. The FCC has structured these prices as a
combination of flat monthly charges paid by the end-users and
usage sensitive charges or flat monthly rate charges paid by
long distance or other carriers. Intrastate network access
charges are regulated by state commissions, which in our case
are the ICC and the PUCT. Our Illinois RLEC&#146;s intrastate
network access charges currently mirror interstate network
access charges for all but one element, local switching. In
contrast, in accordance with the regulatory regime in Texas, our
Texas RLECs may charge significantly higher intrastate network
access charges than interstate network access charges.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The FCC regulates levels of interstate network
access charges by imposing either price caps or rate of return
regulation. Price caps are mandatory for the RBOCs and elective
for all other ILECs. Price caps, introduced in 1992, are
adjusted based on various formulae, such as inflation and
productivity, and otherwise through regulatory proceedings. In
2000, the FCC approved the CALLS plan, which eliminated annual
rate reductions once an average rate was met. Small ILECs may
elect to base network access charges on price caps or CALLS, but
are not required to do so. Our Illinois RLEC and Texas RLECs
elected not to apply federal price caps or CALLS. Instead, our
RLECs employ rate-of-return regulation for their network
interstate access charges, whereby they earn a fixed return on
their investment over and above operating costs. The FCC
determines the profits our RLECs can earn by setting the
rate-of-return on their allowable investment base, which is
currently 11.25%.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Traditionally, regulators have allowed network
access rates to be set higher in rural areas than the actual
cost of terminating or originating long distance calls as an
implicit means of subsidizing the high cost of providing local
service in rural areas. Following a series of federal circuit
court decisions in 2001 ruling that subsidies must be explicit
rather than implicit, the FCC began to consider various reforms
to the existing rate structure for interstate network access
rates as proposed by the Multi Association Group, and the Rural
Task Force, each of which is a consortium of various
telecommunications industry groups. We believe that the states
will likely mirror any FCC reforms in establishing intrastate
network access charges.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2001, the FCC adopted an order implementing
the beginning phases of the plan of the Multi Association Group
to reform the network access charge system for rural carriers.
The FCC reforms reduced network access charges and shifted a
portion of cost recovery, which historically was based on
minutes of use and was imposed on long distance carriers, to
flat-rate, monthly subscriber line charges imposed on end-user
customers. While the FCC has simultaneously increased explicit
subsidies through the universal service fund to RLECs, the
aggregate amount of interstate network access charges paid by
long distance carriers to access providers, such as our RLECs,
has decreased and may continue to decrease. In addition, the FCC
initiated a rulemaking proceeding to investigate the Multi
Association Group&#146;s proposed incentive regulation plan for
small ILECs and other means of allowing rate-of-return carriers
to increase their efficiency and competitiveness.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The FCC&#146;s 2001 access reform order had a
negative impact on the intrastate network access revenues of our
Illinois RLEC. Under Illinois network access regulations, our
Illinois RLEC&#146;s intrastate network access rates mirror
interstate network access rates. Illinois, however, unlike the
federal system, does not provide an explicit subsidy in the form
of a universal service fund. Therefore, while subsidies from the
federal universal service fund offset Illinois Telephone
Operations&#146; decrease in revenues resulting from the
reduction in interstate network access rates, there was not a
corresponding offset for the decrease in
</FONT>

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<DIV align="left">
<FONT size="2">revenues from the reduction in intrastate network
access rates. In Texas, because the intrastate network access
rate regime applicable to our Texas RLECs does not mirror the
FCC regime, the impact of the reforms was revenue neutral. The
ICC and the PUCT are continuing to investigate possible changes
to the structure for intrastate access charges in their
respective states.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">VOIP service is increasingly being embraced by
many industry participants, including AT&#38;T, SBC and Time
Warner. On March&nbsp;10, 2004, the FCC issued a Notice of
Proposed Rulemaking with respect to issues relating to services
and applications of IP-enabled services. Among other things, the
FCC is considering whether VOIP services are regulated
telecommunications services or unregulated information services.
We cannot predict the outcome of the FCC&#146;s rulemaking or
the impact on the revenues of our RLECs. The proliferation of
VOIP, particularly to the extent such communications do not
utilize our RLECs&#146; networks, may result in an erosion of
our customer base and loss of access fees and other funding.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In recent years, long distance carriers, such as
AT&#38;T, MCI and Sprint, have become more aggressive in
disputing interstate access charge rates set by the FCC and the
applicability of access charges to their telecommunications
traffic. We believe that these disputes have increased in part
due to advances in technology which have rendered the identity
and jurisdiction of traffic more difficult to ascertain and
which have afforded carriers an increased opportunity to assert
regulatory distinctions and claims to lower access costs for
their traffic. For example, in October 2002, AT&#38;T filed a
petition with the FCC challenging its current and prospective
obligation to pay access charges to local exchange carriers for
the use of their networks. In September 2003, Vonage Holdings
Corporation filed a petition with the FCC to preempt an order of
the Minnesota Public Utilities Commission which had issued an
order requiring Vonage to comply with the Minnesota
Commission&#146;s order. The FCC determined that Vonage&#146;s
VOIP service was such that it was impossible to divide it into
interstate and intrastate components without negating federal
rules and policies. Accordingly, the FCC found it was an
interstate service not subject to traditional state telephone
regulation. While the FCC Order did not specifically address the
issue of the application of intrastate access charges to
Vonage&#146;s VOIP service, the fact that the service was found
to be solely interstate raises that concern. Although the FCC
rejected AT&#38;T&#146;s petition, we cannot predict what other
actions that other long distance carriers may take before the
FCC or with their local exchange carriers, including our RLECs,
to challenge the applicability of access charges. To date, no
long distance or other carrier has made a claim to us contesting
the applicability of network access charges billed by our RLECs.
We cannot assure you, however, that long distance or other
carriers will not make such claims to us in the future nor, if
such a claim is made, can we predict the magnitude of the claim.
As a result of the increasing deployment of VOIP services and
other technological changes, we believe that these types of
disputes and claims will likely increase.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD>
    <B><I><FONT size="2">Promotion of Universal
    Service</FONT></I></B></TD>
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</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, telecommunications service in rural
areas is more costly to provide than service in urban areas
because there is a lower customer density and higher capital
requirements compared to urban areas. The low customer density
in rural areas means that switching and other facilities serve
fewer customers and loops are typically longer requiring greater
capital expenditure per customer to build and maintain. By
supporting the high cost of operations in our rural markets, the
federal universal service fund subsidies our RLECs receive are
intended to promote widely available, quality telephone service
at affordable prices in rural areas. In 2003, CCI Illinois
received $6.0&nbsp;million from the federal universal service
fund and CCI Texas received $21.4&nbsp;million from the federal
universal service fund.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The administration of collections and
distributions of federal universal service fund payments is
performed by the National Exchange Carrier Association, or NECA,
which was formed by the FCC in 1983 to perform telephone
industry tariff filings and revenue distributions following the
breakup of AT&#38;T. The board of directors of NECA is comprised
of representatives from the RBOCs, large and small ILECs and
other industry participants. NECA also performs various other
functions including filing access charge tariffs with the FCC,
collecting and validating cost and revenues data, assisting with
compliance with FCC rules and processing FCC regulatory fees.
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">NECA distributes federal universal service fund
subsidies only to carriers that are designated as eligible
telecommunications carriers, or ETCs, by a state commission.
Each of our RLECs has been designated as an ETC by the
applicable state commission. Under the Telecommunications Act,
however, competitors can obtain the same level of federal
universal service fund subsidies as we do, per line served, if
the ICC or PUCT, as applicable, determines that granting such
federal universal service fund subsidies to competitors would be
in the public interest and the competitors offer and advertise
certain telephone services as required by the Telecommunications
Act and the FCC. One such application for ETC designation by a
potential competitor in Illinois was recently dismissed by the
ICC due to the applicant&#146;s lack of appropriate ICC
certifications and at least two other such applications are
presently pending before the ICC. We are not aware of any having
been filed in our Texas service areas. Under current rules, the
subsidies received by our RLECs are not affected by any such
payments to competitors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">With some limitations, incumbent telephone
companies receive federal universal service fund subsidies
pursuant to existing mechanisms for determining the amounts of
such payments on a cost per loop basis. The FCC has adopted,
with modifications, the proposed framework of the Rural Task
Force for rural, high-cost universal service fund subsidies. The
FCC order modifies the existing universal service fund mechanism
for RLECs and adopts an interim embedded, or historical, cost
mechanism for a five-year period that provides predictable
levels of support to rural carriers. The FCC intends to develop
a long-term plan based on forward-looking costs when the
five-year period expires in 2006.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the last two years, the FCC has made
modifications to the universal service support system that
changed the sources of support and the method for determining
the level of support. These changes, which, among other things,
removed the implicit support from network access charges and
made it explicit support, have been, generally, revenue neutral
to our RLECs&#146; operations. It is unclear whether the changes
in methodology will continue to accurately reflect the costs
incurred by our RLECs and whether it will provide for the same
amount of universal service support that our RLECs have received
in the past. In addition, several parties have raised objections
to the size of the federal universal service fund and the types
of services eligible for support. A number of issues regarding
the source and amount of contributions to, and eligibility for
payments from, the federal universal service fund need to be
resolved in the near future. For example, the FCC is considering
adopting a recommendation from the Federal-State Joint Board on
Universal Service that, if adopted in its current form, could
make it harder for competitors to qualify for federal universal
service fund subsidies, but could also reduce the amount of
subsidies available to our RLECs if a competitor does qualify.
We cannot predict the outcome of any FCC rulemaking or similar
proceedings. The outcome of any of these proceedings or other
legislative or regulatory changes could affect the amount of
universal service support received by our RLECs.
</FONT>

<DIV>&nbsp;</DIV>

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    <B><I><FONT size="2">RLEC Services Regulation</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The FCC treats our RLECs&#146; DSL services as
interstate network access services, and therefore regulates the
rates, terms and conditions for these services. This regulation
requires us to give advance notice of proposed rate changes and
new service offerings, and allows the FCC to suspend and
investigate proposed changes, thereby limiting our flexibility
to respond to offerings by providers of competing services such
as cable broadband. The FCC is currently considering two
proposals that may increase our competitive flexibility. Under
one proposal, DSL services would be classified as information
services, not telecommunications, and thereby would become
exempt from all FCC price regulation. Under the second proposal,
DSL would continue to be regulated as a telecommunications
service, but the FCC would forbear from enforcing some or all of
its regulatory requirements on this service. We cannot predict
when, or if, the FCC will act, or whether it will eventually
adopt either of these proposals.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The FCC requires ILECs providing interstate long
distance services originating from their local exchange service
territories to operate in accordance with &#147;separate
affiliate&#148; rules. These rules require that our subsidiaries
providing long distance service do the following:
</FONT>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">maintain separate books of account;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">not own transmission or switching facilities
    jointly with our RLECs;&nbsp;and
    </FONT></TD>
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    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">acquire any services from our RLECs at tariffed
    rates, term and conditions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The FCC has initiated a rulemaking proceeding to
examine whether there is a continuing need for these
requirements. We cannot predict, however, the outcome of that
proceeding.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, generally, the FCC must approve in
advance most transfers of control, and assignments of operating
authorizations by, FCC-regulated entities. Therefore, if, in the
future, we seek to acquire a company holding an FCC
authorization, in most instances we will be required to seek
approval from the FCC prior to completing the acquisition.
Similarly, we would need to obtain FCC approval to dispose of
our RLEC properties, or for our existing equity investors to
transfer control of our RLECs to third parties.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">States may also require prior approvals or
notifications for certain acquisitions and transfers or
dispositions of assets, customers, or ownership of regulated
entities, issuance of debt and equity, and in certain instances,
transactions between an ILEC and its affiliates.
</FONT>

<P align="left">
<B><FONT size="2">State Regulation of CCI Illinois</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Illinois requires providers of telecommunications
services to obtain authority from the ICC prior to offering
common carrier services. Our Illinois RLEC is certified to
provide local telephone services. In addition, Illinois
Telephone Operations&#146; long distance, operator services and
payphone services subsidiaries hold the necessary certifications
in Illinois and the other states in which they operate. In
Illinois, our long distance, operator services and payphone
services subsidiaries are required to file tariffs with the ICC
but generally can change the prices, terms and conditions stated
in their tariffs on one day&#146;s notice. Our Illinois
Telephone Operations other services are not subject to any
significant state regulations in Illinois. Our Other Operations
are not subject to any significant state regulation outside of
any specific contractually imposed obligations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Illinois RLEC operates as a distinct company
from an Illinois regulatory standpoint and is regulated under a
rate of return system for intrastate revenues. Although the FCC
has preempted certain state regulations pursuant to the
Telecommunications Act, as explained above, the ICC retains the
authority to impose requirements on our Illinois RLEC to
preserve universal service, protect public safety and welfare,
ensure quality of service and protect consumers. For instance,
our Illinois RLEC must file tariffs setting forth the terms,
conditions and prices for its intrastate services and these
tariffs may be challenged by third parties. Our Illinois RLEC
has not had, however, a general rate proceeding before the ICC
since 1983.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The ICC has broad authority to impose service
quality and service offering requirements on our Illinois RLEC,
including credit and collection policies and practices, and to
require our Illinois RLEC to take other actions in order to
insure that it meets its statutory obligation to provide
reliable local exchange service. In connection with ICTC&#146;s
guarantee of the CoBank credit facility, the ICC issued an order
that imposed a minimum capital expenditure requirement on our
Illinois RLEC and restricted the amount of cash that our
Illinois RLEC could transfer to its parent company, CCI. The ICC
order terminated following repayment of the CoBank credit
facility on April&nbsp;14, 2004. However, the ICC could impose
additional or other restrictions of this type in the future. In
particular, under our existing credit facilities, we have agreed
to use our reasonable efforts as promptly as reasonably
practicable after the closing to obtain the consent of the ICC
for ICTC and its subsidiaries to guarantee $195.0&nbsp;million
of the obligations of the borrowers under our existing credit
facilities and to grant a security interest in its respective
properties securing $195.0&nbsp;million of borrowings. ICTC has
not yet requested this consent from the ICC. Although any order
granted by the ICC will likely place conditions and/or limits on
any such guarantee and security, if such an order is granted, it
will also likely require ICTC to make a minimum dollar amount of
capital expenditures and limit its ability to pay dividends to
CCI based on its free cash flow. Any requirements or
restrictions of this type could limit the amount of cash that is
available to be transferred from our Illinois RLEC to CCI
Holdings and could adversely impact our ability to meet our debt
service requirements and repayment obligations and to pay
dividends on our common stock.
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Illinois General Assembly has made major
revisions and added significant new provisions to the portions
of the Illinois Public Utilities Act governing the regulation
and obligations of telecommunications carriers on at least three
occasions since 1985. The next comprehensive review and
potential amendment of this statute is scheduled to occur in the
first half of 2005. We cannot predict the nature or extent of
the legislative changes that may result from the 2005 review or
the resulting changes to the business and operations of ICTC and
our other subsidiaries operating in Illinois.
</FONT>

<DIV>&nbsp;</DIV>

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    <B><I><FONT size="2">Local Government
    Authorizations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In Illinois, we historically have been required
to obtain franchises from each incorporated municipality in
which our Illinois RLEC operates. Effective January&nbsp;1,
2003, an Illinois state statute prescribes the fees that a
municipality may impose on our Illinois RLEC for the privilege
of originating and terminating messages and placing facilities
within the municipality. Illinois Telephone Operations may also
be required to obtain from municipal authorities permits for
street opening and construction, or operating franchises to
install and expand fiber optic facilities in specified rural
areas and from county authorities in unincorporated areas. These
permits or other licenses or agreements typically require the
payment of fees.
</FONT>

<P align="left">
<B><FONT size="2">State Regulation of CCI Texas</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Texas requires providers of telecommunications
services to obtain authority from the PUCT prior to offering
common carrier services. Our Texas RLECs are each certified to
provide local telephone services in their respective
territories. In addition, CCI Texas&#146; long distance and
transport subsidiaries are registered with the PUCT as
interexchange carriers. The transport subsidiary also has
obtained from the PUCT a service provider certificate of
authority to better assist the transport subsidiary with its
operations in municipal areas. While our Texas RLEC services are
extensively regulated by the PUCT, CCI Texas&#146; other
services, such as long distance and transport services are not
subject to any significant state regulation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Texas RLECs operate as distinct companies
from a Texas regulatory standpoint. Each Texas RLEC is
separately regulated by the PUCT in order to preserve universal
service, protect public safety and welfare, ensure quality of
service and protect consumers. Each Texas RLEC also must file
and maintain tariffs setting forth the terms, conditions and
prices for its intrastate services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Currently, both Texas RLECs have immunity from
adjustments to their rates, including their intrastate network
access rates, due to their election of incentive regulation
under the Texas Public Utilities Regulatory Act, or PURA. In
order to qualify for this incentive regulation, our RLECs agreed
to fulfill certain infrastructure requirements and, in exchange,
they are not subject to challenge by the PUCT regarding their
rates, overall revenues, return on invested capital or net
income.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There are two different forms of incentive
regulation designated by PURA: Chapter&nbsp;58 and
Chapter&nbsp;59. Generally under either election, the rates,
including network access rates, an ILEC may charge in connection
with basic local services cannot be increased from the amount(s)
on the date of election without PUCT approval. Even with PUCT
approval, increases can only occur in very specific situations.
Pricing flexibility under Chapter&nbsp;59 is extremely limited.
In contrast, Chapter&nbsp;58 allows greater pricing flexibility
on non-basic network services, customer specific contracts and
new services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Initially, both Texas RLECs elected incentive
regulation under Chapter&nbsp;59 and fulfilled the applicable
infrastructure requirements to maintain their election status.
Consolidated Communications of Texas Company made its election
on August&nbsp;17, 1997. Consolidated Communications of
Fort&nbsp;Bend Company made its election on May&nbsp;12, 2000.
On March&nbsp;25, 2003, both Texas RLECs changed their election
status from Chapter&nbsp;59 to Chapter&nbsp;58. The rate freezes
for basic services with respect to the current Chapter&nbsp;58
elections are due to expire on March&nbsp;24, 2007.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the 2003 election by each of
our Texas RLECs to be governed under an incentive regulation
regime, our Texas RLECs were obligated to fulfill certain
infrastructure requirements. While our Texas RLECs have met the
current infrastructure requirements, the PUCT could impose
additional or
</FONT>

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<FONT size="2">other restrictions of this type in the future.
Any requirements or restrictions of this type could limit the
amount of cash that is available to be transferred from our
RLECs to Texas Holdings and could adversely impact our ability
to meet our debt service requirements and repayment obligations.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Telecommunications regulation in Texas may
undergo extensive changes in the near future. The Texas
Legislature has made major revisions to PURA on numerous
occasions since its adoption in 1975. Also, PURA is scheduled to
expire in September 2005 pursuant to Texas&#146; sunset laws.
Accordingly, the Texas Legislature will be required to take
action to extend PURA or enact a new law during the legislative
session beginning in January 2005. We cannot predict the nature
or extent of the legislative changes that may result from the
sunset process or the impact these changes may have on CCI
Texas, its ILECs or our other subsidiaries operating in Texas.
</FONT>

<DIV>&nbsp;</DIV>

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    <B><I><FONT size="2">Texas Universal Service</FONT></I></B></TD>
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</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Texas universal service fund was established
within PURA and is administered by NECA. The law directs the
PUCT to adopt and enforce rules requiring local exchange
carriers to contribute to a state universal service fund which
assists telecommunications providers in providing basic local
telecommunications service at reasonable rates in high cost
rural areas. The Texas universal service fund is also used to
reimburse telecommunications providers for revenues lost by
providing Tel-Assistance and to reimburse carriers for providing
lifeline service. The Texas universal service fund is funded by
a statewide charge payable by specified telecommunications
providers at rates determined by the PUCT. Our Texas RLECs
qualify for disbursements from this fund pursuant to criteria
established by the PUCT. In 2003, CCI Texas received Texas
universal service fund subsidies of $20.0&nbsp;million, or 10.3%
of CCI Texas&#146; revenues. Texas universal service fund
funding is subject to adjustment during the next comprehensive
review of the state statutes governing the regulation and
obligations of telecommunications carriers, which is scheduled
to occur in 2005.
</FONT>

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    <TD>
    <B><I><FONT size="2">Local Government
    Authorizations</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In Texas, ILECs have historically been required
to obtain franchises from each incorporated municipality in
which our Texas RLECs operate. In 1999, Texas enacted
legislation generally eliminating the need for ILECs to obtain
franchises or other licenses to use municipal rights-of-way for
delivering services. Payments to municipalities for
rights-of-way are administered through the PUCT and through a
reporting process by each ILEC and other similar
telecommunications provider. ILECs still need to obtain permits
from municipal authorities for street opening and construction,
but most burdens of obtaining municipal authorizations for
access to rights-of-way have been streamlined or removed.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Texas RLECs still operate pursuant to the
terms of municipal franchise agreements in some territories
served by Consolidated Communications of Fort&nbsp;Bend Company.
As the franchises expire, they are not being renewed.
</FONT>

<P align="left">
<B><FONT size="2">Potential Internet Regulatory
Obligations</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Internet access offerings may become subject
to newly adopted laws and regulations. Currently, there exists
only a small body of law and regulation applicable to access to,
or commerce on, the Internet. As the significance of the
Internet expands, federal, state and local governments may adopt
new rules and regulations or apply existing laws and regulations
to the Internet. The FCC is currently reviewing the appropriate
regulatory framework governing high speed access to the Internet
through telephone and cable providers&#146; communications
networks. We cannot predict the outcome of these proceedings,
and they may affect our regulatory obligations and the form of
competition for these services.
</FONT>

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<DIV align="left">
<A name='117'></A>
</DIV>

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<P align="center">
<B><FONT size="2">MANAGEMENT</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the persons who
will be the directors and executive officers of CCI Holdings as
of the date of the completion of the offering and their ages as
of December&nbsp;1, 2004. Executive officers are appointed by
and serve at the pleasure of our board of directors. A brief
biography of each person who will serve as a director or
executive officer upon consummation of this offering follows.
</FONT>

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    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="47%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Age</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Richard A. Lumpkin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chairman of the board and director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert J. Currey
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">59</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">President, Chief Executive Officer and director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Steven L. Childers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Financial Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Joseph R. Dively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Senior Vice President of CCI Holdings and
    President of Illinois Telephone Operations
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Steven J. Shirar
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Senior Vice President of CCI Holdings and
    President of Enterprise Operations of CCI Holdings
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">C. Robert Udell,&nbsp;Jr.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Senior Vice President of CCI Holdings and
    President of Texas Telephone Operations
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Jason K. Whitehair
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President of Human Resources
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Christopher A. Young
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Information Officer
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Brian L. Carr
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President of Public Services and Network
    Services
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Michael W. Smith
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President of Market Response of CCI
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Steven L. Grissom
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Treasurer and Secretary
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin J. Maroni
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mark A. Pelson
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Richard A. Lumpkin
</FONT></I><FONT size="2">is the Chairman of the board and a
director of CCI Holdings. Mr.&nbsp;Lumpkin has served in these
positions with CCI Holdings and its predecessors since 2002.
From 1997 to 2002, Mr.&nbsp;Lumpkin served as Vice Chairman of
McLeodUSA, which acquired the predecessor of CCI in 1997. From
1963 to 1997, Mr.&nbsp;Lumpkin served in various positions at
the predecessor of CCI and ICTC, including Chairman, Chief
Executive Officer, President and Treasurer. Mr.&nbsp;Lumpkin is
currently a director of Ameren Corp., a public utility holding
company, First Mid-Illinois Bancshares, Inc., or First
Mid-Illinois, a financial services holding company, and Agracel,
Inc., a real estate investment company, and serves on the
advisory board of Eastern Illinois University and as a director
of The Lumpkin Family Foundation. Mr.&nbsp;Lumpkin is also a
former director, former President and former Treasurer of the
United States Telecom Association and a former president of the
Illinois Telecommunications Association. Mr.&nbsp;Lumpkin has
also served on the University Council Committee on Information
Technology for Yale University.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Robert J. Currey
</FONT></I><FONT size="2">serves as the President, Chief
Executive Officer and a director of CCI Holdings.
Mr.&nbsp;Currey served as a director of CCI Holdings and its
predecessors since 2002 and as President and Chief Executive
Officer of CCI since 2002. From 2000 to 2002, Mr.&nbsp;Currey
served as Vice Chairman of RCN Corporation, a CLEC providing
telephony, cable and Internet services in high-density markets
nationwide. From 1998 to 2000, Mr.&nbsp;Currey served as
President and Chief Executive Officer of 21st&nbsp;Century
Telecom Group. From 1997 to 1998, Mr.&nbsp;Currey served as
Director and Group President of Telecommunications Services of
McLeodUSA, which acquired the predecessor of CCI in 1997.
Mr.&nbsp;Currey joined the predecessor of CCI in 1990 and served
as President through its acquisition in 1997. Mr.&nbsp;Currey
has served as Chairman of the Illinois Coalition, a non-profit
organization of business, government, academic and labor leaders
that promotes technology-based economic development in Illinois,
and as Chairman of the Board of the Illinois State Chamber of
Commerce. Mr.&nbsp;Currey is also a director of Management
Network Group, Inc.
</FONT>

<P align="center"><FONT size="2">115
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Steven L. Childers
</FONT></I><FONT size="2">serves as Chief Financial Officer of
CCI Holdings. Mr.&nbsp;Childers has served in this position for
CCI since April 2004. From April 2003 to April 2004,
Mr.&nbsp;Childers served as Vice President of Finance of CCI.
From January 2003 to April 2003, Mr.&nbsp;Childers served as the
Director of Corporate Development of CCI. From 1997 to 2002,
Mr.&nbsp;Childers served in various capacities at McLeodUSA,
including as Vice President of Customer Service and, most
recently, as a member of its Business Process Teams, leading an
effort to implement new revenue assurance processes and
controls. Mr.&nbsp;Childers joined the predecessor of CCI in
1986 and served in various capacities through its acquisition in
1997, including as President of its then existing Market
Response division and in various finance and executive roles.
Mr.&nbsp;Childers is a member of the board of directors of the
Eastern Illinois University Foundation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Joseph R. Dively
</FONT></I><FONT size="2">serves as Senior Vice President of CCI
Holdings and President of Illinois Telephone Operations.
Mr.&nbsp;Dively has served in this position for CCI since 2002.
From 1999 to 2002, Mr.&nbsp;Dively served as Vice President and
General Manager of ICTC. In 2001, Mr.&nbsp;Dively also assumed
responsibility for the then existing non-regulated subsidiaries
of the predecessor of CCI, including Operator Services, Public
Services, and Market Response. From 1997 to 1999,
Mr.&nbsp;Dively served as Senior Vice President of Sales of
McLeodUSA. Mr.&nbsp;Dively joined the predecessor of CCI in 1991
and served in various capacities through its acquisition in
1997, including Vice President and General Manager of
Consolidated Market Response and Vice President of Sales and
Marketing of Consolidated Communications. Mr.&nbsp;Dively is
currently a director of First Mid-Illinois. Mr.&nbsp;Dively
currently serves on the boards of the Sarah Bush Lincoln Health
System, the Illinois State Chamber of Commerce and chairs the
EIU Business School Advisory Board. He is also past president of
the Charleston Area Chamber of Commerce.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Steven J. Shirar
</FONT></I><FONT size="2">serves as Senior Vice President and
President of Enterprise Operations of CCI Holdings.
Mr.&nbsp;Shirar has served in this position for CCI since 2003.
From 1997 to 2002, Mr.&nbsp;Shirar served in various capacities
at McLeodUSA, progressing from Chief Marketing Officer to Chief
Sales and Marketing Officer. From 1996 to 1997, Mr.&nbsp;Shirar
served as President of the predecessor of CCI&#146;s then
existing software development subsidiary, Consolidated
Communications Systems and Services, Inc.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">C.&nbsp;Robert
Udell,&nbsp;Jr.</FONT></I><FONT size="2"> serves as Senior Vice
President of CCI Holdings and President of Texas Telephone
Operations. From 1999 to 2004, Mr.&nbsp;Udell served in various
capacities at the predecessor of CCI Texas, including Executive
Vice President and Chief Operating Officer. He is also Chairman
of East Texas Fiber Line Incorporated. Prior to joining the
predecessor of CCI Texas in March 1999, Mr.&nbsp;Udell was
employed by the predecessor of CCI from 1993 to 1999 in a
variety of senior roles including Senior Vice President, Network
Operations, and Engineering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Jason K. Whitehair
</FONT></I><FONT size="2">serves as the Vice President of Human
Resources of CCI Holdings. From 2001 to 2004, Mr.&nbsp;Whitehair
served as Senior Director of Human Resources, TXUCV. From 2000
to 2001, Mr.&nbsp;Whitehair served as a Vice President at
Lasercom, Inc. and from 1998 to 2000 he served as a Vice
President at Caprock Communications. Mr.&nbsp;Whitehair served
in various human resources positions for MCI, Inc. between 1992
and 1998, most recently as Director of Human Resources. From
1982 to 1992, Mr.&nbsp;Whitehair served in various capacities
with Rockwell International Corporation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Christopher A. Young
</FONT></I><FONT size="2">serves as Chief Information Officer of
CCI Holdings. Mr.&nbsp;Young has served in this position for CCI
since 2003. From 2000 to 2003, Mr.&nbsp;Young served as Chief
Information Officer of NewSouth Communications, Inc., a
broadband communications provider. From 1998 to 2000,
Mr.&nbsp;Young served as Chief Information Officer for
21st&nbsp;Century Telecom Group.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Brian L. Carr </FONT></I><FONT size="2">serves
as Vice President of Public Services and Network Services of CCI
Holdings. Mr.&nbsp;Carr has served in this position for CCI
since 2003. From 1997 to 2002, Mr.&nbsp;Carr served in various
capacities at McLeodUSA, including as Vice President of
Wholesale Sales. From 1980 to 1997, Mr.&nbsp;Carr held various
management positions at the predecessor of CCI. Mr.&nbsp;Carr is
currently a director of Associated Communications Companies of
America, a ten-member interexchange carrier purchasing
consortium, of which Network Services is a member.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Michael W. Smith
</FONT></I><FONT size="2">serves as Vice President and General
Manager of Market Response of CCI. Mr.&nbsp;Smith has served in
this position for CCI since 2003. From 2001 to 2003,
Mr.&nbsp;Smith served as Vice
</FONT>

<P align="center"><FONT size="2">116
</FONT>

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<DIV align="left">
<FONT size="2">President of Marketing and Integrated Business
Systems of ICTC, which included managing the central Illinois
CLEC territories for McLeodUSA. Mr.&nbsp;Smith served as Senior
Vice President of Sales, Customer Service and Product Marketing
of WorkNet Communications, a start-up wireless Internet company
based in St.&nbsp;Louis, from 1998 to 2001. Mr.&nbsp;Smith
joined the predecessor of CCI in 1989 and served in various
capacities through its acquisition in 1997.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Steven L. Grissom
</FONT></I><FONT size="2">serves as Treasurer and Secretary of
CCI Holdings. Mr.&nbsp;Grissom has served in this position for
CCI since 2002. Since 1997, Mr.&nbsp;Grissom has also served as
the administrative officer of SKL Investment Group, LLC, or SKL
Investment Group, an investment holding company. From 1989 to
2002, Mr.&nbsp;Grissom served as Treasurer of ICTC.
Mr.&nbsp;Grissom is currently a director of First Mid-Illinois.
Mr.&nbsp;Grissom is also a director of Agracel, Coles Together,
Mattoon Area Industrial Development Corporation and The Lumpkin
Family Foundation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Kevin J. Maroni </FONT></I><FONT size="2">has
been a director of CCI Holdings since 2002. Mr.&nbsp;Maroni is a
General Partner of Spectrum Equity. Mr.&nbsp;Maroni has worked
for Spectrum Equity since its inception in 1994.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Mark A. Pelson </FONT></I><FONT size="2">has
been a director of CCI Holdings since 2002. Mr.&nbsp;Pelson is a
Managing Director of Providence Equity. Mr.&nbsp;Pelson has
worked for Providence Equity since 1996. Mr.&nbsp;Pelson is also
a director of Madison River Telephone Company, LLC.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of Messrs.&nbsp;Lumpkin, Shirar, Dively,
Carr, Childers, Smith and Grissom were employed by McLeodUSA
during 2002. In January 2002, in order to complete a
recapitalization, McLeodUSA filed a prenegotiated plan of
reorganization through a Chapter&nbsp;11 bankruptcy petition in
the United States Bankruptcy Court for the District of Delaware.
In April 2002, McLeodUSA&#146;s plan of reorganization became
effective and McLeodUSA emerged from Chapter&nbsp;11 protection.
Messrs Lumpkin and Shirar resigned from McLeodUSA in April 2002
and June 2002, respectively. In addition, Mr.&nbsp;Currey was
employed by RCN Corporation from 2000 to 2002. In May 2004, RCN
Corporation filed a plan of reorganization through a
Chapter&nbsp;11 bankruptcy petition on a voluntary basis.
</FONT>

<P align="left">
<B><FONT size="2">Composition of the Board After the
Offering</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors currently consists
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;members.
In connection with the closing of the offering, we intend to
elect at least one additional member of the board of directors
who shall qualify as an &#147;independent&#148; director under
applicable SEC and NYSE rules.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following the closing of the offering, we expect
to avail ourselves of the &#147;controlled company&#148;
exception under the New York Stock Exchange rules which
eliminates the requirements that we have a majority of
independent directors on our board of directors and that our
compensation and nominating and corporate governance committees
be composed entirely of independent directors. However, in the
event that we are no longer a &#147;controlled company,&#148; we
will be required to have a majority of independent directors on
our board of directors and to have our compensation and
nominating and corporate governance committees be composed
entirely of independent directors within one year of the date
that we lose our status as a &#147;controlled company.&#148;
</FONT>

<P align="left">
<B><FONT size="2">Committees of the Board</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The standing committees of our board of directors
will consist of an audit committee, a compensation committee and
a nominating and corporate governance committee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Audit Committee.</FONT></I><FONT size="2">
Upon completion of this offering, we will have an audit
committee and, as required by SEC and New York Stock Exchange
rules, we intend for the audit committee to have one independent
director by the closing of this offering, a majority of
&#147;independent&#148; directors within 90&nbsp;days of this
offering and to be fully independent within one year of this
offering.
</FONT>

<P align="center"><FONT size="2">117
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The principal duties and responsibilities of our
audit committee will be to assist our board of directors in its
oversight of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the integrity of our financial statements;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our compliance with legal and regulatory matters;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the independent registered public accounting
    firm&#146;s qualifications and independence;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the performance of our internal audit function
    and registered public accounting firm.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our audit committee will also be responsible for:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">conducting an annual performance evaluation of
    the audit committee;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">compensating, retaining and overseeing the work
    of our registered public accounting firm;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">establishing procedures for (a)&nbsp;receipt and
    treatment of complaints on accounting and other related matters
    and (b)&nbsp;submission of confidential employee concerns
    regarding questionable accounting or auditing matters.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">The audit committee will have the power to
investigate any matter brought to its attention within the scope
of its duties. It will also have the authority to retain counsel
and advisors to fulfill its responsibilities and duties. Our
board of directors will adopt a written charter for the audit
committee, which will be posted on our website.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Compensation
Committee.</FONT></I><FONT size="2"> The principal duties and
responsibilities of the compensation committee will be as
follows:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to review and approve goals and objectives
    relating to the compensation of our chief executive officer and,
    based upon a performance evaluation, to determine and approve
    the compensation of the chief executive officer;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to make recommendations to our board of directors
    on the compensation of other executive officers and on incentive
    compensation and equity-based plans;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to produce reports on executive compensation to
    be included in our public filings with the SEC.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Nominating and Corporate Governance
Committee.</FONT></I><FONT size="2"> The principal duties and
responsibilities of the nominating and corporate governance
committee will be as follows:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to identify individuals qualified for membership
    on our board of directors and to select, or recommend for
    selection, director nominees;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to develop and recommend to our board of
    directors a set of corporate governance principles;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to oversee the evaluation of our board of
    directors and management.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">118
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<B><FONT size="2">Compensation of Executive Officers</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Summary Compensation Table</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table lists information regarding
the compensation of our Chairman, Chief Executive Officer and
the four next most highly compensated officers, to whom we refer
to, collectively, as the named officers. The compensation of
each of these named officers exceeded $100,000 for the fiscal
year ended December&nbsp;31, 2003.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="25%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Long-Term</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Annual Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003 Restricted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fiscal</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other Annual</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Share Plan</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">All Other</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Name(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Salary</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Bonus</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Awards(6)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Compensation(7)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Richard A. Lumpkin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">816,205</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,945</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,077</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chairman of the Board and Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert J. Currey
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">263,846</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,991</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,077</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">President, Chief Executive Officer and Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Steven J. Shirar
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">178,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,769</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Senior Vice President and President of Enterprise
    Operations
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Joseph R. Dively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">148,846</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,979</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,423</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Senior Vice President and President of Telephone
    Operations of Illinois Holdings
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Christopher A. Young
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">144,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,724</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,108</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chief Information Officer
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Brian L. Carr
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">126,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">219</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,435</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Vice President of Public Services and Network
    Services
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Each of our executive officers served in their
    positions throughout fiscal year 2003, other than
    Mr.&nbsp;Young, who was hired on February&nbsp;3, 2003.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes a professional services fee of $666,667
    paid to Mr.&nbsp;Lumpkin as one of our existing equity
    investors. See &#147;Certain Relationships and Related Party
    Transactions&nbsp;&#151; Professional Services Fee
    Agreements&#148;. Pursuant to a side letter agreement with some
    of the other investors in Central Illinois Telephone, including
    affiliates of Mr.&nbsp;Lumpkin and members of his family,
    whereby Mr.&nbsp;Lumpkin shares a portion of this professional
    services fee, Mr.&nbsp;Lumpkin retained only $492,468 of the
    professional services fee in 2003. In addition, the remaining
    $149,538 in the table above represents amounts paid to
    Mr.&nbsp;Lumpkin for his services to ICTC.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes a car allowance of $21,945. Of the car
    allowance, $353 represents reimbursement of taxes.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes a relocation allowance of $33,241. Of
    the relocation allowance, $13,847 represents reimbursement of
    taxes.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes a relocation allowance of $58,724. Of
    the relocation allowance, $24,315 represents reimbursement of
    taxes.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">119
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">The board of managers of Homebase ascribed no
    value to the restricted shares on the date awarded. The value of
    the restricted shares of our Class&nbsp;A common stock (giving
    effect to the reorganization) held by each of the named officers
    as of December&nbsp;31, 2003 was as follows:
    </FONT></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restricted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value as of</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Named Officer</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares Held</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31, 2003</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert J. Currey
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Steven J. Shirar
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Joseph R. Dively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Christopher A. Young
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Brian L. Carr
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">25.0% of these shares will vest every
    December&nbsp;31st, beginning December&nbsp;31, 2004 and ending
    December&nbsp;31, 2007. Holders of our restricted Class&nbsp;A
    common stock are entitled to receive dividends and other
    distributions if and when declared by the board of directors.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(7)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Amounts listed consist of CCI&#146;s matching
    contributions to its 401(k) plan. We also provide the named
    officers with certain group life, health, medical and other
    non-cash benefits generally available to all salaried employees
    and excluded from this column pursuant to SEC rules.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Director Compensation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following this offering, directors who are not
our employees or who are not otherwise affiliated with us or our
existing equity investors will receive compensation that is
commensurate with arrangements offered to directors of companies
that are similar to us. Compensation arrangements for
independent directors established by our board may be in the
form of cash payments and/or option grants.
</FONT>

<P align="left">
<B><FONT size="2">Restricted Share Plan</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">General</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2003, Homebase adopted the 2003
Restricted Share Plan (to which we have succeeded), or the
restricted share plan. In connection with the reorganization,
all holders of Homebase restricted common shares will receive
similarly restricted shares of our Class&nbsp;A common stock.
The restricted share plan authorized our board of directors to
grant to members of management, as incentive compensation,
awards of restricted shares of our common stock or securities
convertible into shares of our common stock. Unless altered by
the board, awards under the restricted share plan cannot exceed
an aggregate
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares.
As of September&nbsp;30, 2004, the
entire &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
were issued and outstanding. The restricted share plan also
provides for adjustment of the number of shares of our common
stock available for grant in the event of an increase or
reduction in the number of shares of common stock, an exchange
of our common stock for a different number or type of security
of ours or other specified changes in our capitalization. All
shares of common stock awarded under the restricted share plan
are and will be subject to restrictions on transfer.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Administration and Terms of
    Awards</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The board of directors administers the restricted
share plan and designates the employees to receive awards. The
board of directors will determine the nature of the awards, the
number of shares of common stock subject to the awards and the
terms and conditions of each award.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Vesting</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">25.0% of
the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
granted in 2003 will vest every December&nbsp;31st, beginning
December&nbsp;31, 2004 and ending December&nbsp;31, 2007. The
remaining 25,000&nbsp;shares and, unless otherwise agreed, all
subsequent awards under the restricted share plan will vest
25.0% on the second anniversary date of the
</FONT>

<P align="center"><FONT size="2">120
</FONT>

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<DIV align="left">
<FONT size="2">award and 25.0% each following year through the
fifth anniversary date of the award. All shares awarded under
the restricted share plan will automatically vest
</FONT>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">if the board of directors accelerates the vesting
    at any time for any reason, which it is entitled to do;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">upon a change of control (as defined in the
    restricted share plan) of CCI Holdings, if the employee is
    terminated without cause, the employee&#146;s compensation is
    reduced below 90.0% of the compensation prior to the change of
    control or the employee is assigned duties and responsibilities
    materially inconsistent with his or her previous level of
    responsibility.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If the employee is terminated without cause or as
a result of death or disability, subject to our right to
purchase the shares described below under &#147;&#151;&nbsp;Call
Rights&#148;, the employee will retain all vested shares but
will forfeit all of his or her rights to unvested shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All shares of common stock, vested or unvested,
awarded under the restricted share plan are subject to
forfeiture and employees are required to sell to us, at the
price the employee paid for the shares, upon any of the
following events: termination of employment for cause or any
attempt by the employee to transfer the shares without the prior
written approval of the board of directors.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Call Rights</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For one year following an employee&#146;s death,
disability or termination of employment for any reason other
than for cause, we have the right to buy all vested shares at a
price per share equal to the lesser of (1)&nbsp;the fair market
value of a vested share, as determined by the board of directors
in good faith, and (2)&nbsp;the amount determined by dividing
our enterprise value (as defined in the restricted share plan)
by the total number of shares of common stock outstanding as of
the date of the triggering event.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Other Stockholder Rights</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other than as described above, employees will
have all of the rights of a stockholder, including the right to
vote the shares and receive dividends and other distributions.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Term</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The restricted share plan will continue in effect
until August&nbsp;28, 2013, unless terminated prior to that date
by the board of directors.
</FONT>

<P align="left">
<B><FONT size="2">Compensation Committee Interlocks and Insider
Participation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following this offering, the compensation levels
of our executive officers will be determined by our board of
directors upon the recommendation of the compensation committee.
In 2003, Mr.&nbsp;Currey, our President and Chief Executive
Officer, and Mr.&nbsp;Lumpkin, our Chairman, both employees of
ICTC, participated in deliberations of the board of managers
regarding executive compensation.
</FONT>

<P align="left">
<B><FONT size="2">Employment and Other Arrangements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We do not anticipate entering into any employment
agreements with our officers or employees.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On March&nbsp;27, 2003, CCI Texas entered into a
retention and change in control agreement with Mr.&nbsp;Udell.
Pursuant to the retention agreement, CCI Texas named
Mr.&nbsp;Udell as Executive Vice President through
March&nbsp;27, 2005. The retention agreement provided that
Mr.&nbsp;Udell would receive an annual base salary of $243,775
with a bonus based on the greater of 45.0% of his base salary
and $109,698 and Mr.&nbsp;Udell was also entitled to participate
in an annual incentive plan and all benefit plans, programs and
arrangements and fringe benefit policies applicable generally to
other employees. The retention agreement also provided that
Mr.&nbsp;Udell would receive a one time payment upon a change of
control, which included the closing of the TXUCV acquisition. In
addition, Mr.&nbsp;Udell&#146;s salary may not be decreased for
a period of two years following the closing of the TXUCV
acquisition.
</FONT>

<P align="center"><FONT size="2">121
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the TXUCV acquisition, we paid
Mr.&nbsp;Udell $706,948 to terminate the retention agreement
without the other benefits described in the preceding paragraph
in exchange for continuing to be employed in the position
described above. Mr.&nbsp;Udell&#146;s annual base salary is now
$200,000 with a potential bonus of up to 40.0% of his annual
salary based on the achievement of various corporate objectives.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Supplemental Executive Retirement
    Plan</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Supplemental Executive Retirement Plan for
Mr.&nbsp;Lumpkin has been effective since 1986 and provided that
Mr.&nbsp;Lumpkin or his beneficiary would have been entitled to
supplemental benefits of $50,000&nbsp;per year, payable monthly
for a period of twenty years, if Mr.&nbsp;Lumpkin retired after
age&nbsp;65 or if his employment was terminated prior to such
time due to his death. On July&nbsp;29, 2004, the board of
directors of ICTC paid Mr.&nbsp;Lumpkin a lump sum of $649,617
to terminate the Supplemental Executive Retirement Plan for
Mr.&nbsp;Lumpkin.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Directors&#146; and Officers&#146;
    Indemnification and Insurance</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our amended and restated certificate of
incorporation will provide that, to the fullest extent permitted
by the DGCL and except as otherwise provided in our bylaws, none
of our directors shall be liable to us or our stockholders for
monetary damages for a breach of fiduciary duty. In addition,
our amended and restated certificate of incorporation will
provide for indemnification of any person who was or is made, or
threatened to be made, a party to any action, suit or other
proceeding, whether criminal, civil, administrative or
investigative, because of his or her status as a director or
officer of CCI Holdings, or service as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise at our request to the fullest
extent authorized under the DGCL against all expenses,
liabilities and losses reasonably incurred by such person.
Further, our amended and restated certificate of incorporation
will provide that we may purchase and maintain insurance on our
own behalf and on behalf of any other person who is or was a
director, officer or agent of CCI Holdings or was serving at our
request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise.
</FONT>

<P align="center"><FONT size="2">122
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='118'></A>
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<!-- link1 "PRINCIPAL AND SELLING STOCKHOLDERS" -->

<P align="center">
<B><FONT size="2">PRINCIPAL AND SELLING STOCKHOLDERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth information, as of
the date of this prospectus, regarding the beneficial ownership
of our common capital stock: (1)&nbsp;immediately prior to the
consummation of the offering; and (2)&nbsp;as adjusted to
reflect the sale of shares of Class&nbsp;A common stock in this
offering by:
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<P>

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<TR>
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    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">each person or entity who is known to us to
    beneficially own more than 5.0% of our capital stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our named officers;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our directors;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our directors and officers as a group.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Beneficial ownership has been determined in
accordance with the applicable rules and regulations of the SEC,
which generally require inclusion of shares over which a person
has voting or investment power. Share ownership in each case
includes shares that may be acquired within 60&nbsp;days through
the exercise of any options.
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    <TD></TD>
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    <TD></TD>
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    <TD></TD>
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<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Shares Beneficially Owned</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
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    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Shares Beneficially Owned</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Prior to Offering</FONT></B></TD>
    <TD></TD>
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    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">After Offering</FONT></B></TD>
    <TD></TD>
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    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class A</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class B</FONT></B></TD>
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    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class A</FONT></B></TD>
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    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class B</FONT></B></TD>
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    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
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    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
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    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
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    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Total</FONT></B></TD>
</TR>

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    <TD colspan="2" align="center" nowrap><B><FONT size="1">Name and Address of</FONT></B></TD>
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    <TD colspan="3" align="center" nowrap><B><FONT size="1">Voting</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Being</FONT></B></TD>
    <TD></TD>
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    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Voting</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Beneficial Owner</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Power</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Offered</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Power</FONT></B></TD>
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    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Central Illinois Telephone(a)
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<TR bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">c/o&nbsp;Homebase<BR>
    P.O. Box&nbsp;1234<BR>
    Mattoon, Illinois 61938
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    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Providence Equity(b)
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    <FONT size="2">c/o&nbsp;Providence Equity Partners, Inc.<BR>
    50 Kennedy Plaza, 18th Floor<BR>
    Providence, Rhode Island 02903
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    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Spectrum Equity(c)
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">c/o&nbsp;Spectrum Equity Investors<BR>
    One International Place, 29th Floor<BR>
    Boston, Massachusetts 02110
    </FONT></TD>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="19%"><FONT size="2">&nbsp;</FONT></TD>
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<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Shares Beneficially Owned</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Shares Beneficially Owned</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Prior to Offering</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">After Offering</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
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    <TD></TD>
    <TD colspan="3"></TD>
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    <TD></TD>
    <TD></TD>
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    <TD></TD>
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    <TD></TD>
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    <TD></TD>
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    <TD></TD>
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    <TD></TD>
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<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class A</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class B</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class A</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Class B</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
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<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% Total</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name and Address of</FONT></B></TD>
    <TD></TD>
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    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Voting</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Being</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Voting</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Beneficial Owner</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Power</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Offered</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Power</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
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<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Named Officers and Directors</FONT></B></DIV>
    </TD>
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<TR bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Richard A. Lumpkin(d)
    </FONT></DIV>
    </TD>
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    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Robert J. Currey(e)
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    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Steven J. Shirar(f)
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    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Joseph R. Dively(g)
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    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Christopher A. Young
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    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Brian L. Carr
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    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin J. Maroni(h)
    </FONT></DIV>
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    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mark A. Pelson(i)
    </FONT></DIV>
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    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">All directors and executive officers as a
    group (13&nbsp;persons)</FONT></B><FONT size="2">(j)
    </FONT></DIV>
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</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">&nbsp;*
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Less than 1.0% ownership.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(a)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">The equity interests in Central Illinois
    Telephone are approximately 81.9% owned by SKL Investment Group,
    a Delaware limited liability company, approximately 9.5% owned
    by LTIC, LLC, an Illinois limited liability company,
    approximately 1.0% owned by GRISS, LLC, an Illinois limited
    liability company, and approximately 7.6% owned collectively by
    Messrs.&nbsp;Currey, Shirar, Dively and others, either directly
    or indirectly through retirement accounts and various trusts.
    SKL Investment Group is owned by Mr.&nbsp;Lumpkin and members of
    his family, Mr.&nbsp;Lumpkin is the sole manager of an SKL
    Investment Group investment fund and has the sole power to
    direct the voting and disposition of its investments. LTIC, LLC
    is managed by Agracel, an Illinois corporation, which has a four
    member board of directors, two of whom are Messrs.&nbsp;Lumpkin
    and Grissom. In addition, Mr.&nbsp;Lumpkin and members of his
    family own approximately 50.0% of Agracel and Mr.&nbsp;Grissom
    owns approximately 2.6% of Agracel. In addition, GRISS, LLC is
    approximately 80.0% owned by Mr.&nbsp;Grissom and members of his
    family, and Mr.&nbsp;Grissom is also a co-trustee of trusts that
    own approximately 37.4% of the common shares of Central Illinois
    Telephone through SKL Investment Group. As a result of the
    above, Messrs.&nbsp;Lumpkin, Currey, Shirar, Dively and Grissom
    may be deemed to share beneficial ownership of the shares owned
    by Central Illinois Telephone. Each of them disclaims this
    beneficial ownership.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(b)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Consists
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock held by Providence Equity Partners
    IV, L.P. and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of
    Class&nbsp;A common stock held by Providence Equity Operating
    Partners IV, L.P. Providence Equity GP IV, L.P. is the general
    partner of each of these entities and Providence Equity Partners
    IV, LLC is the general partner of Providence Equity GP IV, L.P.
    Providence Equity Partners IV, LLC has the sole power to direct
    the voting and disposition of the shares. As a result, each of
    the entities may be deemed to share beneficial ownership of the
    shares owned by the others. Each of the entities disclaims this
    beneficial ownership.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(c)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Consists
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock held by Spectrum Equity Investors
    IV,
    L.P.; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock held by Spectrum&nbsp;IV Investment
    Managers&#146; Fund,
    L.P.; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock held by Spectrum Equity Investors
    Parallel&nbsp;IV,
    L.P.; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock held by Spectrum Equity
    Investors&nbsp;III,
    LP; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock held by SEI&nbsp;III
    Entrepreneurs&#146; Fund, L.P.;
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock and held by Spectrum&nbsp;III
    Investment Managers&#146; Fund, L.P. These funds ultimately are
    under common management that shares the power to direct the
    voting and disposition of the shares. As a result, each of the
    entities may be deemed to share beneficial ownership of the
    shares owned by the others. Each of the entities disclaims this
    beneficial ownership.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(d)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Mr.&nbsp;Lumpkin and his family own a majority of
    the shares of Central Illinois Telephone, Mr.&nbsp;Lumpkin is
    its sole manager and has the sole power to direct the voting and
    disposition of its shares. As a result, Mr.&nbsp;Lumpkin may
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">124
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">be deemed to share beneficial ownership of the
    shares owned by Central Illinois Telephone. Mr.&nbsp;Lumpkin
    disclaims this beneficial ownership.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(e)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Consists
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock received from Homebase under the
    restricted share plan. See &#147;Management&nbsp;&#151;
    Restricted Share Plan&#148;. In addition, Mr.&nbsp;Currey,
    through an IRA trust, owns less than 1.0% of Central Illinois
    Telephone. As a result, Mr.&nbsp;Currey may be deemed to share
    beneficial ownership of the shares owned by Central Illinois
    Telephone. Mr.&nbsp;Currey disclaims this beneficial ownership.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(f)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Consists
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock received from Homebase under the
    restricted share plan. See &#147;Management&nbsp;&#151;
    Restricted Share Plan&#148;. In addition, Mr.&nbsp;Shirar,
    through a trust, owns less than 1.0% of Central Illinois
    Telephone. As a result, Mr.&nbsp;Shirar may be deemed to share
    beneficial ownership of the shares owned by Central Illinois
    Telephone. Mr.&nbsp;Shirar disclaims this beneficial ownership.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(g)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Consists
    of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock received from Homebase under the
    restricted share plan. See &#147;Management&nbsp;&#151;
    Restricted Share Plan&#148;. In addition, Mr.&nbsp;Dively owns
    less than 1.0% of Central Illinois Telephone. As a result,
    Mr.&nbsp;Dively may be deemed to share beneficial ownership of
    the shares owned by Central Illinois Telephone. Mr.&nbsp;Dively
    disclaims this beneficial ownership.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(h)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Mr.&nbsp;Maroni is a general partner or managing
    member of, and holds a minority interest in, the Spectrum Equity
    funds that own Homebase shares. As a result, Mr.&nbsp;Maroni may
    be deemed to share beneficial ownership of the shares owned by
    Spectrum Equity. Mr.&nbsp;Maroni disclaims this beneficial
    ownership.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(i)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Mr.&nbsp;Pelson is a Managing Director of
    Providence Equity and holds a minority interest in the
    Providence Equity funds that own Homebase shares. As result,
    Mr.&nbsp;Pelson may be deemed to share beneficial ownership of
    the shares owned by Providence Equity. Mr.&nbsp;Pelson disclaims
    this beneficial ownership.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(j)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Excludes &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of restricted Class&nbsp;A common stock received from Homebase
    by employees, other than our executive officers under the
    restricted share plan.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">125
</FONT>

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<DIV align="left">
<A name='119'></A>
</DIV>

<!-- link1 "CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS" -->

<P align="center">
<B><FONT size="2">CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS</FONT></B>

<P align="left">
<B><FONT size="2">Reorganization Agreement</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our existing equity investors and members of
management who will own shares of Class&nbsp;A common stock will
enter into a reorganization agreement, dated as
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005, which sets forth the terms of the reorganization and the
certain other rights and obligations of our existing equity
investors in connection with this offering. The reorganization
agreement will provide for the merger of Consolidated
Communications Texas Holdings, Inc. with and into CCI Holdings
and the merger of Homebase with and into CCI Holdings, in each
case, with CCI&nbsp;Holdings being the entity surviving the
merger. In connection with the merger of Homebase with and into
CCI Holdings, (i) Central Illinois Telephone will receive from
Homebase an aggregate
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
share of Class&nbsp;B common stock
and&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
shares of Class&nbsp;A common stock, (ii) Spectrum Equity will
receive from Homebase an aggregate
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
shares of Class&nbsp;A common stock, (iii) Providence Equity
will receive from Homebase an aggregate
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
shares of Class&nbsp;A common stock and (iv) our management
stockholders will receive shares of restricted Class&nbsp;A
common stock under the restricted share plan.
</FONT>

<P align="left">
<B><FONT size="2">Limited Liability Company Agreement</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Holdings is presently a wholly owned
subsidiary of Homebase, a Delaware limited liability company
organized on June&nbsp;26, 2002. Currently, the operating
agreement for Homebase, which we refer to as the
LLC&nbsp;Agreement, provides for the management and the conduct
of our business prior to this offering. Except as provided
below, the provisions of the LLC agreement will terminate upon
the consummation of this offering.
</FONT>

<DIV>&nbsp;</DIV>

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    <B><I><FONT size="2">Tag Along Rights</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following a public offering of our equity
securities, each of our existing equity investors will have the
right to participate, on a proportional basis, in any sale of
our equity securities that would result in either the purchaser
of those securities becoming the largest single holder of our
equity securities or the holder of more than 40.0% of our
outstanding voting securities.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD></TD>
    <TD>
    <B><I><FONT size="2">Indemnification and Limitations on the
    Fiduciary Duty of Members</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the LLC agreement, Homebase agreed to
indemnify, to the fullest extent permitted by applicable law,
its directors, employees and agents and the existing equity
investors and their respective directors, stockholders, members,
partners, representatives or agents for losses which the
indemnified person may sustain, incur or assume as a result of,
or relative to, any act or omission performed by the indemnified
person on behalf of Homebase in a manner reasonably believed to
be within the scope of authority provided by the LLC agreement.
The indemnification does not apply to any loss incurred by the
indemnified person as a result of his or its gross negligence or
willful misconduct. Furthermore, this indemnity is limited to
the value of the assets of Homebase.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the LLC agreement, none of Homebase&#146;s
members, directors, employees or agents will be liable to
Homebase or other members, directors, employees or agents of
Homebase for acts undertaken in good faith reliance on the
provisions of the LLC agreement.
</FONT>

<DIV>&nbsp;</DIV>

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    <B><I><FONT size="2">Registration Rights Agreement</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with this offering and the related
transactions, we will enter into a registration rights agreement
that will provide each of our existing equity investors with,
among other things:
</FONT>
<P>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">up to two demand registration rights;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">unlimited shelf registration rights;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">unlimited &#147;piggyback&#148; registration
    rights.
    </FONT></TD>
</TR>

</TABLE>

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    <TD width="3%"></TD>
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    <TD>
    <B><I><FONT size="2">Professional Services Fee
    Agreements</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Homebase and certain of its subsidiaries have
entered into two professional services fee agreements, each
effective as of April&nbsp;14, 2004, with existing equity
investors. One agreement requires CCI to pay to Mr.&nbsp;Lumpkin
and such affiliates of Providence Equity and Spectrum Equity an
annual professional services fee in the aggregate amount of
$2.0&nbsp;million for consulting, advisory and other
professional services provided to CCI and its subsidiaries
relating to the Illinois operations. The other agreement
requires Texas Holdings to pay to Mr.&nbsp;Lumpkin and such
affiliates of Providence Equity and Spectrum Equity an annual
professional services fee in the aggregate amount of
$3.0&nbsp;million for consulting, advisory and other
professional services provided to Texas Holdings and its
subsidiaries relating to the Texas operations. The professional
services fees are generally payable in cash. The professional
services fee, however, must be paid in the form of class&nbsp;A
preferred shares if payment in cash is prohibited by the
existing credit facilities or if consolidated EBITDA (determined
in accordance with the existing credit facilities) is less than
or equal to $106.0&nbsp;million. Payment of the professional
services fees is subordinate to the obligations under the
existing credit facilities and our senior notes. The rights of
Mr.&nbsp;Lumpkin and the affiliates of Providence Equity and
Spectrum Equity to receive professional services fees described
above will terminate upon the closing of this offering.
</FONT>

<P align="left">
<B><FONT size="2">LATEL Sale/ Leaseback</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2002, in connection with CCI Holdings&#146;
acquisition of ICTC and several related businesses from
McLeodUSA, each of ICTC and Consolidated Communications Market
Response, Inc., or Consolidated Market Response, an indirect,
wholly owned subsidiary of CCI Holdings, entered into separate
agreements with LATEL, pursuant to which each of them sold to
LATEL real property for total consideration of approximately
$9.2&nbsp;million and then leased the property back from LATEL.
LATEL is owned 50.0% by Mr.&nbsp;Lumpkin and 50.0% by Agracel,
and Agracel is the sole managing member of LATEL.
Mr.&nbsp;Lumpkin, together with members of his family,
beneficially owns 49.7% and Mr.&nbsp;Grissom owns&nbsp;2.6% of
Agracel. In addition, Messrs.&nbsp;Lumpkin and Grissom are
directors of Agracel.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The initial term of both leases was one year
beginning on December&nbsp;31, 2002. Each lease automatically
renews for successive one year terms through 2013, unless either
ICTC or Consolidated Market Response provides one year prior
written notice that it intends to terminate its respective
lease. Collectively, the initial rent for 2003 was approximately
$1.2&nbsp;million, of which ICTC paid approximately
$1.0&nbsp;million and Consolidated Market Response paid the
remainder. These lease payments represent 100.0% of the revenues
of LATEL. The annual rent for each lease will increase by 2.5%
upon each renewal. Either subsidiary can terminate its lease
agreement with LATEL at any time by giving LATEL one year prior
written notice.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon the closing of this offering, we expect that
LATEL will exercise its option in the lease to convert the term
of the lease to a fixed term of six years commencing on the date
the option is exercised.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Currently, the leases are recorded as operating
leases of ICTC and Consolidated Market Response.
</FONT>

<P align="left">
<B><FONT size="2">MACC, LLC</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 1997, Consolidated Market Response entered
into a lease agreement with MACC pursuant to which Consolidated
Market Response leases office space for a period of five years.
Agracel is the sole managing member and 66.7% owner of MACC,
LLC, or MACC, an Illinois limited liability company.
Mr.&nbsp;Lumpkin and members of his family directly own the
remainder of MACC. The parties extended the lease for an
additional five years beginning October&nbsp;14, 2002.
Consolidated Market Response paid MACC rent for 2003 in the
amount of $122,520. These payments represent
approximately&nbsp;65.0% of MACC&#146;s total revenues for 2003.
The lease provides for a cost of living increase to the annual
lease payments based on the &#147;Revised Consumers Price Index,
All Urban Consumers&#148; published by the Bureau of Labor
Statistics for the United States Department of Labor. Neither
party has the right to terminate this agreement by the terms of
the agreement.
</FONT>

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</FONT>

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<P align="left">
<B><FONT size="2">SKL Investment Group, LLC</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Mr.&nbsp;Lumpkin, together with members of his
family, beneficially owns 100.0% of SKL Investment Group, a
Delaware limited liability company which is an investment
company serving the Lumpkin family. Mr.&nbsp;Lumpkin and members
of his family are the sole voting members of SKL Investment
Group. SKL&nbsp;Investment Group paid to CCI $74,400 in 2003 for
the use of office space, computers and telephones and for other
office related expenses. This amount also includes a
reimbursement for a portion of Mr.&nbsp;Grissom&#146;s salary
paid by CCI. Mr.&nbsp;Grissom serves as Administrative Officer
of SKL Investment Group.
</FONT>

<P align="left">
<B><FONT size="2">First Mid-Illinois</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to various agreements with CCI, First
Mid-Illinois provides general banking services, including
depository, disbursement and payroll accounts, to
CCI&nbsp;Illinois. Mr.&nbsp;Lumpkin and members of his family
own approximately&nbsp;29.0% of the common stock of First
Mid-Illinois, Mr.&nbsp;Grissom owns less than 1.0%, and is the
co-trustee of trusts, with discretionary voting power, that hold
5.7% of the common stock of First Mid-Illinois and
Mr.&nbsp;Dively owns less than&nbsp;1.0% of the common stock of
First Mid-Illinois. In addition, Messrs.&nbsp;Lumpkin, Grissom
and Dively are directors of First Mid-Illinois. The fees charged
and earnings received on deposits, through repurchase
agreements, are based on First Mid-Illinois&#146;s standard
schedule for large customers. During 2003, CCI&nbsp;Illinois
paid maintenance and activity related charges of $1,530 to First
Mid-Illinois and earned $97,281 of interest on its deposits. In
addition, First Mid-Illinois administers CCI&nbsp;Illinois&#146;
hourly 401(k)&nbsp;plan. During 2003, CCI paid $46,348 to First
Mid-Illinois for this service.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, a wholly owned subsidiary of First
Mid-Illinois received a commission from Arthur&nbsp;J. Gallagher
Risk Management Services, Inc., or AJG&nbsp;Risk Management, a
company which provides insurance and risk management services,
for introducing CCI&nbsp;Illinois to AJG&nbsp;Risk Management.
In 2003, CCI&nbsp;Illinois paid AJG&nbsp;Risk
Management&nbsp;$744,622.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Illinois Telephone Operations provides First
Mid-Illinois with local dial tone, custom calling features, long
distance and other related services. In 2003, First Mid-Illinois
paid Illinois Telephone Operations $394,129 for these services.
</FONT>

<DIV>&nbsp;</DIV>

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    <B><I><FONT size="2">Business Systems</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications Business Services,
Inc., or Consolidated Business Services, an indirect wholly
owned subsidiary of CCI&nbsp;Holdings, provides repair services
and, if First Mid-Illinois elects, maintenance services for
First Mid-Illinois&#146;s communications equipment. First
Mid-Illinois paid $39,862 in 2003 to Consolidated Business
Services for these services. The initial term of the contract
expired on June&nbsp;6, 2003 and automatically renews annually
unless either party provides prior written notice of termination.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, Consolidated Business Systems also
entered into two sales agreement with First Mid-Illinois to
deliver and install communications and computer equipment.
Pursuant to one agreement, First Mid-Illinois paid a one-time
fee of $13,032 and pursuant to the second agreement, First
Mid-Illinois paid a one-time fee of $18,493.
</FONT>

<DIV>&nbsp;</DIV>

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    <TD></TD>
    <TD>
    <B><I><FONT size="2">Mobile Services</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications Mobile Services,
Inc., or Consolidated Mobile Services, an indirect wholly owned
subsidiary of CCI&nbsp;Holdings, provides paging services to
First Mid-Illinois. During 2003, First Mid-Illinois paid $2,662
to Consolidated Mobile Services.
</FONT>

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<DIV align="left">
<A name='120'></A>
</DIV>

<!-- link1 "DESCRIPTION OF INDEBTEDNESS" -->

<P align="center">
<B><FONT size="2">DESCRIPTION OF INDEBTEDNESS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">We summarize below certain terms of our
amended and restated credit facilities, the indenture governing
our senior notes and the GECC capital leases. This summary is
not a complete description of all of the terms and provisions of
these agreements and is qualified entirely by reference to these
agreements, which are exhibits to the registration statement of
which this prospectus forms a part.</FONT></I>

<P align="left">
<B><FONT size="2">Amended and Restated Credit
Facilities</FONT></B>

<DIV>&nbsp;</DIV>

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    <TD>
    <B><I><FONT size="2">Overview</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Concurrently with the closing of this offering,
we expect to amend and restate our existing credit agreement.
The descriptions set forth below represent our current
expectations regarding the terms of the amended and restated
credit facilities. The definitive terms of the amended and
restated credit facilities could materially differ from those
described below. The closing of this offering is conditioned
upon the closing of the amended and restated credit facilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently expect that the amended and restated
credit facilities will provide financing of $419.6&nbsp;million,
consisting of:
</FONT>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a $389.6&nbsp;million term loan&nbsp;C facility
    maturing on October&nbsp;14, 2011;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a $30.0&nbsp;million revolving credit facility
    maturing on April&nbsp;14, 2010.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of CCI and Texas Holdings is expected to be
a borrower under the amended and restated credit facilities. The
borrowers&#146; obligations under the amended and restated
credit facilities are expected to be joint and several.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The term loan&nbsp;C facility is expected to be
increased by $75.7&nbsp;million from the existing term
loan&nbsp;C facility. The proceeds of the increased term
loan&nbsp;C facility, together with approximately
$47.7&nbsp;million of cash on hand, are expected to be used to
repay in full all of the approximately $118.7&nbsp;million of
indebtedness under our term loan&nbsp;A facility, which is
expected to be terminated in connection with the amendment and
restatement. The revolving credit facility is not expected to
change materially from our existing revolving credit facility,
and is expected to continue to include a subfacility for letters
of credit as well as a swingline subfacility. We currently
expect that the revolving credit facility will be undrawn on the
closing of the offering and will remain available for general
corporate purposes.
</FONT>

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    <TD>
    <B><I><FONT size="2">Amortization; Prepayments</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We anticipate that our amended and restated
credit facilities will require the borrowers to make nominal
amortization payments in respect of the increased term
loan&nbsp;C facility that are proportionate to the amortization
payments required by our existing term loan&nbsp;C facility.
Such amortization payments are expected to be approximately
$4.2&nbsp;million during 2005, decreasing to approximately
$3.9&nbsp;million in each year thereafter prior to 2011. In 2011
we expect to be required to amortize 25.0% of the outstanding
balance of the increased term loan&nbsp;C facility at the end of
each fiscal quarter and on the maturity date. Principal amounts
outstanding under the revolving credit facility are expected to
be due and payable in full at its maturity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The amended and restated credit facilities are
expected to require the borrowers to prepay the increased term
loan&nbsp;C facility, subject to certain exceptions, in an
amount equal to the amount of any Excess Dividends (defined
below), subject to adjustment from time to time in the future
based on our total net leverage ratio, and with the net proceeds
of all non-ordinary course asset sales and any insurance or
condemnation proceeds, not reinvested within required time
periods, the net proceeds of certain incurrences of indebtedness
and the net proceeds from certain issuances of equity
(excluding, among other things, the proceeds of this offering).
We also expect that the borrowers will be able to voluntarily
repay outstanding loans under the amended and restated credit
facilities at any time without any premium or penalty, other
than customary &#147;breakage&#148; costs with respect to LIBOR
loans; <I>provided </I>that prior to October&nbsp;14, 2005, we
expect that the borrowers will be required to pay a 1.0% premium
with respect to
</FONT>

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<DIV align="left">
<FONT size="2">any prepayments of the increased term loan&nbsp;C
facility made with the proceeds of the amended and restated
credit facilities.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
Rates and Fees</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The borrowings under the amended and restated
credit facilities are expected to bear interest at a rate per
annum equal to an applicable margin plus, at the borrowers&#146;
option, either a base rate or a LIBOR rate. The initial
applicable margin for borrowings under the amended and restated
credit facilities are expected to be 1.5% with respect to base
rate loans and 2.5% with respect to LIBOR loans. After
April&nbsp;1, 2005, if and for so long as the loans are rated at
least B1 (stable)&nbsp;by Moody&#146;s Investors Service, Inc.
and B+ (stable)&nbsp;by Standard&nbsp;&#38; Poor&#146;s Rating
Services, a division of the McGraw-Hill Companies, Inc., we
expect that the amended and restated credit facilities will
provide that applicable margin under the increased term
loan&nbsp;C facility will decrease by 0.25%. We also expect the
applicable margin under the revolving credit facility will be
adjusted from time to time in the future based on our total net
leverage ratio (defined below), but will not exceed 1.5% with
respect to base rate loans and 2.5% with respect to LIBOR loans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to paying interest on outstanding
principal amounts under the amended and restated credit
facilities, we expect that the borrowers will be required to pay
a commitment fee of 0.5%&nbsp;per annum to the lenders under the
revolving credit facility in respect of unutilized commitments
thereunder subject to adjustment from time to time in the future
based on our total net leverage ratio, but not exceeding 0.5%.
We also anticipate that the borrowers will pay customary letter
of credit fees and fees of the administrative agent.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Collateral
and Guarantees</I></FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that we and each of the existing
subsidiaries of CCI and CCV (other than East Texas Fiber Line
Incorporated, Telecon, Inc. and in the case of ICTC, subject to
obtaining the consent of the ICC for ICTC to guarantee the
borrowings) and certain future direct and indirect subsidiaries,
or the Subsidiary Guarantors, will, on a joint and several
basis, fully and unconditionally guarantee the obligations of
the borrowers under the amended and restated credit facilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The obligations under the amended and restated
credit facilities and all the guarantees are expected to be
secured by substantially all of the assets of each borrower and
each guarantor, including, but not limited to, the following,
and subject to certain exceptions:
</FONT>
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    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a pledge of the capital stock of the borrowers
    and each of the Subsidiary Guarantors and ICTC (the enforcement
    of the pledges of capital stock being subject to regulatory
    restriction);&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a security interest in substantially all tangible
    and intangible assets of CCI Holdings, the borrowers and the
    Subsidiary Guarantors.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Certain
Covenants and Events of Default</I></FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The amended and restated credit facilities are
expected to contain a number of covenants, that, among other
things, will restrict, subject to certain exceptions, the
borrowers&#146; ability and the ability of us and our
subsidiaries, to:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">incur additional indebtedness or issue capital
    stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">create liens on assets;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">repay other indebtedness (including our senior
    notes other than as described under &#147;Use of Proceeds&#148;);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">sell assets;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">make investments, loans, guarantees or advances;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">130
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">pay dividends, repurchase equity interests or
    make other restricted payments (other than Permitted
    Distributions as described below);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">engage in transactions with affiliates;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">make capital expenditures;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">engage in mergers, acquisitions or consolidations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">enter into sale-leaseback transactions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">amend or otherwise modify agreements governing
    indebtedness, formation documents and certain material
    agreements;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">enter into agreements that restrict dividends
    from subsidiaries;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">change the business conducted by us and our
    subsidiaries.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, the amended and restated credit
facilities are expected to limit our business activities to
specific activities and require the borrowers and the guarantors
to, among other things:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">furnish specified financial information to the
    lenders;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">comply with applicable laws;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">maintain its properties and assets;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">maintain insurance on its properties;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">keep books and records which accurately reflect
    its business affairs;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">comply with environmental laws;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">pledge after acquired property as collateral and
    cause certain additional subsidiaries to become guarantors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">keep in effect all rights, licenses, permits,
    privileges, franchises, patents and other intellectual
    property;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">hedge a portion of the term loans.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Our amended and restated credit facilities are
also expected to include specified financial covenants,
requiring the borrowers to comply with certain financial
covenants, and to certify compliance on a quarterly basis,
including a maximum total net leverage ratio, a minimum interest
coverage ratio, a minimum fixed charge coverage ratio and a
maximum senior secured leverage ratio. We also expect that the
amended and restated credit facilities will contain customary
representations and warranties and events of default, including
but not limited to payment defaults, breach of representations
and warranties, covenant defaults, cross-defaults to certain
indebtedness and other material agreements, certain events of
bankruptcy, material judgments, the occurrence of certain ERISA
events and the occurrence of a change of control. If such an
event of default occurs, we expect that the lenders under the
amended and restated credit facilities will be entitled to take
various actions, including accelerating the amounts due
thereunder and enforcing the rights of a secured creditor.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Permitted
Distributions</I></FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subject to certain conditions and restrictions,
we expect the restricted payments covenant in the amended and
restated credit facilities to permit us, during any fiscal
quarter, to pay:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">current dividends on our common stock in an
    aggregate amount not to exceed
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
    in respect of the proportionate amount of dividends expected to
    be paid in respect of the portion of the quarter in which the
    closing of the amendment and restatement is consummated between
    the closing date of this offering and the end of such quarter,
    <I>and</I>
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">131
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;thereafter, the difference (calculated
    including all of our subsidiaries on a consolidated basis)
    between
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;Available Cash (defined below) for a
    period commencing on the first day of the first full fiscal
    quarter after the closing of the amended and restated credit
    facilities and ending on the last day of the fiscal quarter most
    recently ended for which a compliance certificate has been
    delivered;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;the aggregate amount of dividends paid
    during such period, other than any such dividends paid from the
    proceeds of equity as described in the bullet point below;
    <I>provided </I>that no dividend suspension period, as defined
    below, and no event of default shall have occurred and be
    continuing;&nbsp;and
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">dividends from the portion of the proceeds of any
    incurrence, issuance or sale of our equity not used to make
    mandatory prepayments of loans and not used to fund
    acquisitions, capital expenditures or make other investments;
    <I>provided </I>that no event of default shall have occurred and
    be continuing.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that &#147;Available Cash&#148; will be
defined in the amended and restated credit facilities as, on any
date of determination, for the period commencing on the first
day of the first full fiscal quarter that starts after the date
of the closing of these facilities and ending on the last day of
the fiscal quarter most recently ended for which a compliance
certificate has been delivered, an amount equal to the sum (as
calculated for us and our subsidiaries on a consolidated basis)
of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;Bank EBITDA for such period <I>minus</I>
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;to the extent not deducted in the
    determination of Bank EBITDA, the sum of the following:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;non-cash interest income and dividend
    income for such period;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;interest expense for such period net of
    amortization of debt issuance costs incurred in connection with
    or prior to the consummation of this offering;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(iii)&nbsp;capital expenditures for such period;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(iv)&nbsp;cash income taxes for such period;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(v)&nbsp;scheduled principal payments, if any,
    during such period;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(vi)&nbsp;voluntary prepayments of debt,
    prepayments of loans on account of Excess Dividends and net
    increases in revolving loans (during such period);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(vii)&nbsp;the cash cost of any extraordinary or
    unusual losses or charges during such period;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(viii)&nbsp;all cash payments made during such
    period on account of losses or charges expensed during or prior
    to such period (to the extent deducted in the determination of
    Bank EBITDA for such prior period); <I>plus</I>
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(c)&nbsp;to the extent not including in the
    determination of Bank EBITDA, (i)&nbsp;the cash amount realized
    in respect of extraordinary or unusual gains during such period
    and (ii)&nbsp;net decreases in revolving loans (during such
    period).
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that &#147;Bank EBITDA&#148; will be
defined in the amended and restated credit facilities as, for
any period, our Bank Consolidated Net Income (defined below) for
such period
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(a)&nbsp;<I>plus </I>all amounts deducted in
    arriving at such Bank Consolidated Net Income amount in respect
    of, without duplication,
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;interest expense, amortization or
    write-off of debt discount,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;foreign, federal, state and local
    income taxes for such period,
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">132
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(iii)&nbsp;charges for depreciation of fixed
    assets and amortization of intangible assets during such period,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(iv)&nbsp;non-cash charges for the impairment of
    long lived assets during such period,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(v)&nbsp;fees accrued during periods prior to
    this offering payable to certain of our equity investors in an
    amount not to exceed $5.0&nbsp;million in any twelve-month
    period,
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(b)&nbsp;<I>minus </I>(in the case of gains) or
    <I>plus </I>(in the case of losses) gain or loss on any sale of
    assets,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(c)&nbsp;<I>minus </I>(in the case of gains) or
    <I>plus </I>(in the case of losses) non-cash charges relating to
    foreign currency gains or losses,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(d)&nbsp;<I>plus </I>(in the case losses) and
    <I>minus </I>(in the case of income) non-cash minority interest
    income or loss,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(e)&nbsp;<I>plus </I>(in the case of items
    deducted in arriving at Bank Consolidated Net Income) and
    <I>minus </I>(in the case of items added in arriving at Bank
    Consolidated Net Income) non-cash charges resulting from changes
    in accounting principles,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(f)&nbsp;<I>plus </I>extraordinary loss as
    defined by GAAP,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(g)&nbsp;<I>plus </I>the first $15.0&nbsp;million
    of other expenses relating to the integration of CCV incurred
    after its acquisition during 2004 and 2005,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(h)&nbsp;<I>minus </I>the sum of
    (x)&nbsp;interest income, and (y)&nbsp;extraordinary income or
    gains as defined by GAAP;
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<I><FONT size="2">provided </FONT></I><FONT size="2">that for
the fiscal quarter ending June&nbsp;30, 2004, Bank EBITDA will
be increased by the amount of unusual or nonrecurring charges,
fees or expenses (excluding integration expenses) relating to
our acquisition of CCV and related financings (including,
without limitation, for severance payments and retention
bonuses) to the extent such charges, fees or expenses reduced
Bank EBITDA in such fiscal quarter (net of any offsetting items
that increased Bank EBITDA in such fiscal quarter as a result
thereof) and to give pro forma effect to our acquisition of CCV
and related financings as if they had occurred on the first day
of such fiscal quarter in an aggregate amount not to exceed
$12.0&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that &#147;Bank Consolidated Net
Income&#148; will be defined in the amended and restated credit
facilities as, for any period, our net income or loss for such
period determined on a consolidated basis in accordance with
GAAP; <I>provided </I>that there shall be excluded therefrom,
without duplication,
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(i)&nbsp;the income or loss of any person (other
    any of our consolidated subsidiaries) in which any other person
    (other than any of our consolidated subsidiaries) has a joint
    interest, except to the extent of the amount of dividends or
    other distributions actually paid to any of our consolidated
    subsidiaries by such person during such period,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(ii)&nbsp;the cumulative effect of a change in
    accounting principles during such period,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(iii)&nbsp;any net after-tax income (loss) from
    discontinued operations and any net after-tax gains or losses on
    disposal of discontinued operations,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(iv)&nbsp;the income or loss of any person
    accrued prior to the date it becomes a subsidiary of a borrower
    or is merged into or consolidated with any of our subsidiaries
    or that person&#146;s assets are acquired by any of our
    subsidiaries,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(v)&nbsp;the income of any consolidated
    subsidiary of a borrower to the extent that declaration of
    payment of dividends or similar distributions by that subsidiary
    to the borrowers of that income is not at the time permitted by
    operation of the terms of its charter or any agreement,
    instrument, judgment, decree, order, statute, rule or
    governmental regulation applicable to that subsidiary&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(vi)&nbsp;the amount of certain administrative
    and corporate overhead expenses in respect of which the
    borrowers are permitted to make distributions to Illinois
    Holdings.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">133
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that &#147;Excess Dividends&#148; will
be defined in the amended and restated credit facilities as, for
any quarter, the amount by which aggregate dividends paid in
such quarter exceed $11.875&nbsp;million; <I>provided </I>that
the calculation of Excess Dividends will not give effect to
proportionate dividends in respect of Class&nbsp;A common stock
issued under our restricted share plan to the extent reserved
for future issuance at the time of consummation of this offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The ratio of total net debt (defined as total
debt minus the lesser of (x) our consolidated cash in excess of
$5&nbsp;million and (y) $25&nbsp;million) to Bank EBITDA, which
we refer to as the total net leverage ratio, will be tested
quarterly. If the total net leverage ratio is greater
than &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;:1.0, we will be
required to suspend dividends on our common stock unless
otherwise permitted under the first bullet point above (the
period of such suspension, a &#147;dividend suspension
period&#148;). During any dividend suspension period, we will be
required to prepay debt in an amount equal to 50.0% of any
increase in Available Cash during such dividend suspension
period.
</FONT>

<P align="left">
<B><FONT size="2">Senior Notes</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Overview</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On April&nbsp;14, 2004, CCI Holdings and
Consolidated Communications Texas Holdings, Inc. issued
$200,000,000 aggregate principal amount of senior notes in a
private placement exempt from the registration requirements of
the Securities Act. Our senior notes were issued under an
indenture, dated as of April&nbsp;14, 2004, among CCI Holdings,
Consolidated Communications Texas Holdings, Inc., Homebase and
Wells Fargo Bank, National Association, as trustee. Following
the reorganization, CCI Holdings will succeed to the obligations
of Consolidated Communications Texas Holdings, Inc. under the
indenture and Homebase under its non-recourse guarantee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our senior notes:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">mature on April&nbsp;1, 2012;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">are our unsecured obligations:
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="5%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">equal in right of payment to any of our existing
    and future senior unsecured indebtedness,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">senior in right of payment to any of our existing
    and future subordinated indebtedness,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">effectively junior in right of payment to all of
    our existing and future secured indebtedness to the extent of
    the value of the assets securing such indebtedness,&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">effectively subordinated to the existing and
    future liabilities of our subsidiaries;&nbsp;and
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">accrue interest at a rate of 9&nbsp;3/4%&nbsp;per
    annum, payable on a semi-annual basis, on April&nbsp;1 and
    October&nbsp;1 of each year.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Optional Redemption</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may elect to redeem our senior notes on or
after April&nbsp;1, 2008, in whole or in part, in cash, at the
following redemption prices, plus accrued and unpaid interest
to, and including, the date of redemption:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="82%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Redemption</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Period</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104.875</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2009
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102.438</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2010 and thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, at any time prior to April&nbsp;1,
2007, we may, at our option and subject to certain requirements,
redeem up to 35.0% of the aggregate principal amount of our
senior notes with the net proceeds of certain equity offerings
(including with this offering) at a redemption price equal to
109.750% of the principal amount plus accrued and unpaid
interest thereon, if any, to the date of redemption. Upon
</FONT>

<P align="center"><FONT size="2">134
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">the closing of this offering, we intend to
exercise this right and redeem 35% of our outstanding senior
notes. See &#147;Use of Proceeds&#148;.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Further, at any time prior to October&nbsp;6,
2005, we may redeem our senior notes in whole but not in part
with all or a portion of the net proceeds of an offering of a
qualified income depository security at the following redemption
prices:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="82%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Redemption</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Period</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Price</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Day 1 through Day 360
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104.875</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Day 361 through Day 540
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102.438</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Change of Control</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If a change of control, as defined in the
indenture, occurs, we will be required to make an offer to
repurchase our senior notes. The repurchase price will be 101.0%
of the principal amount thereof, plus accrued and unpaid
interest, if any, to, but excluding, the date of repurchase.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Covenants</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The indenture contains restrictive covenants
which restricts our ability, and the ability of our restricted
subsidiaries, to, among other things:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to incur additional indebtedness or issue
    preferred stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">pay dividends or make other distributions to its
    stockholders
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">purchase or redeem capital stock or subordinated
    indebtedness;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">make investments;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">create liens;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">incur restrictions on the ability of our
    restricted subsidiaries to pay dividends or make other payments
    to us;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">sell assets;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">consolidate or merge with or into other companies
    or transfer all of substantially all of our assets;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">engage in transactions with affiliates.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Limitation on Restricted
    Payments</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We summarize below the material provisions of the
restricted payments covenant in the indenture. This summary is
qualified in its entirety by reference to the actual restricted
payments covenant, which has been filed as an exhibit to the
registration statement of which this prospectus forms a part.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We shall not make, and shall not permit any of
our restricted subsidiaries to make, directly or indirectly, any
restricted payment if at the time of, and after giving effect
to, such proposed restricted payment:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a default or event of default shall have occurred
    and be continuing (or would result from such payment);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">we could not incur at least $1.00 of additional
    indebtedness pursuant a 6.0&nbsp;to&nbsp;1.0 leverage ratio (as
    defined in the indenture);
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">135
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the aggregate amount of such restricted payment
    and all other restricted payments declared or made subsequent to
    the issue date and then outstanding would exceed, at the date of
    determination, without duplication, the sum of:
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an amount (whether positive or negative) equal to
    consolidated EBITDA (as defined in the indenture) from the
    beginning of the first fiscal quarter in which our senior notes
    were originally issued to the end of our most recent fiscal
    quarter for which internal financial statements are available at
    the date of such restricted payment, taken as a single
    accounting period, less the product of 1.5&nbsp;times our
    consolidated interest expense (as defined in the indenture) from
    the first date of the fiscal quarter in which the issue date
    occurs to the end of our most recent fiscal quarter ending at
    least 45&nbsp;days prior to the date of such restricted payment,
    taken as a single accounting period,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">proceeds of capital stock sales,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the sum of (A)&nbsp;the aggregate net cash
    proceeds received by us or any of our restricted subsidiaries
    from the issuance or sale after the issue date of convertible or
    exchangeable indebtedness that has been converted into or
    exchanged for our capital stock (other than disqualified stock)
    and (B)&nbsp;the aggregate amount by which our indebtedness or
    any of our restricted subsidiaries is reduced on our
    consolidated balance sheet on or after the issue date upon the
    conversion or exchange of any indebtedness issued or sold on or
    prior to the issue date that is convertible or exchangeable for
    our capital stock (other than disqualified stock) (excluding, in
    the case of clause&nbsp;(A) or&nbsp;(B), (x)&nbsp;any such
    indebtedness issued or sold to us or a subsidiary of ours or an
    employee stock ownership plan or trust established by us or any
    such subsidiary of ours for the benefit of their employees and
    (y)&nbsp;the aggregate amount of any cash or other property
    distributed by us or any of our restricted subsidiaries upon any
    such conversion or exchange),&nbsp;and
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an amount equal to the sum of (A)&nbsp;the net
    reduction in, or any return on, investments (other than
    permitted investments) resulting from dividends, repayments of
    loans or advances or other transfers of property, in each case
    to us or any restricted subsidiary in respect of such
    investment, or from the reclassification of any unrestricted
    subsidiary as a restricted subsidiary, or from the disposition
    of capital stock of an unrestricted subsidiary for cash or
    property received by us or any restricted subsidiary, and
    (B)&nbsp;the portion (proportionate to our equity interest in an
    unrestricted subsidiary) of the fair market value of the net
    assets of an unrestricted subsidiary at the time such
    unrestricted subsidiary is designated a restricted subsidiary;
    provided, however, that the foregoing sum shall not exceed, in
    the case of any person, the amount of investments previously
    made (and treated as a restricted payment) by any Issuer or any
    restricted subsidiary in such person.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Regardless of whether we could make any
restricted payment under the build-up amount referred to above,
we may, following the first public equity offering that results
in a public market, pay dividends on our capital stock of up to
6.0%&nbsp;per year of the cash proceeds (net of
underwriters&#146; fees, discounts or commissions paid by us) of
such first public equity offering; provided, however, that
(1)&nbsp;such dividends shall be (x)&nbsp;paid pro rata to the
holders of all classes of the applicable class of capital stock
and (y)&nbsp;included in the calculation of the amount of
restricted payments and (2)&nbsp;at the time of payment of any
such dividend, no default or event of default shall have
occurred and be continuing or would result therefrom.
</FONT>

<P align="left">
<B><FONT size="2">Events of Default</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The indenture also provides for events of default
which, if any of them occurs, would permit or require the
principal of and accrued interest on such senior notes to become
or be declared due and payable.
</FONT>

<P align="center"><FONT size="2">136
</FONT>

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<P align="left">
<B><FONT size="2">Registration Rights</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to a registration rights agreement
entered into as part of our senior notes issuance, we will:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">use our reasonable best efforts to cause the
    registration of our senior notes within 195&nbsp;days after the
    issuance date of our senior notes;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">use our reasonable best efforts to cause the
    registration statement to become effective within 270&nbsp;days
    of the issue date of the notes;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">consummate the exchange offer within
    300&nbsp;days after the issuance date of our senior
    notes;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">use our reasonable best efforts to file a shelf
    registration statement for the resale of our senior notes if we
    do not consummate an exchange offer within the time period
    listed above and in certain other circumstances.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will pay additional interest on our senior
notes if we do not meet these timing requirements for the filing
the registration statement, consummating the exchange offer or
causing the shelf registration statement to become effective.
</FONT>

<P align="left">
<B><FONT size="2">GECC Capital Leases</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Texas leases certain furniture, fixtures,
equipment and leasehold improvements at CCI Texas&#146; current
corporate headquarters in Irving pursuant to two Master Lease
Agreements between CCI&nbsp;Texas and GECC. During 2003,
CCI&nbsp;Texas paid a total of $1.1&nbsp;million to GECC
pursuant to these capital leases. As of September&nbsp;30, 2004,
the outstanding principal amount of these capital leases was
$1.3&nbsp;million. The leases had an initial term of
30&nbsp;months and each ended on October&nbsp;1, 2004. At the
termination of the initial term of the first lease for leasehold
improvements, CCI&nbsp;Texas elected to purchase the scheduled
leasehold improvements for $1.1&nbsp;million. At the termination
of the initial term of the second lease for furniture, fixtures
and equipment, CCI Texas elected to extend the term of the
agreement until April&nbsp;1, 2007, at which time CCI Texas will
have an option to purchase the equipment for its then fair
market value. These leases require Texas Holdings to maintain a
specified debt rating. As of the date of this prospectus, Texas
Holdings is not in compliance with this covenant, although we
are not aware of the delivery of any notice of default. Upon a
default under these leases, GECC may take possession of the
scheduled equipment and require Texas Holdings to pay certain
stipulated loss amounts.
</FONT>

<P align="center"><FONT size="2">137
</FONT>

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<DIV align="left">
<A name='121'></A>
</DIV>

<!-- link1 "DESCRIPTION OF CAPITAL STOCK" -->

<P align="center">
<B><FONT size="2">DESCRIPTION OF CAPITAL STOCK</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">We summarize below the material terms and
provisions of our amended and restated certificate of
incorporation and amended and restated bylaws. The following
summary of our capital stock is intended as a summary only and
is qualified in its entirety by reference to our amended and
restated certificate of incorporation and our amended and
restated bylaws, the forms of which are filed as exhibits to the
registration statement of which this prospectus forms a part and
by reference to the DGCL.</FONT></I>

<P align="left">
<B><FONT size="2">General Matters</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CCI Holdings, the issuer in this offering, is
presently a wholly owned subsidiary of Homebase. Prior to the
consummation of this offering, and subject to obtaining the
prior approval of the ICC, we plan to effect a reorganization
pursuant to which (1)&nbsp;our sister subsidiary Consolidated
Communications Texas Holdings, Inc. will merge with and into CCI
Holdings and (2)&nbsp;Homebase will merge with and into CCI
Holdings, in each case, with CCI Holdings being the entity
surviving the merger. See &#147;Summary&nbsp;&#151; Our Current
Organizational Structure&#148; and
&#147;&#151;&nbsp;Post-Offering Organizational Structure&#148;.
Upon completion of the reorganization and in connection with
this offering and the related transactions, we will amend and
restate our certificate of incorporation to, among other things,
change our name to Consolidated Communications Holdings, Inc.
Throughout this prospectus, unless the context otherwise
requires, we have assumed that the foregoing reorganization has
been consummated.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our amended and restated certificate of
incorporation will provide that, upon closing of this offering,
we will have two classes of common stock: Class&nbsp;A common
stock, which will have one vote per share; and Class&nbsp;B
common stock, which will have ten votes per share. Any holder of
Class&nbsp;B common stock may convert his or her shares at any
time into shares of Class&nbsp;A common stock on a
share-for-share basis. In addition, all shares of Class&nbsp;B
common stock will automatically convert to Class&nbsp;A common
stock under certain circumstances. The rights of these classes
of common stock are discussed in greater detail below.
</FONT>

<P align="left">
<B><FONT size="2">Authorized Capitalization</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon the closing of this offering, our authorized
common stock and preferred stock will consist of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock, par value $0.01&nbsp;per share;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;B common stock, par value $0.01&nbsp;per
    share;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of preferred stock, par value $0.01&nbsp;per share.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Immediately following the closing of this
offering, we will have outstanding:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;A common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of Class&nbsp;B common stock;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">no shares of preferred stock.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All of our outstanding shares of Class&nbsp;B
common stock will be owned by Central Illinois Telephone upon
the closing of the offering.
</FONT>

<P align="left">
<B><FONT size="2">Common Stock</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Voting Rights</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Holders of our Class&nbsp;A common stock are
entitled to one vote per share and holders of our Class&nbsp;B
common stock are entitled to ten votes per share. Holders of
shares of Class&nbsp;A common stock and Class&nbsp;B common
stock will vote together as a single class on all matters
submitted to a vote of stockholders, unless
</FONT>

<P align="center"><FONT size="2">138
</FONT>

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<DIV align="left">
<FONT size="2">otherwise required by law. Delaware law could,
however, require either our Class&nbsp;A common stock or
Class&nbsp;B common stock to vote separately as a single class
in certain other circumstances, including:
</FONT>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">if we amended our amended and restated
    certificate of incorporation to increase the authorized shares
    of a class of stock, or to increase or decrease the par value of
    a class of common stock, then that class would be required to
    vote separately to approve the proposed amendment; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">if we amended our amended and restated
    certificate of incorporation in a manner that altered or changed
    the powers, preferences or special rights of a class of common
    stock in a manner that affects them adversely then that class
    would be required to vote separately to approve the proposed
    amendment.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Dividends</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subject to preferences that may apply to any
shares of preferred stock outstanding at the time, the holders
of Class&nbsp;A common stock and Class&nbsp;B common stock shall
be entitled to share equally in any dividends that our board of
directors may determine to issue from time to time. In the event
a dividend is paid in the form of shares of common stock or
rights to acquire shares of common stock, the holders of
Class&nbsp;A common stock shall receive Class&nbsp;A common
stock, or rights to acquire Class&nbsp;A common stock, as the
case may be, and the holders of Class&nbsp;B common stock shall
receive Class&nbsp;B common stock, or rights to acquire
Class&nbsp;B common stock, as the case may be.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors has adopted a dividend
policy, effective upon the closing of this offering, which
reflects an intention to distribute as regular quarterly
dividends to our stockholders a substantial portion of the cash
generated by our business in excess of various expected cash
needs and other possible uses. These expected cash needs include
interest and principal payments on our indebtedness, capital
expenditures, integration and restructuring costs of the TXUCV
acquisition, incremental costs associated with being a public
company, taxes and certain other costs. In accordance with our
dividend policy, we currently intend to pay an initial dividend
of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share on or
about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005 and to continue to pay quarterly dividends at an annual
rate of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share for the first full year following the closing of this
offering, subject to our board of director&#146;s decision to
declare these dividends and various restrictions on our ability
to do so. We are not required to pay dividends, and our
stockholders will not be guaranteed, or have contractual or
other rights, to receive dividends. Our board of directors may
decide, in its discretion, at any time, to decrease the amount
of dividends, otherwise modify or repeal the dividend policy or
discontinue entirely the payment of dividends. See &#147;Risk
Factors&nbsp;&#151; Risks Relating to Our Class&nbsp;A Common
Stock&nbsp;&#151;&nbsp;You may not receive any dividends, and
there are several risks relating to our paying, and the
restrictions on our ability to pay, dividends&#148; and
&#147;&#151;&nbsp;Our dividend policy may limit our ability to
pursue growth opportunities.&#148; and &#147;Dividend Policy and
Restrictions.&#148;
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Rights Upon
Liquidation</I></FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the event of our voluntary or involuntary
liquidation, dissolution or winding up, holders of shares of our
common stock will be entitled to share equally in our assets
available for distribution to holders of shares of our common
stock on an equal, pro rata basis, subject to the prior rights
of our creditors and holders of any outstanding preferred stock.
</FONT>

<P align="left">
<B><I><FONT size="2">Preemptive and Other Subscription
Rights</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The holders of our common stock do not have
preemptive, subscription or redemption rights and are not
subject to further calls or assessments. All outstanding shares
of our common stock, including the common stock offered in this
offering, will be fully paid and non-assessable.
</FONT>

<P align="left">
<B><FONT size="2">Conversion</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Class&nbsp;A common stock is not convertible
into any other shares of our capital stock. Each share of
Class&nbsp;B common stock is convertible at any time at the
option of the holder into one share of Class&nbsp;A
</FONT>

<P align="center"><FONT size="2">139
</FONT>

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<DIV align="left">
<FONT size="2">common stock. In addition, each share of
Class&nbsp;B common stock shall convert automatically into one
share of Class&nbsp;A common stock upon any transfer, whether or
not for value, except for transfers to &#147;permitted
transferees&#148; as described in our amended and restated
certificate of incorporation.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&#147;Permitted transferee&#148; means:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Richard A. Lumpkin or one of this immediate
    family members;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">any trust (including a voting trust),
    corporation, partnership or other entity, more than 50% of the
    voting equity interests of which are owned directly or
    indirectly by (or, in the case of a trust not having voting
    equity interests, which is more than 50% for the benefit of) and
    which is controlled by, Richard A. Lumpkin or one of his
    immediate family members; or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the estate of Richard A. Lumpkin or one of his
    immediate family members until such time as the property of such
    estate is distributed in accordance with his will or applicable
    law.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">For purposes of the definition of &#147;permitted
transferee&#148;:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">&#147;immediate family member&#148; means
    (i)&nbsp;the spouse or any parent of Richard A. Lumpkin,
    (ii)&nbsp;any lineal descendant of a parent of Richard A.
    Lumpkin, and (iii)&nbsp;the spouse of any such lineal descendant
    (parentage and descent in each case to include adoptive and step
    relationships);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">&#147;control&#148; of a trust, corporation or
    other entity means the possession, directly or indirectly, of
    the power to direct or cause the direction of the management or
    policies of the trust, corporation or other entity, whether
    through the ownership of voting securities, by agreement or
    otherwise; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the failure of any trust, corporation,
    partnership of other entity to continue to satisfy the
    requirements of the definition set forth in clause&nbsp;(2)
    above shall in and of itself constitute a transfer of shares of
    Class&nbsp;B common stock.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A pledge of shares of Class&nbsp;B common stock
to a pledge pursuant to a bona fide pledge of such shares as
collateral security for indebtedness due to the pledgee shall
not constitute a transfer of such shares of Class&nbsp;B common
stock; provided that any event of foreclosure or other similar
action by the pledgee shall constitute a transfer unless in
connection with such foreclosure such pledged shares of
Class&nbsp;B common stock are transferred to a permitted
transferee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Once transferred and converted into Class&nbsp;A
common stock, the Class&nbsp;B common stock shall not be
reissued. No class of common stock may be subdivided or combined
unless the other class of common stock concurrently is
subdivided or combined in the same proportion and in the same
manner.
</FONT>

<P align="left">
<B><FONT size="2">Preferred Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our amended and restated certificate of
incorporation provides that we may issue up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of preferred stock in one or more classes or series as may be
determined by our board of directors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our board of directors has broad discretionary
authority with respect to the rights of issued classes or series
of our preferred stock and may take several actions without any
vote or action of the holders of our common stock, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">determining the number of shares to be included
    in each class or series;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">fixing the designation, preferences, limitations
    and relative rights of the shares of each class or series,
    including provisions related to dividends, conversion, voting,
    redemption and liquidation, which may be superior to those of
    our common stock.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The board of directors may authorize, without
approval of holders of our common stock, the issuance of
preferred stock with voting and conversion rights that could
adversely affect the voting power and other rights of holders of
our common stock. For example, our preferred stock may rank
prior to our common stock as to dividend rights, liquidation
preferences or both, may have full or limited voting rights and
may
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">be convertible into shares of our common stock.
The number of authorized shares of our preferred stock may be
increased or decreased (but not below the number of shares then
outstanding) by the affirmative vote of the holders of at least
a majority of our common stock, without a vote of the holders of
any other class or series of our preferred stock unless required
by the terms of such class or series of preferred stock or by
the DGCL.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our preferred stock could be issued quickly with
terms designed to delay or prevent a change in the control of
our company or to make the removal of our management more
difficult. This could have the effect of discouraging third
party bids for our common stock or may otherwise adversely
affect the market price of our Class&nbsp;A common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that the ability of our board of
directors to issue one or more series of our preferred stock
will provide us with flexibility in structuring possible future
financings and acquisitions and in meeting other corporate needs
that might arise. The authorized shares of our preferred stock
and common stock will be available for issuance without action
by holders of our common stock, unless such action is required
by applicable law or the rules of any stock exchange or
automated quotation system on which our securities may be listed
or traded.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Although our board of directors has no intention
at the present time of doing so, it could issue a series of our
preferred stock that could, depending on the terms of such
series, be used to implement a stockholder rights plan or
otherwise impede the completion of a merger, tender offer or
other takeover attempt of our company. Our board of directors
could issue preferred stock having terms that could discourage
an acquisition attempt through which an acquirer may be able to
change the composition of the board of directors, including by a
tender offer or other transaction that some, or a majority, of
our stockholders might believe to be in their best interests or
in which stockholders might receive a premium for their stock
over the then current market price.
</FONT>

<P align="left">
<B><FONT size="2">Registration Rights</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with this offering and the related
transactions, we will enter into a registration rights agreement
that will provide each of our existing equity investors with,
among other things:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">up to two demand registration rights;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">unlimited shelf registration rights;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">unlimited &#147;piggyback&#148; registration
    rights.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Anti-takeover Effects of our Amended and
Restated Certificate of Incorporation, Amended and Restated
Bylaws and Applicable Laws</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our amended and restated certificate of
incorporation and amended and restated bylaws will contain
certain provisions that are intended to enhance the likelihood
of continuity and stability in the composition of the board of
directors and which may have the effect of delaying, deferring
or preventing a future takeover or change in control of the
company unless such takeover or change in control is approved by
the board of directors. A stockholder might consider an attempt
to takeover or effect a change in control to be in its best
interest, including those attempts that might result in a
premium over the market price for the shares held by
stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These provisions include:
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Dual Class Structure</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As discussed above, our Class B common stock has
ten votes per share, while our Class A common stock, which is
the class of stock we are selling in this offering and which
will be the only class of stock which is publicly traded, has
one vote per share. After giving effect to this offering and the
related transactions, all of our Class B common stock will be
owned by Central Illinois Telephone, an entity affiliated with
our chairman Richard Lumpkin, and will
represent &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of the voting power of our
</FONT>

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</FONT>

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<DIV align="left">
<FONT size="2">outstanding capital stock. Because of our dual
class structure, Central Illinois Telephone will continue to be
able to control all matters submitted to our stockholders for
approval notwithstanding the fact that it owns significantly
less than 50% of the shares of our outstanding common stock.
This concentrated control could discourage others from
initiating any potential merger, takeover or other possible
change of control transaction that other stockholders may view
as beneficial.
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">No Cumulative Voting</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The DGCL provides that stockholders are not
entitled to the right or cumulate votes in the election of
directors unless our certificate of incorporation provides
otherwise. Our amended and restated certificate of incorporation
does not expressly provide for cumulative voting.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Special Meetings of
    Stockholders</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our amended and restated bylaws will provide
that, except as otherwise required by law, special meetings of
the stockholders can only be called by the chairman of the board
or our president, or pursuant to a resolution adopted by a
majority of the board of directors or by one or more
stockholders holding shares of common stock representing at
least 50% of the combined voting power of the outstanding common
stock. Except as provided above, stockholders will not be
permitted to call a special meeting or to require the board of
directors to call a special meeting.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Undesignated Preferred Stock</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The ability to authorize undesignated or
&#147;blank check&#148; preferred stock makes it possible for
our board of directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any
attempt to acquire us. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in
control or management of our company.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Anti-takeover Effects of Delaware
    Law</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;203 of the DGCL provides that,
subject to exceptions specified therein, an &#147;interested
stockholder&#148; of a Delaware corporation shall not engage in
any &#147;business combination,&#148; including general mergers
or consolidations or acquisitions of additional shares of the
corporation, with the corporation for a three-year period
following the time that such stockholder becomes an interested
stockholder unless:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">prior to such time, the board of directors of the
    corporation approved either the business combination or the
    transaction which resulted in the stockholder becoming an
    interested stockholder;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">upon consummation of the transaction which
    resulted in the stockholder becoming an &#147;interested
    stockholder,&#148; the interested stockholder owned at least 85%
    of the voting stock of the corporation outstanding at the time
    the transaction commenced (excluding specified shares);&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">on or subsequent to such time, the business
    combination is approved by the board of directors of the
    corporation and authorized at an annual or special meeting of
    stockholders, and not by written consent, by the affirmative
    vote of at least 66&nbsp;2/3% percent of the outstanding voting
    stock not owned by the interested stockholder.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under Section&nbsp;203, the restrictions
described above also do not apply to specified business
combinations proposed by an interested stockholder following the
announcement or notification of one of specified transactions
involving the corporation and a person who had not been an
interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority
of the corporation&#146;s directors, if such transaction is
approved or not opposed by a majority of the directors who were
directors prior to any person becoming an interested stockholder
during the previous three years or were recommended for election
or elected to succeed such directors by a majority of such
directors.
</FONT>

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</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except as otherwise specified in
Section&nbsp;203, an &#147;interested stockholder&#148; is
defined to include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">any person that is the owner of 15% or more of
    the outstanding voting stock of the corporation, or is an
    affiliate or associate of the corporation and was the owner of
    15% or more of the outstanding voting stock of the corporation
    at any time within three years immediately prior to the date of
    determination;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the affiliates and associates of any such person.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under some circumstances, Section&nbsp;203 makes
it more difficult for a person who would be an interested
stockholder to effect various business combinations with a
Delaware corporation for a three-year period. We have not
elected to be exempt from the restrictions imposed under
Section&nbsp;203.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our amended and restated certificate of
incorporation provides that, to the fullest extent permitted by
the DGCL and except as otherwise provided in our amended and
restated bylaws, none of our directors shall be liable to us or
our stockholders for monetary damages for a breach of fiduciary
duty. In addition, our amended and restated certificate of
incorporation provides for indemnification of any person who was
or is made, or threatened to be made, a party to any action,
suit or other proceeding, whether criminal, civil,
administrative or investigative, because of his or her status as
a director or officer of CCI Holdings, or service as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise at our request to the
fullest extent authorized under the DGCL against all expenses,
liabilities and losses reasonably incurred by such person.
Further, our amended and restated certificate of incorporation
provides that we may purchase and maintain insurance on our own
behalf and on behalf of any other person who is or was a
director, officer or agent of CCI Holdings or was serving at our
request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise.
</FONT>

<P align="left">
<B><FONT size="2">Transfer Agent and Registrar</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;will
be appointed as the transfer agent and registrar for our common
stock upon completion of this offering.
</FONT>

<P align="left">
<B><FONT size="2">Listing</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will apply to have our Class A common stock
listed on the New York Stock Exchange under the
symbol&nbsp;&#147;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#148;.
Our Class B common stock will not be listed on any stock market
or exchange.
</FONT>

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</FONT>

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<DIV align="left">
<A name='122'></A>
</DIV>

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<P align="center">
<B><FONT size="2">SHARES ELIGIBLE FOR FUTURE SALE</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to this offering, there has not been any
public market for our Class&nbsp;A common stock, and we cannot
predict what effect, if any, market sales of shares or the
availability of shares for sale will have on the market price of
our Class&nbsp;A common stock. Nevertheless, sales of
substantial amounts of Class&nbsp;A common stock in the public
market, or the perception that such sales could occur, could
materially and adversely affect the market price of our
Class&nbsp;A common stock and could impair our future ability to
raise capital through the sale of our equity or equity-related
securities at a time and price that we deem appropriate.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon completion of this
offering, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock will be outstanding. Of these shares, the
shares of Class&nbsp;A common stock expected to be sold in this
offering will be freely tradable without restriction or further
registration under the Securities Act, unless held by our
&#147;affiliates&#148;, as that term is defined in Rule&nbsp;144
under the Securities Act. The remaining outstanding shares of
common stock will be deemed &#147;restricted securities&#148; as
that term is defined under Rule&nbsp;144. Restricted securities
may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rule&nbsp;144
or 144(k) under the Securities Act, which are summarized below.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If permitted under our current and future
agreements governing our debt, such as the amended and restated
credit facilities and indenture, we may issue shares of Class A
common stock from time to time as consideration for future
acquisitions, investments or other purposes. In the event any
such acquisition, investment or other transaction is
significant, the number of shares of Class A common stock that
we may issue may in turn be significant. In addition, we may
also grant registration rights covering those shares of Class A
common stock issued in connection with any such acquisitions,
investments or other transactions.
</FONT>

<P align="left">
<B><FONT size="2">Lock-Up Arrangements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with this offering and the related
transactions, we, our executive officers, directors, and our
existing equity investors have, subject to certain exceptions,
agreed with the underwriters not to dispose of or hedge any of
our shares of common stock during the 180-day period following
the date of this prospectus. See &#147;Underwriting&#148; for a
further discussion of the lock-up agreements.
</FONT>

<P align="left">
<B><FONT size="2">Stockholders and Registration Rights
Agreement</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our existing equity investors will have
registration rights for their shares of common stock for resale
in some circumstances. See &#147;Related Party
Transactions&nbsp;&#151; Registration Rights Agreement.&#148;
</FONT>

<P align="left">
<B><FONT size="2">Rule&nbsp;144</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, under Rule&nbsp;144, as currently in
effect, beginning 90&nbsp;days after the date of this
prospectus, any person, including an affiliate, who has
beneficially owned shares of our common stock for a period of at
least one year is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">1.0% of the then-outstanding shares of common
    stock;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the average weekly trading volume in the common
    stock on the New York Stock Exchange during the four calendar
    weeks preceding the date on which the notice of the sale is
    filed with the SEC.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Sales under Rule&nbsp;144 are also subject to
provisions relating to notice, manner of sale, volume
limitations and the availability of current public information
about us.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following the lock-up period, we estimate that
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock that are restricted securities or are held
by our affiliates as of the date of this prospectus will be
eligible for sale in the public market in compliance with
Rule&nbsp;144 under the Securities Act.
</FONT>

<P align="center"><FONT size="2">144
</FONT>

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<P align="left">
<B><FONT size="2">Rule&nbsp;144(k)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under Rule&nbsp;144(k), a person who is not
deemed to have been one of our affiliates at any time during the
90&nbsp;days preceding a sale, and who has beneficially owned
the shares for at least two years, including the holding period
of any prior owner other than an &#147;affiliate,&#148; is
entitled to sell the shares without complying with the manner of
sale, public information, volume limitation or notice provisions
of Rule&nbsp;144.
</FONT>

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</FONT>

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<DIV align="left">
<A name='123'></A>
</DIV>

<!-- link1 "MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS" -->

<P align="center">
<B><FONT size="2">MATERIAL U.S.&nbsp;FEDERAL INCOME TAX
CONSIDERATIONS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a summary of the material
U.S.&nbsp;federal income tax considerations with respect to the
ownership and disposition of our common stock by
U.S.&nbsp;holders (as defined below) and non-U.S.&nbsp;holders
(as defined below) as of the date hereof. This summary deals
only with holders that hold our common stock as a capital asset.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For purposes of this summary, a
&#147;U.S.&nbsp;holder&#148; means a beneficial owner of our
common stock that is any of the following for U.S.&nbsp;federal
income tax purposes: (i)&nbsp;a citizen or resident of the
United States, (ii)&nbsp;a corporation created or organized in
or under the laws of the United States, any state thereof, or
the District of Columbia, (iii)&nbsp;an estate the income of
which is subject to U.S.&nbsp;federal income taxation regardless
of its source, or (iv)&nbsp;a trust if (1)&nbsp;its
administration is subject to the primary supervision of a court
within the United States and one or more U.S.&nbsp;persons have
the authority to control all of its substantial decisions, or
(2)&nbsp;it has a valid election in effect under applicable
U.S.&nbsp;Treasury regulations to be treated as a
U.S.&nbsp;person. A &#147;non-U.S.&nbsp;holder&#148; is a
beneficial owner, other than an entity classified as a
partnership for U.S.&nbsp;federal income tax purposes, that is
not a U.S.&nbsp;holder.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This summary is based upon provisions of the
Internal Revenue Code of 1986, as amended, and regulations,
rulings and judicial decisions as of the date hereof. Those
authorities may be changed, perhaps retroactively, or be subject
to differing interpretations, so as to result in
U.S.&nbsp;federal tax considerations different from those
summarized below. This summary does not represent a detailed
description of the U.S.&nbsp;federal tax considerations to you
in light of your particular circumstances. In addition, it does
not represent a description of the U.S.&nbsp;federal tax
considerations to you if you are subject to special treatment
under U.S.&nbsp;federal tax laws (including if you are a dealer
in securities or currency trader in securities that uses a
mark-to-market method of accounting for securities holdings,
financial institution, tax-exempt entity, insurance company,
person holding common stock as part of a hedging, integrated,
conversion or constructive sale transaction or a straddle,
person owning 10&nbsp;percent or more of our voting stock,
person subject to alternative minimum tax, U.S.&nbsp;holder
whose functional currency is not the U.S.&nbsp;dollar,
U.S.&nbsp;expatriate, &#147;controlled foreign corporation&#148;
or &#147;passive foreign investment company&#148;), and it
generally does not address any U.S.&nbsp;taxes other than the
federal income tax. We cannot assure you that a change in law
will not alter significantly the tax considerations that we
describe in this summary.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If an entity classified as a partnership for
U.S.&nbsp;federal income tax purposes holds our common stock,
the tax treatment of a partner will generally depend on the
status of the partner and the activities of the partnership. If
you are a partnership holding our common stock, or a partner in
such a partnership, you should consult your tax advisors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">If you are considering the purchase of our
common stock, you should consult your own tax advisors
concerning the particular U.S.&nbsp;federal tax consequences to
you of the ownership and disposition of the common stock, as
well as the consequences to you arising under the laws of any
other taxing jurisdiction, including any state, local or foreign
tax consequences.</FONT></B>

<P align="left">
<B><FONT size="2">U.S.&nbsp;Holders</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Dividends</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The gross amount of dividends paid to
U.S.&nbsp;holders of common stock will be treated as dividend
income to such holders, to the extent paid out of current or
accumulated earnings and profits, as determined under
U.S.&nbsp;federal income tax principles. Such income will be
includable in the gross income of a U.S.&nbsp;holder on the day
received by the U.S.&nbsp;holder. Under current legislation,
which is scheduled to &#147;sunset&#148; at the end of 2008,
dividend income will generally be taxed to individual
U.S.&nbsp;holders at rates applicable to long-term capital
gains, provided that a minimum holding period and other
limitations and requirements are satisfied. Dividends received
after 2008 will be taxable at ordinary rates. Corporate
U.S.&nbsp;holders may be entitled to a dividends received
deduction with respect to distributions treated as dividend
income for U.S.&nbsp;federal income tax purposes, subject to
numerous limitations and requirements.
</FONT>

<P align="center"><FONT size="2">146
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To the extent that the amount of any distribution
exceeds our current and accumulated earnings and profits, the
distribution will first be treated as a tax-free return of
capital, causing a reduction in the adjusted basis of the shares
of common stock (thereby increasing the amount of gain, or
decreasing the amount of loss, to be recognized by the holder on
a subsequent disposition of our common stock), and the balance
in excess of adjusted basis will be taxed as capital gain
(short-term or long-term, as applicable) recognized on a sale or
exchange.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Gain on Disposition of Common
    Stock</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A U.S.&nbsp;holder will recognize taxable gain or
loss on any sale or exchange of shares of our common stock in an
amount equal to the difference between the amount realized and
the U.S.&nbsp;holder&#146;s basis in such shares of common
stock. Such gain or loss will be capital gain or loss. Capital
gains of individuals derived with respect to capital assets held
for more than one year are eligible for reduced rates of
taxation. The deductibility of capital losses is subject to
limitation.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Information Reporting and Backup
    Withholding</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In general, information reporting requirements
will apply to dividends paid on our common stock and to the
proceeds received on the sale, exchange or other disposition of
common stock by a U.S.&nbsp;holder other than certain exempt
recipients (such as corporations). A backup withholding tax will
apply to such payments if the U.S.&nbsp;holder fails to provide
an accurate taxpayer identification number and to comply with
certain certification procedures or otherwise establish an
exemption from backup withholding. The amount of any backup
withholding from a payment to a U.S.&nbsp;holder will be allowed
as a refund or credit against the U.S.&nbsp;holder&#146;s
U.S.&nbsp;federal income tax liability provided that the
required information is furnished to the Internal Revenue
Service, or IRS.
</FONT>

<P align="left">
<B><FONT size="2">Non-U.S.&nbsp;Holders</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Dividends</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Dividends paid to a non-U.S.&nbsp;holder of our
common stock, to the extent paid out of current or accumulated
earnings and profits, as determined under U.S.&nbsp;federal
income tax principles, generally will be subject to withholding
of U.S.&nbsp;federal income tax at a 30.0% rate or such lower
rate as may be specified by an applicable income tax treaty.
However, dividends that are effectively connected with the
conduct of a trade or business by a non-U.S.&nbsp;holder within
the United States and, where an income tax treaty applies, are
attributable to a U.S.&nbsp;permanent establishment of the
non-U.S.&nbsp;holder, are not subject to this withholding tax,
but instead are subject to U.S.&nbsp;federal income tax on a net
income basis at applicable individual or corporate rates.
Certain certification and disclosure requirements must be
complied with in order for effectively connected dividends to be
exempt from this withholding tax. Any such effectively connected
dividends received by a foreign corporation may be subject to an
additional &#147;branch profits tax&#148; at a 30.0% rate or
such lower rate as may be specified by an applicable income tax
treaty.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A non-U.S.&nbsp;holder of our common stock who is
entitled to and wishes to claim the benefits of an applicable
treaty rate (and avoid backup withholding as discussed below)
for dividends, will be required to (i)&nbsp;complete IRS
Form&nbsp;W-8BEN (or successor form) and make certain
certifications, under penalty of perjury, to establish its
status as a non-U.S.&nbsp;person and its entitlement to treaty
benefits or (ii)&nbsp;if the common stock is held through
certain foreign intermediaries, satisfy the relevant
certification requirements of applicable U.S.&nbsp;Treasury
regulations. Special certification and other requirements apply
to certain non-U.S.&nbsp;holders that are entities rather than
individuals.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A non-U.S.&nbsp;holder of our common stock
eligible for a reduced rate of U.S.&nbsp;federal withholding tax
pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by timely filing an appropriate claim
for refund with the IRS.
</FONT>

<P align="center"><FONT size="2">147
</FONT>

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<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Gain on Disposition of Common
    Stock</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A non-U.S.&nbsp;holder generally will not be
subject to U.S.&nbsp;federal income tax with respect to gain
recognized on a sale or other disposition of our common stock
unless: (i)&nbsp;the gain is effectively connected with a trade
or business of the non-U.S.&nbsp;holder in the U.S. and, where a
tax treaty applies, is attributable to a U.S.&nbsp;permanent
establishment of the non-U.S.&nbsp;holder (in which case, for a
non-U.S.&nbsp;holder that is a foreign corporation, the branch
profits tax described above may also apply); (ii)&nbsp;in the
case of a non-U.S.&nbsp;holder who is an individual, such holder
is present in the U.S.&nbsp;for 183 or more days in the taxable
year of the sale or other disposition and certain other
conditions are met; or (iii)&nbsp;we are or have been a
&#147;U.S.&nbsp;real property holding corporation&#148; for
U.S.&nbsp;federal income tax purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe we currently are not, and do not
anticipate becoming, a &#147;U.S.&nbsp;real property holding
corporation&#148; for U.S.&nbsp;federal income tax purposes. If
we are or if we become a U.S.&nbsp;real property holding
corporation, if the common stock is regularly traded on an
established securities market, a non-U.S.&nbsp;holder who holds
or held (at any time during the shorter of the five year period
preceding the date of disposition or the holder&#146;s holding
period) more than five percent of the common stock will be
subject to U.S.&nbsp;federal income tax on a disposition of the
common stock but other non-U.S.&nbsp;holders will not. If the
common stock is not so traded, all non-U.S.&nbsp;holders will be
subject to U.S.&nbsp;federal income tax on disposition of the
common stock.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Federal Estate Tax</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Common stock held by an individual
non-U.S.&nbsp;holder at the time of death will be included in
such holder&#146;s gross estate for U.S.&nbsp;federal estate tax
purposes, unless an applicable estate tax treaty provides
otherwise.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Information Reporting and Backup
    Withholding</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We must report annually to the IRS and to each
non-U.S.&nbsp;holder the amount of dividends paid to such holder
and the tax withheld (if any) with respect to such dividends,
regardless of whether withholding was required. Copies of the
information returns reporting such dividends and any withholding
may also be made available to the tax authorities in the country
in which the non-U.S.&nbsp;holder resides under the provisions
of an applicable income tax treaty. In addition, dividends paid
to a non-U.S.&nbsp;holder generally will be subject to backup
withholding unless applicable certification requirements are met.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Payment of the proceeds of a sale of our common
stock within the United States or conducted through certain
U.S.&nbsp;related financial intermediaries is subject to
information reporting and, depending upon the circumstances,
backup withholding unless the beneficial owner certifies under
penalties of perjury that it is not a United States person (and
the payor does not have actual knowledge or reason to know that
the beneficial owner is a United States person) or the holder
otherwise establishes an exemption.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any amounts withheld under the backup withholding
rules may be allowed as a refund or a credit against such
holder&#146;s U.S.&nbsp;federal income tax liability provided
the required information is timely furnished to the IRS.
</FONT>

<P align="center"><FONT size="2">148
</FONT>

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<DIV align="left">
<A name='124'></A>
</DIV>

<!-- link1 "UNDERWRITING" -->

<P align="center">
<B><FONT size="2">UNDERWRITING</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the terms and subject to the conditions
contained in an underwriting agreement dated 2005, we and the
selling stockholders have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston LLC is acting
as representative, the following respective numbers of shares of
Class A common stock:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="79%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Underwriter</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Credit Suisse First Boston LLC
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriting agreement provides that the
underwriters are obligated to purchase all the shares of Class A
common stock in this offering if any are purchased, other than
those shares covered by the over-allotment option described
below. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting
underwriters may be increased or the offering may be terminated.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The selling stockholders have granted to the
underwriters a 30-day option to purchase on a pro rata basis up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares at the initial public offering price less the
underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of Class A common
stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriters propose to offer the shares of
Class A common stock initially at the public offering price on
the cover page of this prospectus and to selling group members
at that price less a selling concession of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. The underwriters and selling group members may allow a
discount of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share on sales to other brokers or dealers. After the initial
public offering, the underwriters may change the public offering
price and concession and discount to brokers and dealers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes the compensation
and estimated expenses we and the selling stockholders will pay:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="36%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Per Share</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Without Over-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">With Over-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Without Over-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">With Over-</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">allotment</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">allotment</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">allotment</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">allotment</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Underwriting discounts and commissions paid by us
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expenses payable by us
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Underwriting discounts and commissions paid by
    the selling stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expenses payable by the selling stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriters have informed us that they do
not expect sales to accounts over which the underwriters have
discretionary authority to exceed 5.0% of the shares of Class A
common stock being offered.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have agreed, subject to certain exceptions,
that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement
under the Securities Act relating to, any shares of our Class A
common stock or securities convertible into or exchangeable or
exercisable for any shares of our Class A common stock, or
publicly disclose the intention to make any offer, sale, pledge,
disposition or filing, without the prior written consent of
Credit Suisse First Boston LLC for a period of 180&nbsp;days
after the date of this prospectus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our officers and directors and existing
stockholders, including the selling stockholders, have agreed,
subject to certain exceptions, that they will not offer, sell,
contract to sell, pledge or otherwise dispose of,
</FONT>

<P align="center"><FONT size="2">149
</FONT>

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<DIV align="left">
<FONT size="2">directly or indirectly, any shares of our Class A
common stock or securities convertible into or exchangeable or
exercisable for any shares of our Class A common stock, enter
into a transaction that would have the same effect, or enter
into any swap, hedge or other arrangement that transfers, in
whole or in part, any of the economic consequences of ownership
of our Class A common stock, whether any of these transactions
are to be settled by delivery of our Class A common stock or
other securities, in cash or otherwise, or publicly disclose the
intention to make any offer, sale, pledge or disposition, or to
enter into any transaction, swap, hedge or other arrangement,
without, in each case, the prior written consent of Credit
Suisse First Boston LLC for a period of 180&nbsp;days after the
date of this prospectus.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The underwriters have reserved for sale at the
initial public offering price up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of the Class A common stock for employees, directors and other
persons associated with us who have expressed an interest in
purchasing Class A common stock in the offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The number of shares available for sale to the
general public in the offering will be reduced to the extent
these persons purchase the reserved shares. Any reserved shares
not so purchased will be offered by the underwriters to the
general public on the same terms as the other shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We and the selling stockholders have agreed to
indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments that the underwriters
may be required to make in that respect.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will apply to list the shares of Class A
common stock on the New York Stock Exchange under the symbol
&#147;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#148;.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There has been no public market for our Class A
common stock prior to this offering. We and the underwriters
will negotiate the initial public offering price. The factors
that will be considered include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">prevailing market conditions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the history of and prospects for our industry;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an assessment of our management;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our present operations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our historical results of operations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the trend of our revenues and earnings;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our earnings prospects.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We and the underwriters will consider these and
other relevant factors in relation to the price of similar
securities of generally comparable companies. Neither we nor the
selling stockholders nor the underwriters can assure investors
that an active trading market will develop for our Class A
common stock, or that our Class A common stock will trade in the
public market at or above the initial public offering price.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with this offering and the related
transactions, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering
transactions, and penalty bids in accordance with
Regulation&nbsp;M under the Securities Exchange Act of 1934.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Stabilizing transactions permit bids to purchase
    the underlying security so long as the stabilizing bids do not
    exceed a specified maximum.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Over-allotment involves sales by the underwriters
    of shares in excess of the number of shares the underwriters are
    obligated to purchase, which creates a syndicate short position.
    The short position may be either a covered short position or a
    naked short position. In a covered short position, the number of
    shares over-allotted by the underwriters is not greater than the
    number of shares that they may purchase in the over-allotment
    option. In a naked short position, the number of shares involved
    is greater than the number of shares in the over-allotment
    option. The underwriters may close out any covered short
    position by either exercising their over-allotment option or
    purchasing shares in the open market.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">150
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Syndicate covering transactions involve purchases
    of the Class A common stock in the open market after the
    distribution has been completed in order to cover syndicate
    short positions. In determining the source of shares to close
    out the short position, the underwriters will consider, among
    other things, the price of shares available for purchase in the
    open market as compared to the price at which they may purchase
    shares through the over-allotment option. If the underwriters
    sell more shares than could be covered by the over- allotment
    option, a naked short position, the position can only be closed
    out by buying shares in the open market. A naked short position
    is more likely to be created if the underwriters are concerned
    that there could be downward pressure on the price of the shares
    in the open market after pricing that could adversely affect
    investors who purchase in the offering.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Penalty bids permit the representatives to
    reclaim a selling concession from a syndicate member when the
    Class&nbsp;A common stock originally sold by the syndicate
    member is purchased in a stabilizing or syndicate covering
    transaction to cover syndicate short positions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These stabilizing transactions, syndicate
covering transactions and penalty bids may have the effect of
raising or maintaining the market price of our Class&nbsp;A
common stock or preventing or retarding a decline in the market
price of the Class&nbsp;A common stock. As a result the price of
our Class&nbsp;A common stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on the New York Stock Exchange or otherwise and, if
commenced, may be discontinued at any time.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A prospectus in electronic format may be made
available on the web sites maintained by one or more of the
underwriters, or selling group members, if any, participating in
this offering, and one or more of the underwriters participating
in this offering may distribute prospectuses electronically. The
representatives may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members that
will make Internet distributions on the same basis as other
allocations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Certain of the underwriters and their respective
affiliates have, from time to time, performed, and may in the
future perform, various financial advisory and investment
banking services for us, for which they received or will receive
customary fees and expenses. An affiliate of Credit Suisse First
Boston LLC is expected to act as lender and agent under, and in
connection therewith will receive customary fees and expenses in
connection with, our amended and restated credit facilities and
will receive a portion of the prepayment of the term loan&nbsp;A
facility. See &#147;Description of Indebtedness&nbsp;&#151;
Amended and Restated Credit Facilities&#148;.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The decision of Credit Suisse First Boston LLC to
distribute the shares of our Class&nbsp;A common stock in this
offering was made independent of the lender with which it is
affiliated. That lender had no involvement in determining
whether or when to distribute the shares of our Class&nbsp;A
common stock under this offering or the terms of this offering.
The underwriters will not receive any benefit from this offering
other than the underwriting discounts and commissions described
in the prospectus.
</FONT>

<P align="center"><FONT size="2">151
</FONT>

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<DIV align="left">
<A name='125'></A>
</DIV>

<!-- link1 "NOTICE TO CANADIAN RESIDENTS" -->

<P align="center">
<B><FONT size="2">NOTICE TO CANADIAN RESIDENTS</FONT></B>

<P align="left">
<B><FONT size="2">Resale Restrictions</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The distribution of our Class&nbsp;A common stock
in Canada is being made only on a private placement basis exempt
from the requirement that we and the selling stockholders
prepare and file a prospectus with the securities regulatory
authorities in each province where trades of Class&nbsp;A common
stock are made. Any resale of our Class&nbsp;A common stock in
Canada must be made under applicable securities laws which will
vary depending on the relevant jurisdiction, and which may
require resales to be made under available statutory exemptions
or under a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised
to seek legal advice prior to any resale of our Class&nbsp;A
common stock.
</FONT>

<P align="left">
<B><FONT size="2">Representations of Purchasers</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">By purchasing our Class&nbsp;A common stock in
Canada and accepting a purchase confirmation, a purchaser is
representing to us, the selling stockholders and the dealer from
whom the purchase confirmation is received that:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the purchaser is entitled under applicable
    provincial securities laws to purchase our Class&nbsp;A common
    stock without the benefit of a prospectus qualified under those
    securities laws;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">where required by law, the purchaser is
    purchasing as principal and not as agent;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the purchaser has reviewed the text above under
    &#147;Resale Restrictions&#148;.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Rights of Action&nbsp;&#151; Ontario
Purchasers Only</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under Ontario securities legislation, a purchaser
who purchases a security offered by this prospectus during the
period of distribution will have a statutory right of action for
damages or, while still the owner of the shares, for rescission
against us and the selling stockholders in the event that this
circular contains a misrepresentation. A purchaser will be
deemed to have relied on the misrepresentation. The right of
action for damages is exercisable not later than the earlier of
180&nbsp;days from the date the purchaser first had knowledge of
the facts giving rise to the cause of action and three years
from the date on which payment is made for the shares. The right
of action for rescission is exercisable not later than
180&nbsp;days from the date on which payment is made for the
shares. If a purchaser elects to exercise the right of action
for rescission, the purchaser will have no right of action for
damages against us or the selling stockholders. In no case will
the amount recoverable in any action exceed the price at which
the shares were offered to the purchaser, and if the purchaser
is shown to have purchased the securities with knowledge of the
misrepresentation, we and the selling stockholders will have no
liability. In the case of an action for damages, we and the
selling stockholders will not be liable for all or any portion
of the damages that are proven to not represent the depreciation
in value of the shares as a result of the misrepresentation
relied on. These rights are in addition to, and without
derogation from, any other rights or remedies available at law
to an Ontario purchaser. The foregoing is a summary of the
rights available to an Ontario purchaser. Ontario purchasers
should refer to the complete text of the relevant statutory
provisions.
</FONT>

<P align="left">
<B><FONT size="2">Enforcement of Legal Rights</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All of our directors and officers as well as the
experts named herein and the selling stockholders may be located
outside Canada and, as a result, it may not be possible for
Canadian purchasers to effect service of process within Canada
upon us or those persons. All or a substantial portion of our
assets and the assets of those persons may be located outside
Canada and, as a result, it may not be possible to satisfy a
judgment against us or those persons in Canada or to enforce a
judgment obtained in Canadian courts against us or those persons
outside Canada.
</FONT>

<P align="center"><FONT size="2">152
</FONT>

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<P align="left">
<B><FONT size="2">Taxation and Eligibility for
Investment</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Canadian purchasers of our Class&nbsp;A common
stock should consult their own legal and tax advisors with
respect to the tax consequences of an investment in our
Class&nbsp;A common stock in their particular circumstances and
about the eligibility of our Class&nbsp;A common stock for
investment by the purchaser under relevant Canadian legislation.
</FONT>

<DIV align="left">
<A name='126'></A>
</DIV>

<!-- link1 "VALIDITY OF THE CLASS A COMMON STOCK" -->

<P align="center">
<B><FONT size="2">VALIDITY OF THE CLASS A COMMON STOCK</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The validity of the shares of Class&nbsp;A common
stock being offered will be passed upon for CCI Holdings by
King&nbsp;&#38; Spalding LLP. Certain legal matters relating to
this offering will be passed upon for the underwriters by Cahill
Gordon&nbsp;&#38; Reindel&nbsp;LLP.
</FONT>

<DIV align="left">
<A name='127'></A>
</DIV>

<!-- link1 "EXPERTS" -->

<P align="center">
<B><FONT size="2">EXPERTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The consolidated financial statements of Homebase
Acquisition, LLC (doing business as Consolidated Communications)
at December&nbsp;31, 2003 and for the year then ended, appearing
in this Prospectus and Registration Statement, have been audited
by Ernst&nbsp;&#38; Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing. The combined financial statements of Illinois
Consolidated Telephone Company and Related Businesses (as
predecessor company to Homebase Acquisition, LLC) at
December&nbsp;30, 2002 and December&nbsp;31, 2001 and for each
of the years in the two year period ended December&nbsp;30, 2002
and December&nbsp;31, 2001, appearing in this Prospectus and
Registration Statement have been audited by Ernst&nbsp;&#38;
Young LLP, independent registered public accounting firm, as set
forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority
of such firm as experts in accounting and auditing.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The financial statements of TXU Communications
Ventures Company and Subsidiaries as of April&nbsp;13, 2004,
December&nbsp;31, 2003 and 2002, and the period from
January&nbsp;1, 2004 to April&nbsp;13, 2004 and each of the
three years ended December&nbsp;31, 2003 included in this
prospectus have been audited by Deloitte&nbsp;&#38; Touche LLP,
an independent registered public accounting firm, as stated in
their report appearing herein (which report expresses an
unqualified opinion and includes an explanatory paragraph
relating to the adoption of the provisions of Statement of
Financial Accounting Standards No.&nbsp;142, Goodwill and Other
Intangible Assets), and has been so included in reliance upon
the report of such firm given upon their authority as experts in
accounting and auditing.
</FONT>

<P align="center"><FONT size="2">153
</FONT>

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<DIV align="left">
<A name='128'></A>
</DIV>

<!-- link1 "INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS" -->

<P align="center">
<B><FONT size="2">INDEX TO</FONT></B>

<P align="center">
<B><FONT size="2">UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS</FONT></B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#301'>Unaudited Pro Forma
    Condensed Consolidated Statement of Operations&nbsp;&#151; Year
    ended December&nbsp;31, 2003</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">P-5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#303'>Unaudited Pro Forma
    Condensed Consolidated Statement of Operations&nbsp;&#151; Nine
    Months ended September&nbsp;30, 2003</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">P-6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#306'>Unaudited Pro Forma
    Condensed Consolidated Statement of Operations&nbsp;&#151; Nine
    Months ended September&nbsp;30, 2004</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">P-7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#305'>Unaudited Pro Forma
    Condensed Consolidated Balance Sheet&nbsp;&#151; At
    September&nbsp;30, 2004</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">P-8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#304'>Notes to Unaudited Pro Forma
    Condensed Consolidated Financial Statements</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">P-9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">P-1
</FONT>

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<P align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.</FONT></B>

<P align="center">
<B><FONT size="2">UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS</FONT></B>

<P align="left">
<B><FONT size="2">Basis of Presentation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The unaudited pro forma condensed consolidated
financial statements are based upon the historical consolidated
financial statements of Homebase. The unaudited pro forma
condensed consolidated statement of operations give effect to
the two groups of transactions described below. The unaudited
pro forma condensed consolidated balance sheet gives effect only
to the initial public offering and related transactions
described below. All capitalized terms that are used but not
defined in these pro forma financial statements have the
meanings assigned to them in the other parts of this prospectus.
</FONT>

<P align="left">
<B><I><FONT size="2">TXUCV Acquisition</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The first group of transactions consisted of the
following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the contribution by the existing equity investors
    of $89.0&nbsp;million in cash in exchange for additional
    Class&nbsp;A preferred shares of Homebase, the distribution by
    CCI, a wholly owned subsidiary of Homebase, of
    $63.4&nbsp;million to Homebase and the contribution by Homebase
    of $152.4&nbsp;million to Consolidated Communications Texas
    Holdings, Inc. of the aggregate proceeds of such distribution
    and contribution;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the TXUCV acquisition by Texas Holdings, a wholly
    owned subsidiary of Homebase, on April&nbsp;14, 2004, pursuant
    to which Texas Holdings acquired all of the capital stock of
    TXUCV for $527.0&nbsp;million in cash, subject to adjustment
    for, among other things, our assumption of $2.8&nbsp;million of
    capital leases and for TXCUV&#146;s working capital on the
    closing date;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the refinancing and termination of the prior
    credit facilities of CCI, and the entering into, and borrowing
    under, the existing credit facilities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the issuance of $200.0&nbsp;million of the senior
    notes; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the payment of related fees and expenses.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On August&nbsp;10, 2004, we made an additional
cash payment of $5.1&nbsp;million as a result of the final
working capital adjustment for the TXUCV acquisition. The TXUCV
acquisition was accounted for as a purchase in accordance with
Statements of Financial Accounting Standards No.&nbsp;141,
<I>Business Combinations</I> (&#147;SFAS&nbsp;141&#148;).
Following the closing of the TXUCV acquisition, the total
purchase price was allocated to the assets acquired and
liabilities assumed of TXUCV based on their respective fair
values in accordance with the purchase method of accounting.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have engaged independent appraisers to assist
in determining the fair values of tangible and intangible assets
acquired in the TXUCV acquisition. We have allocated the total
purchase price to the assets and liabilities using preliminary
estimates of their fair value based on work performed to date by
the independent appraisers. We have not completed the purchase
price allocation and may make further adjustments to the
preliminary allocations in subsequent periods.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The existing credit facilities provided financing
of $467.0&nbsp;million, consisting of
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">A $122.0&nbsp;million term loan A facility with a
    six year maturity;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">A $315.0&nbsp;million term loan B facility with a
    seven year and six-month maturity; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">A $30.0&nbsp;million revolving credit facility
    with a six year maturity.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">P-2
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The borrowings under the existing credit
facilities have borne interest at a rate equal to an applicable
margin plus, at the borrowers&#146; option, either a base rate
or a LIBOR rate. The initial applicable margin for borrowings
under the existing credit facility has been:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">in respect of the term loan A facility and the
    revolving credit facility, 1.50% with respect to base rate loans
    and 2.50% with respect to LIBOR loans; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">in respect of the term loan B facility, 1.75%
    with respect to base rate loans and 2.75% with respect to LIBOR
    loans.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On October&nbsp;22, 2004 we amended and restated
the existing credit facilities to, among other things, convert
all borrowings then outstanding under the term loan B facility
into approximately $314.0&nbsp;million of aggregate borrowings
under a new term loan C facility. The term loan C facility is
substantially identical to the term loan B facility, except that
the applicable margin for borrowings under the term loan C
facility through April&nbsp;1, 2005 is 1.50% with respect to
base rate loans and 2.50% with respect to LIBOR loans.
Thereafter, provided certain credit ratings are maintained, the
applicable margin for borrowings under the term loan C facility
will be 1.25% with respect to base rate loans and 2.25% with
respect to LIBOR loans.
</FONT>

<P align="left">
<B><I><FONT size="2">Initial Public Offering and Related
Transactions</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The second group of transactions will consist of
the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the reorganization of Homebase, Illinois Holdings
    and Consolidated Communications Texas Holdings, Inc., pursuant
    to which (1)&nbsp;Consolidated Communications Texas Holdings,
    Inc. will merge with and into CCI Holdings and (2) Homebase will
    merge with and into CCI Holdings, in each case, with CCI
    Holdings being the company surviving the merger;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our existing stockholders receipt from Homebase
    of shares of CCI Holdings common stock representing 100% of the
    outstanding common stock of CCI Holdings;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the initial public offering of Class&nbsp;A
    common stock of CCI Holdings and the sale by the existing equity
    investors of additional shares of their Class&nbsp;A common
    stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the amendment and restatement of the existing
    credit facilities to provide for an increase in the principal
    amount of the existing term loan C facility and, in connection
    therewith, the repayment of the existing term loan A facility
    with a portion of the net proceeds of the offering and available
    cash on hand;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the redemption of 35.0% of the aggregate
    principal amount of our senior notes and pay the associated
    redemption premium of 9.75% of the principal amount to be
    redeemed, together with accrued and unpaid interest through the
    date of redemption; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the payment of related fees and expenses.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The amended and restated credit facilities are
expected to provide financing of $419.6&nbsp;million and consist
of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">an increased $389.6&nbsp;million new term loan C
    facility maturing on October&nbsp;14, 2011; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">$30.0 million revolving credit facility maturing
    on April&nbsp;14, 2010.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that the interest rates and commitment
fee on the amended and restated credit facilities will be the
same as those as the existing credit facilities. The amended and
restated credit facilities have not yet been agreed upon, and
the descriptions set forth in this prospectus represent our
current expectations regarding the terms of the credit
facilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the offering, CCI Holdings
will terminate two professional service fee agreements that
Homebase had entered into with its existing equity investors.
The first agreement has required CCI to pay to Mr.&nbsp;Lumpkin
and such affiliates of Providence Equity and Spectrum Equity an
annual professional services fee in the aggregate amount of
$2.0&nbsp;million for consulting, advisory and other
professional services
</FONT>

<P align="center"><FONT size="2">P-3
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">provided to CCI and its subsidiaries relating to
the Illinois operations. The second agreement, entered into in
connection with the TXUCV acquisition, has required Texas
Holdings to pay Mr.&nbsp;Lumpkin and such affiliates of
Providence Equity and Spectrum Equity an annual professional
services fee in the aggregate amount of $3.0&nbsp;million for
consulting, advisory and other professional services provided to
Texas Holdings and its subsidiaries relating to the Texas
operations. The rights of Mr.&nbsp;Lumpkin and the affiliates of
Providence Equity and Spectrum Equity to receive professional
services fees described above will terminate upon the closing of
the offering.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The unaudited pro forma condensed consolidated
financial statements were prepared to illustrate the estimated
effects of the transactions described above. The pro forma
adjustments and the assumptions on which they are based are
described in the accompanying notes to the unaudited pro forma
condensed consolidated financial statements. You should read the
unaudited pro forma condensed consolidated financial statements
and the accompanying notes in conjunction with the information
contained in &#147;Use of Proceeds&#148;,
&#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations&#148; and the consolidated
financial statements and notes thereto appearing elsewhere in
this prospectus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The unaudited pro forma condensed consolidated
balance sheet as of September&nbsp;30, 2004 gives effect to the
transactions described above, except for the impact of the TXUCV
acquisition, since the acquisition occurred on April&nbsp;14,
2004 and is included in Consolidated Communications&#146;
historical consolidated financial statements as of
September&nbsp;30, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The unaudited pro forma condensed consolidated
statements of operations for the fiscal year ended
December&nbsp;31, 2003 and the nine months ended
September&nbsp;30, 2004 and 2003 give effect to the transactions
described above as if they had occurred as of the first day of
each period presented.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with this offering and the related
transactions, we will record certain charges in our financial
statements at the time such transactions are consummated. As
these charges are non-recurring in nature, we have not recorded
any pro forma effect in the pro forma condensed consolidated
statements of operations. These non-recurring charges, which
total approximately $10.2&nbsp;million, include approximately
$2.1&nbsp;million of unamortized deferred financing costs
related to the redemption of senior notes, $1.3&nbsp;million of
unamortized deferred financing costs associated with repayment
of a portion of term loan&nbsp;A facility and $6.8&nbsp;million
related to the 9.75% redemption premium associated with the
senior note redemption.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The company anticipates that it will incur
additional costs related to being a public company of
approximately $1.0&nbsp;million per year. No adjustment has been
made in the accompanying unaudited pro forma condensed
consolidated statements of operations for these costs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma adjustments are based upon
available information and certain assumptions that we believe
are reasonable. The unaudited pro forma condensed consolidated
financial statements do not necessarily indicate the results
that would have actually occurred if the transactions described
above had been in effect on the date indicated or that may occur
in the future.
</FONT>

<P align="center"><FONT size="2">P-4
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.</FONT></B>

<P align="center">
<B><FONT size="2">UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS</FONT></B>

<DIV align="center">
<B><FONT size="2">For the Year Ended December&nbsp;31,
2003</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="22%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Consolidated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Acquisition</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma as</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">IPO</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">as Adjusted</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Communications</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">CCI Texas</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjusted for</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">for Acquisition</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Historical</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Historical</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Acquisition</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and IPO</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(Amounts in thousands, except per share amounts)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">194,818</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">327,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">327,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,415</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,739</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,032</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">129,072</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">124,072</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,294</FONT></TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;<FONT size="2">(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill impairment charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">111,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">180,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,262</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">297,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">292,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,262</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (expense):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">154</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">154</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">154</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,975</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,422</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27,872</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(45,269</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,269</FONT></TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;<FONT size="2">(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(35,528</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(35,528</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Partnership income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,693</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,693</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,693</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(872</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(872</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(872</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,015</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,015</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,218</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(34,134</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,802</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,741</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(61</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income tax expense (benefit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,717</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,073</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,099</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,309</FONT></TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;<FONT size="2">(7)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,408</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,341</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,061</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,901</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,432</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,469</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Earnings (loss) per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Number of shares for calculation:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes to unaudited pro forma
condensed consolidated financial statements
</FONT>

<P align="center"><FONT size="2">P-5
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.</FONT></B>

<P align="center">
<B><FONT size="2">UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS</FONT></B>

<DIV align="center">
<B><FONT size="2">For the Nine Months Ended September&nbsp;30,
2003</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="22%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Consolidated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Acquisition</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma as</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">IPO</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">as Adjusted</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Communications</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">CCI Texas</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjusted for</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">for Acquisition</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Historical</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Historical</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Acquisition</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and IPO</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(Amounts in thousands, except per share amounts)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,562</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,370</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,932</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,932</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,937</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,774</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,618</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,750</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,680</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,574</FONT></TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;<FONT size="2">(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">128,987</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">217,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,750</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">213,283</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,139</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,800</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,581</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (expense):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">317</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">317</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,083</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,496</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,872</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(32,451</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,451</FONT></TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;<FONT size="2">(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,648</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,648</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Partnership income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,258</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,258</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,258</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(588</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(588</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(588</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(474</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(445</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(445</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,511</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,083</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,672</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(78</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,475</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income tax expense (benefit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,647</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,858</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,232</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(727</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,098</FONT></TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;<FONT size="2">(7)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,371</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,225</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,440</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,104</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Number of shares for calculation:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes to unaudited pro forma
condensed consolidated financial statements
</FONT>

<P align="center"><FONT size="2">P-6
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.</FONT></B>

<P align="center">
<B><FONT size="2">UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS</FONT></B>

<DIV align="center">
<B><FONT size="2">For The Nine Months Ended September 30,
2004</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="19%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">CCI Texas</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Consolidated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;1, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Acquisition</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma as</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">IPO</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">as Adjusted</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Communications</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to April&nbsp;13, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjusted for</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">for Acquisition</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Historical</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Historical</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Acquisition</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and IPO</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(Amounts in thousands, except per share amounts)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,858</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,154</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,154</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74,938</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,125</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,939</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,750</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(5)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,875</FONT></TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;<FONT size="2">(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">156,280</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,546</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">207,576</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,750</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">203,826</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,750</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,039</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (expense):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,522</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,284</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,647</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(32,453</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,453</FONT></TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;<FONT size="2">(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,656</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,656</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepayment penalty on extinguishment of debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,914</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,914</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,914</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Partnership income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,027</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,174</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,201</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,201</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(290</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(106</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(396</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(396</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">468</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">468</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,256</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,397</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,547</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income tax expense (benefit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,662</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,378</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,757</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,972</FONT></TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;<FONT size="2">(7)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,729</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,783</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,019</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,908</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,575</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.61</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Number of shares for calculation:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic and diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes to unaudited pro forma
condensed consolidated financial statements
</FONT>

<P align="center"><FONT size="2">P-7
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.</FONT></B>

<P align="center">
<B><FONT size="2">UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET</FONT></B>

<DIV align="center">
<B><FONT size="2">September&nbsp;30, 2004</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Consolidated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">IPO</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Communications</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pro Forma</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">as Adjusted</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Historical</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">for IPO</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="14" align="center" valign="top">
    <B><FONT size="2">ASSETS</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,465</FONT></TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;<FONT size="2">(8)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(121,694</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,489</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,489</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,720</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,720</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses and other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,312</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,312</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(40,229</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,521</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">350,291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">350,291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">341,706</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">341,706</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Customer lists, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other intangibles, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,471</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,471</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred financing costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,867</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,551</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(10)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,316</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,723</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,267</FONT></TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;<FONT size="2">(12)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,051,718</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,513</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,014,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="14"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="14" align="center" valign="top">
    <B><FONT size="2">LIABILITIES AND STOCKHOLDERS&#146;
    EQUITY</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current portion of long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,763</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,599</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,044</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,044</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">79,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,763</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt less current maturities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">615,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(112,988</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">516,344</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,763</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(9)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,588</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,588</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,753</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,753</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">857,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(112,988</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">744,488</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interests
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,254</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,254</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Redeemable preferred shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">201,126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(201,126</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(8)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; equity (deficit):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Paid in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">282,591</FONT></TD>
    <TD align="left" valign="bottom" nowrap>&nbsp;<FONT size="2">(8)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">282,649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,482</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,990</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(11)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,472</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated other comprehensive loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(714</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(714</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,138</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">276,601</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,051,718</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,513</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,014,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes to unaudited pro forma
condensed consolidated financial statements
</FONT>

<P align="center"><FONT size="2">P-8
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.</FONT></B>

<P align="center">
<B><FONT size="2">NOTES TO THE UNAUDITED PRO FORMA
CONDENSED</FONT></B>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED FINANCIAL STATEMENTS</FONT></B>
</DIV>

<P align="left">
<B><FONT size="2">PRO FORMA ADJUSTMENTS FOR TXUCV
ACQUISITION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The consolidated historical financial statements
include the results of operations of the TXUCV acquisition since
the April&nbsp;14, 2004 acquisition date. The following entries
have been made to the accompanying unaudited pro forma condensed
consolidated statements of operations to reflect the results of
operations as if this acquisition occurred as of January&nbsp;1,
2003 (amounts in thousands):
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;</FONT></I></TD>
    <TD>
    <I><FONT size="2">Selling, General and Administrative
    Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma adjustments to selling, general and
administrative expenses reflect a reduction in costs resulting
from the termination of TXUCV employees that occurred in
connection with the TXUCV acquisition and was recognized in
accordance with EITF&nbsp;95-3, <I>&#147;Recognition of
Liabilities in Connection with a Purchase Business
Combination&#148;</I>, and incremental professional service fees
to be paid to Mr.&nbsp;Lumpkin, Providence Equity and Spectrum
Equity pursuant to the second professional services agreement
entered into in connection with the TXUCV acquisition.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect of TXUCV acquisition related headcount
    reductions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,032</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,024</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,983</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Incremental professional service fees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">858</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,032</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,774</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,125</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;</FONT></I></TD>
    <TD>
    <I><FONT size="2">Depreciation and Amortization</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma adjustments to depreciation and
amortization reflect (a) the removal of the historical basis of
depreciation and amortization of the TXUCV assets and (b) based
on the write-up of these assets to fair value in accordance with
SFAS 141, the increase in depreciation and amortization expense
for of property and equipment, capitalized software, and
intangible assets acquired in the TXUCV acquisition.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Removing historical depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(55,351</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(41,909</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(45,608</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Recording new depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,294</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,574</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;</FONT></I></TD>
    <TD>
    <I><FONT size="2">Interest Expense</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma adjustments to interest expense are
based on the amounts borrowed and the rates assumed to be in
effect at the closing of the TXUCV acquisition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amounts outstanding under the term loan
facilities&nbsp;A and B bear interest at 250 basis points above
LIBOR. The interest rate on the senior notes is 9.75%.
</FONT>

<P align="center"><FONT size="2">P-9
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE UNAUDITED PRO FORMA
CONDENSED</FONT></B>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</FONT></B>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Removing historical interest expense, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,397</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Recording new interest expense, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(45,269</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(32,451</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(32,453</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27,872</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,872</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,647</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;</FONT></I></TD>
    <TD>
    <I><FONT size="2">Income Tax Expense</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The assumed effective tax rate of the pro forma
adjustments related to the TXUCV acquisition and the related
financing is 38% for CCI Texas and 40% for CCI Illinois for the
periods presented.
</FONT>

<P align="left">
<B><FONT size="2">IPO PRO FORMA ADJUSTMENTS FOR OFFERING AND
RELATED TRANSACTIONS</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;</FONT></I></TD>
    <TD>
    <I><FONT size="2">Selling, General and Administrative
    Expenses</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Selling, general and administrative expenses
prior to the offering for the year ended December&nbsp;31, 2003
and for the nine months of 2003 and 2004 included $5,000,
$3,750, $3,750, respectively, in aggregate professional services
fees paid to Mr.&nbsp;Lumpkin, Providence Equity and Spectrum
Equity pursuant to the two professional services agreements.
Upon the closing of the offering, these professional service
agreements will be terminated. Entries have been made to the
accompanying unaudited pro forma condensed consolidated
statements of income to eliminate the payment of these fees.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;</FONT></I></TD>
    <TD>
    <I><FONT size="2">Interest Expense</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma adjustments to interest expense,
net and the amortization of deferred financing costs are based
on the estimated net changes to outstanding debt and interest
expense as a result of the offering and the related
transactions, which are estimated to be (a) the reduction in net
debt from the amendment and restatement of the existing credit
facility (with the same expected interest rates), (b) the
redemption of $70.0&nbsp;million in aggregate principal amount
of senior notes and (c) the elimination of the existing
amortization of, and the creation of new, deferred financing
costs relating to the amendment and restatement of the existing
credit facilities. A summary of these entries follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="24%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Twelve Months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Estimated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Estimated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Principal</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Interest</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Outstanding</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Rates</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest Expense Adjustments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Existing Debt:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Elimination of pro forma interest expense prior
    to the offering including amortization of deferred financing
    costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(45,269</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(32,451</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(32,453</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">P-10
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE UNAUDITED PRO FORMA
CONDENSED</FONT></B>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="24%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Twelve Months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Estimated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Estimated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Principal</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Interest</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Outstanding</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Rates</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New Debt:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Term loan&nbsp;C
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">389,629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.475</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,077</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,077</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Senior notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">130,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.750</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,675</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,506</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,506</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,314</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revolver commitment fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net effect of interest rate hedges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,728</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,048</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,056</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred financing costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,474</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total new interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,528</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net adjustment to interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,741</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,803</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,797</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of September&nbsp;30, 2004, we had a balance
of $18,867 for deferred financing costs relating to our existing
credit facilities and the senior notes. We will write off $2,097
and $1,335 of deferred financing costs associated with the
redemption of senior notes and the repayment of a portion of the
existing term loan&nbsp;A facility, respectively and we will
incur $1,881 of deferred financing costs to amend and restate
the existing credit facilities. CCI Holdings will amortize the
pro forma balance of $17,316 deferred financing costs over the
term of the respective debt agreements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;</FONT></I></TD>
    <TD>
    <I><FONT size="2">Income Tax Expense</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The blended effective tax rates applied for CCI
Illinois and CCI Texas pro forma adjustments by period are as
follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="93%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Twelve months ended December&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Nine months ended September&nbsp;30, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Nine months ended September&nbsp;30, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Due to existing net operating loss carryforwards,
we paid no cash taxes in the twelve months ended
December&nbsp;31, 2003 or the nine months ended
September&nbsp;30, 2003 and 2004.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;</FONT></I></TD>
    <TD>
    <I><FONT size="2">Reorganization and Offering</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pro forma adjustments to cash are derived from
the effect of the reorganization and the offering.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To effect the reorganization, (a) Consolidated
Communications Texas Holdings, Inc. will merge with and into CCI
Holdings and (b) Homebase will merge with and into CCI Holdings,
in each case, with CCI Holdings being the company surviving the
merger. In connection with the mergers described in the
preceding sentence, our existing stockholders will receive
shares of common stock of CCI Holdings representing 100% of the
outstanding common stock of CCI Holdings.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the offering, CCI Holdings expects to issue
$90.0&nbsp;million of Class&nbsp;A common stock
or &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
in this offering. CCI Holdings will not receive any proceeds
from the sale by its existing equity investors
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
in this offering. Upon the consummation of this offering,
redeemable preferred shares of $201,126, which include a
preferred return on the holders&#146; capital contributions at
the
</FONT>

<P align="center"><FONT size="2">P-11
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE UNAUDITED PRO FORMA
CONDENSED</FONT></B>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</FONT></B>
</DIV>

<P align="left">
<FONT size="2">rate of 9% per annum, will be converted
into &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of Class&nbsp;A common stock. Entries have been made to the
accompanying unaudited pro forma condensed consolidated balance
sheet to reflect the adjustment to cash and to record the
following for the issuance of the new shares of Class&nbsp;A
common stock in this offering (amounts in thousands) as follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="83%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;A common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Paid in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Subtotal:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">90,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less transaction fees and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,535</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash proceeds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,465</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Conversion of redeemable preferred shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">201,126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Paid in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">282,591</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;</FONT></I></TD>
    <TD>
    <I><FONT size="2">Amendment and Restatement of Existing Credit
    Facilities and Redemption of Senior Notes</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pro forma adjustments to cash are derived from
the effect of the amendment and restatement of the existing
credit facilities and the redemption of senior notes. We expect
that the amendment and restatement will consist of the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the use of $44,869 of cash on hand to repay a
    portion of the term loan&nbsp;A facility, which, in combination
    with the additional borrowings under the term loan&nbsp;C
    facilities and the repayment of the balance of the term
    loan&nbsp;A facility, each described below, results in a net
    repayment of $42,988;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">additional borrowings of $75,679 under the term
    loan&nbsp;C facility with a maturity on October&nbsp;14, 2011
    and an expected annual interest rate of LIBOR plus
    250&nbsp;basis points;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the use of the $75,679 of additional borrowings
    under the term loan&nbsp;C facility to fully repay the remaining
    balance on the term loan&nbsp;A facility; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the payment of $1,881 of deferred financing costs
    associated with the amended and restated credit facilities.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will use $70,000 of the net proceeds of the
offering and related transactions to redeem $70,000 in aggregate
principal amount of senior notes and to pay the associated
$6,825 redemption premium.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Entries have been made in the accompanying
unaudited pro forma condensed consolidated financial statements
to reflect these transactions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(amounts in thousands) as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="81%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payment of existing term loan&nbsp;A facility
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(118,667</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase in term loan&nbsp;C facility
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net repayment of existing term loan facilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(42,988</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Senior notes redemption
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(70,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustment to long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(112,988</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Redemption premium
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,825</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred financing costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,881</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121,694</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">P-12
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE UNAUDITED PRO FORMA
CONDENSED</FONT></B>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED FINANCIAL STATEMENTS&nbsp;&#151;
(Continued)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We anticipate that our amended and restated
credit facilities will require the borrowers to make nominal
amortization payments in respect of the increased term
loan&nbsp;C facility that are proportionate to the amortization
payments required by our existing term loan&nbsp;C facility.
Accordingly, $13,763 of term loan&nbsp;A amortization included
in the current portion of long term debt have been reclassified
as long-term debt.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.&nbsp;</FONT></I></TD>
    <TD>
    <I><FONT size="2">Deferred Financing Costs</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We will write off $2,097 and $1,335 of deferred
financing costs associated with the redemption of senior notes
and the repayment of a portion of the existing term loan&nbsp;A,
respectively, and incur $1,881 of deferred financing costs to
amend and restate the existing credit facilities as described in
note&nbsp;9. Entries have been made in the accompanying
unaudited pro forma condensed consolidated financial statements
to reflect these transactions:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of pro rata share of deferred financing
    costs associated with the redemption of senior notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,097</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of pro rata of deferred financing costs
    associated with repayment of a portion of term loan&nbsp;A
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,335</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Recording of new deferred financing costs
    associated with the amendment and restatement of existing credit
    facilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,551</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.&nbsp;</FONT></I></TD>
    <TD>
    <I><FONT size="2">Accumulated Deficit</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma accumulated deficit reflects the
non-recurring charges as follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expensing of the redemption premium on senior
    notes, net of tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,985</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of the pro rata share of the deferred
    financing costs associated with the redemption of senior notes,
    net of tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,225</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of the pro rata of deferred financing
    costs associated with repayment of a portion of term
    loan,&nbsp;A net of tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(780</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,990</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.&nbsp;</FONT></I></TD>
    <TD>
    <I><FONT size="2">Other Assets</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This pro forma adjustment reflects the tax
effect, using a 42% effective tax rate on the redemption premium
on the senior notes ($2,840), write-off of the pro-rata share of
the deferred financing costs associated with the redemption of
senior notes ($872) and write off of deferred financing costs
associated with the repayment of a portion of the term
loan&nbsp;A facility ($555).
</FONT>

<P align="center"><FONT size="2">P-13
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='129'></A>
</DIV>

<!-- link1 "CONSOLIDATED COMMUNICATIONS HOLDINGS, INC. INDEX TO FINANCIAL STATEMENTS" -->

<P align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.</FONT></B>

<P align="center">
<B><FONT size="2">INDEX TO FINANCIAL STATEMENTS</FONT></B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="87%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Audited Financial Statements</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#305'>Consolidated Financial
    Statements&nbsp;&#151; Homebase Acquisition, LLC</A>&nbsp;
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#306'>Report of Independent
    Registered Public Accounting Firm</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#307'>Consolidated Balance Sheet
    as of December&nbsp;31, 2003</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#308'>Consolidated Statement of
    Income for the year ended December&nbsp;31, 2003</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#309'>Consolidated Statement of
    Changes in Common Members&#146; Deficit for the year ended
    December&nbsp;31,&nbsp;2003</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#310'>Consolidated Statements of
    Cash Flows for the year ended December&nbsp;31,&nbsp;2003</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#311'>Notes to Consolidated
    Financial Statements</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#312'>Combined Financial
    Statements&nbsp;&#151; Illinois Consolidated Telephone Company
    and Related Business</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#313'>Report of Independent
    Registered Public Accounting Firm</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#314'>Combined Balance Sheets as
    of December&nbsp;30, 2002 and December&nbsp;31, 2001</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#315'>Combined Statements of
    Income for the years ended December&nbsp;30, 2002 and
    December&nbsp;31,&nbsp;2001</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#311'>Combined Statements of
    Changes in Parent Company Investment for the years ended
    December&nbsp;30, 2002 and December&nbsp;31, 2001</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#317'>Combined Statements of Cash
    Flows for the years ended December&nbsp;30, 2002 and
    December&nbsp;31,&nbsp;2001</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#318'>Notes to Combined Financial
    Statements</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#319'>Consolidated Financial
    Statements&nbsp;&#151; TXU Communications Ventures Company and
    Subsidiaries</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#320'>Report of Independent
    Registered Public Accounting Firm</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#321'>Consolidated Balance Sheets
    as of April&nbsp;13, 2004, December&nbsp;31, 2003 and 2002</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#322'>Consolidated Statements of
    Operations and Comprehensive Income (Loss) for the period from
    January&nbsp;1, 2004 to April&nbsp;13, 2004 and for the years
    ended December&nbsp;31, 2003, 2002 and 2001</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#323'>Consolidated Statements of
    Shareholder&#146;s Equity for the period from January&nbsp;1,
    2004 to April&nbsp;13, 2004 and for the years ended
    December&nbsp;31, 2003, 2002, and 2001</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#350'>Consolidated Statements of
    Cash Flows for the period from January&nbsp;1, 2004 to
    April&nbsp;13, 2004 and for the years ended December&nbsp;31,
    2003, 2002 and 2001</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#324'>Notes to Consolidated
    Financial Statements&nbsp;&#151; Consolidated Communications
    Holdings, Inc.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Unaudited Financial Statements</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#326'>Condensed Consolidated
    Financial Statements&nbsp;&#151; Homebase Acquisition, LLC
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-74</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#327'>Unaudited Condensed
    Consolidated Balance Sheet as of September&nbsp;30, 2004</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#328'>Unaudited Condensed
    Consolidated Statements of Income for the nine months ended
    September&nbsp;30, 2004 and 2003</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-76</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#329'>Unaudited Condensed
    Consolidated Statements of Common Members&#146; Deficit for the
    nine months ended September&nbsp;30, 2004 and 2003</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-77</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#330'>Unaudited Condensed
    Consolidated Statements of Cash Flows for the nine months ended
    September&nbsp;30, 2004 and 2003</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#331'>Notes to Unaudited Condensed
    Consolidated Financial Statements</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">F-79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-1
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">FINANCIAL STATEMENTS FOR THE YEAR
ENDED</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;31, 2003</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">With Report of Independent Registered Public
Accounting Firm</FONT></B>
</DIV>

<P align="center"><FONT size="2">F-2
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM</FONT></B>

<P align="left">
<FONT size="2">Board of Directors
</FONT>

<DIV align="left">
<FONT size="2">Homebase Acquisition, LLC
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have audited the accompanying consolidated
balance sheet of Homebase Acquisition, LLC (the Company) as of
December&nbsp;31, 2003, and the related consolidated statements
of income, member&#146;s deficit, and cash flows for the year
then ended. These financial statements are the responsibility of
the Company&#146;s management. Our responsibility is to express
an opinion on these financial statements based on our audit.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company at
December&nbsp;31, 2003, and the consolidated results of its
operations and its cash flows for the year then ended, in
conformity with U.S.&nbsp;generally accepted accounting
principles.
</FONT>

<P align="left">
<FONT size="2">Chicago,&nbsp;Illinois
</FONT>

<DIV align="left">
<FONT size="2">March&nbsp;8, 2004
</FONT>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="right">
    <FONT size="2">/S/ ERNST &#38; YOUNG, LLP
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">F-3
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">CONSOLIDATED BALANCE SHEET</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;31, 2003</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands, except share and per
amounts)</FONT></B>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="79%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="7" align="center" valign="top">
    <B><FONT size="2">ASSETS</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,142</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable, net of allowance of $1,837
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,991</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,631</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">251,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Accumulated depreciation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(151,569</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net property, plant and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangibles and other assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">99,554</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tradenames
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,863</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Customer lists, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,559</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other intangibles, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,197</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred financing costs and other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,408</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">317,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="7" align="center" valign="top">
    <B><FONT size="2">LIABILITIES AND MEMBERS&#146; EQUITY</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current portion of long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,518</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Advance billings and customer deposits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,368</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,828</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt less current maturities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">170,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pension and postretirement benefit obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">972</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Commitments and contingencies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">219,609</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Redeemable preferred shares:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <FONT size="2">Class&nbsp;A, redeemable preferred shares,
    $1,000&nbsp;par value, 182,000&nbsp;shares authorized, 93,000
    issued and outstanding, liquidation preference of $101,504
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,504</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common members&#146; deficit:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common shares, no par value,
    10,000,000&nbsp;shares authorized, 9,975,000 issued and
    outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,003</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated other comprehensive loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(515</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total common members&#146; deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,518</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and members&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">317,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<I><FONT size="2">See accompanying notes</FONT></I>

<P align="center"><FONT size="2">F-4
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENT OF INCOME</FONT></B>

<DIV align="center">
<B><FONT size="2">Year Ended December&nbsp;31, 2003</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands, except share and per
share amounts)</FONT></B>
</DIV>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="83%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Revenues</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Operating expenses:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,739</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">111,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (expense):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">154</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,975</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,218</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income tax expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,717</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dividends on redeemable preferred shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,504</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss applicable to common shareholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,003</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss per common share&nbsp;&#151; basic and
    diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.33</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<I><FONT size="2">See accompanying notes</FONT></I>

<P align="center"><FONT size="2">F-5
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENT OF CHANGES IN COMMON
MEMBERS&#146; DEFICIT</FONT></B>

<DIV align="center">
<B><FONT size="2">Year Ended December&nbsp;31, 2003</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands)</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Comprehensive</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Comprehensive</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deficit</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Loss</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Income</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shares issued under employee plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">975,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dividends on redeemable preferred shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,504</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,504</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Change in fair value of cash flow hedges, net of
    tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(515</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(515</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(515</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,975,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,003</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(515</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,518</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,986</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes
</FONT>

<P align="center"><FONT size="2">F-6
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENT OF CASH FLOWS</FONT></B>

<DIV align="center">
<B><FONT size="2">Year Ended December&nbsp;31, 2003</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Dollars in Thousands)</FONT></B>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="79%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Operating Activities</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to reconcile net income to cash
    provided by operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Changes in operating assets and liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable and income taxes receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,387</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(73</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(592</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,267</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Advance billings and customer deposits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,722</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(556</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,889</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Investing Activities</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,296</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payment for acquisition
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(284,834</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used in investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(296,132</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Financing Activities</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital contributions from investors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from long-term obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">190,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments made on long-term obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,193</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payment of deferred financing costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,602</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from sale of building
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">277,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase in cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,142</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at beginning of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at end of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,142</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Supplemental disclosures of cash flow information
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash paid for:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes.
</FONT>

<P align="center"><FONT size="2">F-7
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS</FONT></B>

<DIV align="center">
<B><FONT size="2">For the Year Ended December&nbsp;31,
2003</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">1.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Description of Business</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Homebase Acquisition, LLC (&#147;Homebase&#148;
or the &#147;Company&#148;), is the parent company of a group of
telecommunications companies doing business primarily in
Illinois under the name Consolidated Communications.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications, Inc.
(&#147;CCI&#148;), is a direct, wholly owned subsidiary of
Consolidated Communications Holdings, Inc. or Illinois Holdings.
Illinois Holdings, in turn, is a direct, wholly owned subsidiary
of Homebase. Homebase is owned equally by Central Illinois
Telephone, Providence Equity Partners, and Spectrum Equity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Homebase, a Delaware limited liability company
that was formed on June&nbsp;26, 2002, entered into a sale and
purchase agreement with McLeodUSA, Inc. in July 2002 and the
transaction was concluded on December&nbsp;31, 2002. CCI was
formed on August&nbsp;6, 2002 to acquire the outstanding stock
and assets of certain lines of business from McLeodUSA, Inc. The
Company commenced operations on December&nbsp;31, 2002
concurrent with the acquisition of this highly integrated group
of companies and lines of business. The businesses are now held
within separate wholly owned legal entities as follows:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Illinois Consolidated Telephone Company
(&#147;ICTC&#148;) provides a broad range of local exchange
telecommunications services including local dialtone and central
office based vertical services features, private line services,
data services (including DSL), intraLATA toll and carrier access
services. Operations are subject to regulation by the Illinois
Commerce Commission and the Federal Communications Commission.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications Network Services,
Inc. (&#147;CCNS&#148;) offers long distance, private line, and
data services to residential and business accounts, primarily in
ICTC&#146;s service territory. CCNS is the Internet Service
Provider for the vast majority of ICTC&#146;s DSL customers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications Operator Services,
Inc. (&#147;CCOS&#148;) provides both live and automated local
and long distance assistance as well as national directory
assistance on a wholesale and retail basis. CCOS also provides
specialized message center services and corporate and
governmental attendant services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications Public Services, Inc.
(&#147;CCPS&#148;) primarily offers managed local and long
distance automated calling from county jails and state prison
facilities in Illinois. These inmate services include fraud
control, customer service, call management, and technical field
support.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications Business Systems,
Inc. (&#147;CCBS&#148;) sells and installs telecommunications
equipment, and performs cabling, wiring, and equipment
maintenance services to business and residential customers
within the ICTC service territory and to business customers in
adjacent markets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications Market Response, Inc.
(&#147;CMR&#148;) is a full service teleservices business
providing inbound and outbound telemarketing and backend
fulfillment services to corporate clients from diverse industry
segments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications Mobile Services, Inc.
(&#147;CCMS&#148;) provides one-way messaging service for both
personal and business accounts. The basic paging service has
been supplemented with complimentary mobile information services
including Internet, 800 service, info text and voice mail.
</FONT>

<P align="center"><FONT size="2">F-8
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">2.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Summary of Significant Accounting
    Policies</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Principles of Consolidation</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The consolidated financial statements include the
accounts of Homebase and its wholly owned subsidiaries,
Consolidated Communications Holdings, Inc., Consolidated
Communications, Inc., Illinois Consolidated Telephone Company,
Consolidated Communications Network Services, Inc., Consolidated
Communications Operator Services, Inc., Consolidated
Communications Public Services, Inc., Consolidated
Communications Business Services, Inc., Consolidated Market
Response, Inc. and Consolidated Communications Mobile Services,
Inc. All material intercompany balances and transactions have
been eliminated in consolidation.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Use of Estimates</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual
results could differ from the estimates and assumptions used.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Regulatory Accounting</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ICTC, an independent local exchange carrier,
follows the accounting for regulated enterprises prescribed by
Statement of Financial Accounting Standards No.&nbsp;71,
&#147;Accounting for the Effects of Certain Types of
Regulation&#148; (&#147;SFAS No&nbsp;71&#148;) which permits
rates (tariffs) to be set at levels intended to recover
estimated costs of providing regulated services or products,
including capital costs. SFAS&nbsp;No.&nbsp;71 requires ICTC to
depreciate wireline plant over the useful lives approved by the
regulators, which could be different than the useful lives that
would otherwise be determined by management.
SFAS&nbsp;No.&nbsp;71 also requires deferral of certain costs
and obligations based upon approvals received from regulators to
permit recovery of such amounts in future years. Criteria that
would give rise to the discontinuance of SFAS&nbsp;No.&nbsp;71
include (1)&nbsp;increasing competition restricting the wireline
business&#146; ability to establish prices to recover specific
costs and (2)&nbsp;significant changes in the manner by which
rates are set by regulators from cost-based regulation to
another form of regulation.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Cash Equivalents</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cash equivalents consist of short-term, highly
liquid investments with an original maturity of three months or
less.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Accounts Receivable and Allowance for
    Doubtful Accounts</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Accounts receivable consist primarily of amounts
due to the Company from normal activities. Accounts receivable
are determined to be past due when the amount is overdue based
on the payment terms with the customer. In certain
circumstances, the Company requires deposits from customers to
mitigate potential risk associated with receivables. The Company
maintains an allowance for doubtful accounts to reflect
management&#146;s best estimate of probable losses inherent in
the accounts receivable balance. Management determines the
allowance balance based on known troubled accounts, historical
experience and other currently available evidence. Accounts
receivable are charged to the allowance for doubtful accounts
when management of the Company determines that the receivable
will not be collected.
</FONT>

<P align="center"><FONT size="2">F-9
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Inventory</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Inventory consists mainly of copper and fiber
cable that will be used for ICTC network expansion and upgrades
and materials and equipment used in the maintenance and
installation of telephone systems. Inventory is stated at the
lower of average cost or market.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Goodwill and Other Intangible
    Assets</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with Statement of Financial
Accounting Standards No.&nbsp;142, &#147;Goodwill and Other
Intangible Assets&#148; (&#147;SFAS&nbsp;142&#148;), goodwill
and intangible assets that have indefinite useful lives are not
amortized but rather are tested annually for impairment.
SFAS&nbsp;142 also provides that assets which have finite useful
lives be amortized over their useful lives. Tradenames have been
determined to have indefinite lives, thus they are not being
amortized. Software and customer lists are being amortized over
their useful lives of five and ten years, respectively.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Property, Plant, and
    Equipment</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Property, plant and equipment are recorded at
cost. The cost of additions, replacements and major improvements
is capitalized, while repairs and maintenance are charged to
expense. When property, plant and equipment are retired from
ICTC, the original cost, net of salvage, is charged against
accumulated depreciation, with no gain or loss recognized in
accordance with the composite group remaining life methodology
used for regulated telephone plant assets. When property
applicable to non-regulated operations is sold or retired, the
assets and related accumulated depreciation are removed from the
accounts and the associated gain or loss is recognized.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The provision for depreciation of regulated
property and equipment is computed using rates and lives
approved by the Illinois Commerce Commission. The provision is
equivalent to an annual composite depreciation rate of 6.21% for
2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The provision for depreciation of nonregulated
property and equipment is recorded using the straight-line
method based upon the following useful lives:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="89%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Years</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Buildings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15-20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Network and outside plant facilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5-15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture, fixtures, and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3-10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Depreciation of assets recorded under capital
leases is included within depreciation and amortization expense.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Revenue Recognition</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Wireline local access revenues are recognized
over the period that the service is provided. Nonrecurring
installation revenues are deferred upon service activation and
are recognized over the shorter of three to five years or the
determined useful life. The associated costs are recorded in the
period in which they are incurred. Revenues from other
telecommunications services, including network access charges,
custom calling feature revenues, billing and collection
services, long distance and private line services, Internet
service provider charges, operator services, and paging services
are recognized monthly as services are provided.
</FONT>

<P align="center"><FONT size="2">F-10
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Telephone equipment revenues generated from
retail channels are recorded at the point of sale.
Telecommunications systems and structured cabling project
revenues are recognized upon completion and billing of the
project. Maintenance services are provided on both a contract
and time and material basis and are recorded when the service is
provided.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Teleservices revenues include both inbound and
outbound calling as well as fulfillment services. All revenues
are recorded as program activity is completed.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Advertising Costs</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The costs of advertising are charged to expense
as incurred. Advertising expenses totaled $1,839 in 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Deferred Income Taxes</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Deferred tax assets and liabilities are
recognized for the expected tax consequences of temporary
differences between the tax bases of assets and liabilities and
their reported amounts.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Financial Instruments and
    Derivatives</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of December&nbsp;31, 2003, the Company&#146;s
financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and long-term debt
obligations. At December&nbsp;31, 2003 the carrying value of
these financial instruments approximated fair value.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Derivative instruments are accounted for in
accordance with Statement of Financial Accounting Standards
No.&nbsp;133 (SFAS&nbsp;No.&nbsp;133), &#147;Accounting for
Derivative Instruments and Hedging Activity&#148;.
SFAS&nbsp;No.&nbsp;133 provides comprehensive and consistent
standards for the recognition and measurement of derivative and
hedging activities. It requires that derivatives be recorded on
the consolidated balance sheet at fair value and establishes
criteria for hedges of changes in fair values of assets,
liabilities or firm commitments, hedges of variable cash flows
of forecasted transactions and hedges of foreign currency
exposures of net investments in foreign operations. To the
extent that the derivatives qualify as a cash flow hedge, the
gain or loss associated with the effective portion is recorded
as a component of Other Comprehensive Loss. Changes in the fair
value of derivatives that do not meet the criteria for hedges
are recognized in the consolidated statement of income. Upon
termination of interest rate swap agreements, any resulting gain
or loss is recognized over the shorter of the remaining original
term of the hedging instrument or the remaining life of the
underlying debt obligation. Since the Company&#146;s interest
swap agreements are with major financial institutions, the
Company does not anticipate any nonperformance by any
counterparty. The fair value of the Company&#146;s derivative
instruments, comprising interest rate swaps, amounted to a
liability of $859 at December&nbsp;31, 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Recent Accounting
    Pronouncements</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2001, the FASB issued Statement of
Financial Accounting Standards No.&nbsp;143, &#147;Accounting
for Asset Retirement Obligations&#148; (SFAS&nbsp;143).
SFAS&nbsp;143 requires companies to record liabilities equal to
the fair value of their asset retirement legal obligations when
they are incurred. When the liability is initially recorded,
companies capitalize an equivalent amount as part of the cost of
the asset. The Company adopted SFAS&nbsp;143 on January&nbsp;1,
2003, and the adoption of this new standard did not have a
material effect on the 2003 consolidated financial statements.
</FONT>

<P align="center"><FONT size="2">F-11
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2002, the FASB issued SFAS&nbsp;146,
&#147;Accounting for Costs Associated with Exit or Disposal
Activities&#148;. Under SFAS&nbsp;146, a liability for costs
associated with an exit or disposal activity should be
recognized when the liability is incurred. Previously, such a
liability was recognized at the date of commitment to an exit
plan. SFAS&nbsp;146 also makes some changes to the timing of
recognizing severance pay costs where benefit arrangements
require employees to render future service beyond a minimum
retention period. SFAS&nbsp;146 is effective for exit or
disposal activities that are initiated after December&nbsp;31,
2002. The Company adopted SFAS&nbsp;146 on January&nbsp;1, 2003,
and the adoption of this new standard did not have a material
effect on the 2003 consolidated financial statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2002, the FASB issued Interpretation
No.&nbsp;45 (FIN&nbsp;45), &#147;Guarantor&#146;s Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others.&#148; FIN&nbsp;45 requires
certain guarantees to be recorded at fair value, which differs
from the practice previously adopted, which was generally to
record a liability only when a loss is probable and reasonably
estimable. FIN&nbsp;45 also requires a guarantor to make certain
new disclosures in the financial statements. The Company is
required to adopt the recognition and measurement provisions of
FIN&nbsp;45 on a prospective basis with respect to guarantees
issued or modified after December&nbsp;31, 2002. The Company
adopted FIN&nbsp;45 on January&nbsp;1, 2003, and the adoption
did not have a material effect on its consolidated financial
statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interpretation No.&nbsp;46 (FIN&nbsp;46),
&#147;Consolidation of Variable Interest Entities&#148;, was
issued by the FASB in January 2003. FIN&nbsp;46 requires a
company to consolidate a variable interest entity if the company
is subject to a majority of the risk of loss from the variable
interest entity&#146;s activities or is entitled to receive a
majority of the entity&#146;s residual returns. The
interpretation also requires disclosures about variable interest
entities that the company is not required to consolidate but in
which it has a significant variable interest. FIN&nbsp;46 is
immediately effective for variable interest entities created on
or after January&nbsp;31, 2003. For variable interest entities
created or acquired prior to February&nbsp;1, 2003, the
provisions of FIN&nbsp;46 will become effective for the periods
after March&nbsp;15, 2004, except for Special Purpose Entities,
to which the provisions apply as of December&nbsp;31, 2003. The
Company does not believe that the adoption of FIN&nbsp;46 will
have a significant impact on its consolidated financial position
or results of operations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">3.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Acquisition</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On December&nbsp;31, 2002, the Company, through
its wholly owned subsidiary (CCI), acquired all of the
outstanding common stock of Illinois Consolidated Telephone
Company, McLeodUSA Public Services, Inc., and Consolidated
Market Response, Inc, as well as substantially all of the assets
of three other related telecom lines of business (or divisions)
which were all owned by McLeodUSA and its affiliates. The
purchase price for the businesses acquired totaled $284,834,
including acquisition costs, and was funded with proceeds from
the issuance of common stock and debt. The Company accounted for
the acquisition using the purchase method of accounting;
accordingly, the Company&#146;s financial statements reflect the
allocation of the total purchase price to the net tangible and
intangible assets acquired, based on their respective fair
values. The accompanying consolidated financial statements
include the results of operations of the acquired businesses
from the date of acquisition.
</FONT>

<P align="center"><FONT size="2">F-12
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The allocation of the purchase price to the
assets acquired and liabilities assumed is as follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,802</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">112,811</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">99,554</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,626</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Liabilities assumed
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,959</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net purchase price
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">284,834</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with SFAS&nbsp;No.&nbsp;142, the
goodwill acquired will not be amortized but will be tested for
impairment at least annually. Goodwill is expected to be
deductible for income tax purposes.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">4.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Property, plant and equipment</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Property, plant and equipment, net consisted of
the following at December&nbsp;31, 2003:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="82%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Land and buildings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,487</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Network and outside plant facilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">204,681</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture, fixtures and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Work in process
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,639</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">251,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Accumulated depreciation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(151,569</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net property, plant and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">5.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Goodwill and Other Intangible Assets</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with SFAS&nbsp;142, &#147;Goodwill
and Other Intangible Assets&#148;, goodwill and tradenames are
not amortized but are subject to an annual impairment test, or
to more frequent testing if circumstances indicate that they may
be impaired. In 2003, the Company completed its annual
impairment test and determined that there was no impairment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;31, 2003, the carrying amounts
of amortizable intangible assets and related accumulated
amortization are as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="63%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Net</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amortization</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Customer lists
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,517</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,958</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,559</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Software
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,049</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,197</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,763</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,007</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the year ended 2003, the aggregate
amortization expense was $7,007. The estimated amortization
expense for each of the next five years ended December&nbsp;31
is as follows: 2004&nbsp;&#151; $7,007, 2005&nbsp;&#151; $7,007,
2006&nbsp;&#151; $7,007, 2007&nbsp;&#151; $7,007,
2008&nbsp;&#151; $5,958 .
</FONT>

<P align="center"><FONT size="2">F-13
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">6.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Affiliated Transactions</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company, through its wholly owned subsidiary
(CCI), entered into agreements on December&nbsp;30, 2002 with
its equity partners, Richard A. Lumpkin, Chairman of the
Company, and affiliates of Providence Equity and Spectrum
Equity, in which they will be compensated an annual fee of
$2,000, to be divided equally among them, for consulting,
advisory and other professional services provided. Pursuant to
these agreements, if the Company cannot pay the professional
services fee in cash, or if earnings fall below a certain level,
the professional service fees will be paid in the form of
additional Class&nbsp;A preferred shares, at a rate of one
Class&nbsp;A share for each $1 of the professional service fee
not paid in cash. During the fiscal year ended December&nbsp;31,
2003, the Company paid an aggregate of $1,500 to the equity
partners. The remaining $500 of the annual fee was accrued for
at the end of the year and has subsequently been paid. These
fees are included in selling, general and administrative
expenses in the Consolidated Statement of Income.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Agracel, Inc., or Agracel, is a real estate
investment company of which Mr.&nbsp;Lumpkin, together with his
family, beneficially owns 49.7%. In addition, Mr.&nbsp;Lumpkin
is a director of Agracel. Agracel is the sole managing member
and 50% owner of LATEL LLC. Mr.&nbsp;Lumpkin directly owns the
remaining 50% of LATEL. Effective December&nbsp;31, 2002, the
Company sold five of its buildings and associated land to LATEL,
LLC for the aggregate purchase price of $9,180, and then entered
into an agreement to leaseback the same facilities for general
office and warehouse functions. The initial term of the lease is
for a one-year term, with the option to extend for an additional
ten years in one-year increments. The lease is a triple net
lease that requires the Company to continue to pay substantially
all expenses associated with general maintenance and repair,
utilities, insurance and taxes. The Company paid approximately
$1,221 to LATEL during 2003 and has treated these payments as
operating lease expense. The Company has the right to cancel the
lease at any time by giving LATEL one-year prior written notice.
There is no lease payable balance outstanding at
December&nbsp;31, 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Agracel is the sole managing member and 66.7%
owner of MACC, LLC, or MACC. Mr.&nbsp;Lumpkin, together with his
family, owns the remainder of MACC. In 1997, CMR entered into a
lease agreement to rent office space for a period of five years.
The parties extended the lease for an additional five years
beginning October&nbsp;14, 2002. CMR paid MACC annual rent
expense in the amount of $123 in 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Mr.&nbsp;Lumpkin, together with members of his
family, beneficially owns 100% of SKL Investment Group, LLC or
SKL. SKL paid to the Company $74 in 2003 for use of office
space, computers, telephone service and for other office related
expenses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Mr.&nbsp;Lumpkin also has an ownership interest
in First Mid-Illinois Bancshares, Inc. or First Mid-Illinois
which provides general banking services, including depository,
disbursement and payroll accounts, to the Company. The fees
charged to the Company are based upon First Mid-Illinois&#146;
standard schedule for large customers. Total fees paid for
services provided totaled $2 in 2003. The Company provides
certain telecommunications products and services to First
Mid-Illinois. Those services, for which revenues totaled $437 in
2003, are based upon standard prices for strategic business
customers.
</FONT>

<P align="center"><FONT size="2">F-14
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">7.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Income Taxes</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The components of the income tax provision
charged to expense are as follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Federal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,252</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">465</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total deferred
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,717</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income tax expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,717</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a reconciliation between the
statutory federal income tax rate for the year ended
December&nbsp;31, 2003 and the Company&#146;s overall effective
tax rate:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Statutory federal income tax rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State income taxes, net of federal benefit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net deferred taxes consist of the following
components as of December&nbsp;31, 2003:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="84%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current deferred tax assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reserve for uncollectible accounts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">447</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenue and regulatory reserves
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,524</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued vacation pay deducted when paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Noncurrent deferred tax assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net operating loss carryforwards
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Derivative instruments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">344</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pension and early retirement obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,691</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,288</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Noncurrent deferred tax liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill and other intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,641</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,761</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,402</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net noncurrent deferred tax liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,114</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net deferred income tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,754</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, the Company generated a net operating
loss carryforward approximating $5,634 that expires in 2023, if
not utilized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences and net
operating loss carryforwards become deductible or are utilized.
Management believes it is currently more likely than not
</FONT>

<P align="center"><FONT size="2">F-15
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">
<FONT size="2">that the Company will realize the benefits of
these deductible differences and net operating loss
carryforwards. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward
period are reduced.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">8.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Pension Costs and Other Postretirement
    Benefits</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ICTC maintains a noncontributory defined pension
and death benefit plan covering substantially all of its hourly
employees. The pension benefit formula used in the determination
of pension cost is based on the highest five consecutive
calendar years&#146; base earnings within the last ten calendar
years immediately preceding retirement or termination. It is
ICTC&#146;s policy to fund pension costs as they accrue subject
to any applicable Internal Revenue Code limitations. ICTC uses a
September&nbsp;30 measurement date for its plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The change in pension benefit obligation for 2003
is as follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="87%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Projected benefit obligation, beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">770</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefits paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,403</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Actuarial loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,317</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Projected benefit obligation, end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,528</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated benefit obligation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,070</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The changes in plan assets for 2003 relate to the
following:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="87%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fair value of plan assets, beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Actual return on plan assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,804</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other proceeds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">857</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefits paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,403</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fair value of plan assets, end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,704</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The reconciliation of the funded status of the
pension plans as of December&nbsp;31, 2003 is as follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Funded status
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,824</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized net actuarial loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net amount recognized as accrued benefit cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,662</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The components of net periodic benefit cost for
2003 are as follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="87%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">770</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expected return on plan assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,507</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net periodic benefit cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Weighted-average actuarial assumptions used to
determine benefit obligations at December&nbsp;31, are as
follows: Discount rate 6.00%, Rate of compensation increases
3.50%.
</FONT>

<P align="center"><FONT size="2">F-16
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Weighted-average actuarial assumptions used to
determine the net periodic benefit cost for 2003 are as follows:
Discount rate 6.75%, Expected long-term rate of return on plan
assets 8.00%, Rate of compensation increases 3.50%.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The expected return on plan assets assumption
considered the categories of the assets as well as the past
return on the assets. The assets of the plan consist principally
of equity and fixed income securities. The Company&#146;s
pension plan weighted-average asset allocation by category is as
follows: Equity securities 65%, Debt securities 35%.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s investment strategy at
December&nbsp;31, 2003 was to target its asset allocation
percentage at 60% invested in equity funds and 40% invested in
fixed income funds.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company expects to contribute $915 to its
pension plan in 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to providing pension benefits, ICTC
provides an optional retiree medical program to its salaried and
union retirees and spouses under age&nbsp;65 and life insurance
coverage for the salaried retirees. All retirees are required to
contribute to the cost of their medical coverage while the
salaried life insurance is provided at no cost to the retiree.
ICTC uses a September&nbsp;30 measurement date for its plan. The
following postretirement benefit plan disclosures relate to ICTC
and certain other subsidiaries of the Company. The changes in
the postretirement benefit obligation for 2003 are as follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="89%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Projected benefit obligation, beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">165</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Employer contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">557</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Plan participants&#146; contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Plan amendments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">454</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefits paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(692</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Actuarial loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">366</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Projected benefit obligation, end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,951</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The changes in plan assets for 2003 relate to the
following:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fair value of plan assets, beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Employer contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">557</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Plan participants&#146; contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefits paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(692</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fair value of plan assets, end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The reconciliation of the funded status of the
postretirement benefit plan as of December&nbsp;31, 2003 is as
follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Funded status
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,951</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Employer contributions after measurement date and
    before fiscal year end
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized prior service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized net actuarial loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(128</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net amount recognized as accrued benefit cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,933</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-17
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The components of postretirement benefit cost for
2003 are as follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="91%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">165</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">557</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of prior service costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Recognized actuarial gain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net periodic benefit cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">718</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The postretirement benefit obligation is
calculated assuming that health-care costs increased by 11.0% in
2003, and that the rate of increase thereafter (the health-care
cost trend rate) will decline to 5.0% in 2009 and subsequent
years. The health-care cost trend rate has a significant effect
on the amounts reported for costs each year as well as on the
accumulated postretirement benefit obligation. For example, a
one percentage point increase each year in the health-care cost
trend rate would increase the accumulated postretirement benefit
obligation as of December&nbsp;31, 2003, by approximately $447
and the aggregate of the service and interest cost components of
the net periodic postretirement benefit cost by approximately
$50. A one percentage point decrease each year in the
health-care cost trend rate would decrease the accumulated
postretirement benefit obligation as of December&nbsp;31, 2003,
by approximately $407 and the aggregate of the service and
interest cost components of the net periodic postretirement
benefit cost by approximately $44. The weighted-average discount
rate used in determining the benefit obligation was 6.0% in 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">9.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Employee Benefit Plan</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company sponsors a 401(k) defined
contribution retirement savings plan made available to virtually
all employees. Each employee may elect to defer a portion of his
or her compensation, subject to certain limitations. During the
year ended December&nbsp;31, 2003, the Company matched employee
contributions up to a maximum of 4% for hourly employees and
matched employee contributions up to 2% for salaried employees.
Total Company contributions to the plan were $496 in 2003.
</FONT>

<P align="left">
<B><FONT size="2">10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-Term
Debt</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Long-term debt consisted of the following at
December&nbsp;31, 2003:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revolving loan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Term loan&nbsp;A
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Term loan&nbsp;B
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">180,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Current portion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,300</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">170,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company, through its wholly owned subsidiary
(CCI), entered into a credit agreement, dated as of
December&nbsp;31, 2002, with various financial institutions
which provides for aggregate borrowings of $195,000, consisting
of a $5,000 revolving credit facility, a $120,000 Term
Loan&nbsp;A facility and a $70,000 Term Loan&nbsp;B facility.
Borrowings under the credit agreement are secured by
substantially all of the assets of the Company.
</FONT>

<P align="center"><FONT size="2">F-18
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The term loans are due in quarterly installments
which increase annually, with all borrowings under Term
Loan&nbsp;A and Term Loan&nbsp;B due June&nbsp;30, 2011 and
September&nbsp;30, 2012, respectively. Beginning June&nbsp;30,
2009, the revolving credit facility is permanently reduced by
$1,666 annually, with the facility expiring on June&nbsp;30,
2011. Within 120&nbsp;days after the end of the Company&#146;s
fiscal year, commencing with December&nbsp;31, 2003, the Company
shall be obligated to repay the loans in an amount equal to 50%
of the excess cash flow for such fiscal year, provided that
certain leverage ratios are maintained at the end of the fiscal
year. Excess cash flow is defined as EBITDA less fixed charges,
less net change in working capital.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At the Company&#146;s election, borrowings bear
interest at fluctuating interest rates based on (i)&nbsp;a
&#147;base rate&#148; (the higher of the prime rate or 0.5%
above the rate on overnight federal funds transactions) or
(ii)&nbsp;the London Interbank Offered Rate, or LIBOR, plus, in
either case, the applicable margin within the relevant range of
margins provided in our credit agreement. The applicable margin
is based upon the Company&#146;s total leverage ratio. As of
December&nbsp;31, 2003, the margins for interest rates on LIBOR
based loans was 3.5% on the Term Loan&nbsp;A component and 3.75%
under the Term Loan&nbsp;B component. At December&nbsp;31, 2003,
the average rate, including swaps (see Note&nbsp;11), of
interest on our debt facilities was 6.05%&nbsp;per annum.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The credit agreement contains various provisions
and covenants which include, among other items, restrictions on
the ability to pay dividends, incur additional indebtedness, and
issuance of capital stock as well as limitations on future
capital expenditures. The Company has also agreed to maintain
certain financial ratios, including interest coverage, fixed
charge coverage, debt service coverage and leverage ratios (all
as defined in the credit agreement).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Future maturities of long-term debt as of
December&nbsp;31, 2003 are as follows: 2004&nbsp;&#151; $10,300,
2005&nbsp;&#151; $11,600, 2006&nbsp;&#151; $15,900,
2007&nbsp;&#151; $17,900, 2008&nbsp;&#151; $21,200,
Thereafter&nbsp;&#151; $103,500.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">11.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Derivative Instruments</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company entered into interest rate swap
agreements that effectively convert a portion of the
floating-rate debt to a fixed-rate basis, thus reducing the
impact of interest rate changes on future interest expense. At
December&nbsp;31, 2003, the Company has interest rate swap
agreements covering $100.0&nbsp;million in aggregate principal
amount of its variable rate debt at fixed LIBOR rates ranging
from 3.03% to 3.40%.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003 there was no gain or loss related to
the ineffective portion of hedging instruments in our interest
expense. The accumulated loss on derivative instruments of $515,
net of tax, is included in Other Comprehensive Loss at
December&nbsp;31, 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">12.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Redeemable Preferred Shares and Member&#146;s
    Equity</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Preferred Shares</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has authorized 182,000 Class&nbsp;A
Preferred Shares of which 93,000&nbsp;shares were issued and
outstanding at December&nbsp;31, 2003. The preferred shares are
redeemable to the holders with a preferred return on their
capital contributions at the rate of 9%&nbsp;per annum. The
preferred return is cumulative and compounded annually in
arrears on December&nbsp;31, of each year.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At any time on or after June&nbsp;30, 2007
certain members have the right to require the Company to redeem
all of their Class&nbsp;A Preferred Shares and common shares.
Preferred shares are redeemable at a price equal to
$1,000&nbsp;per share plus any accrued but unpaid preferred
return and common shares are redeemable based upon an appraised
value by a third party.
</FONT>

<P align="center"><FONT size="2">F-19
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Common Shares</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has authorized 10,000,000&nbsp;Common
Shares of which 9,975,000&nbsp;shares were issued and
outstanding at December&nbsp;31, 2003.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">13.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Restricted Share Plan</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2003, the Company established the 2003
Restricted Share Plan which provides for the issuance of
1,000,000&nbsp;common shares to key employees as an incentive to
enhance their long-term performance as well as an incentive to
join or remain with the Company. In November 2003, Homebase
granted 975,000&nbsp;shares of its common stock to certain
Company executives under its 2003 Restricted Share Plan. 25% of
these shares will vest with the individuals every
December&nbsp;31, beginning December&nbsp;31, 2004 through
December&nbsp;31, 2007.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">14.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Environmental Remediation
    Liabilities</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Environmental remediation liabilities were $931
at December&nbsp;31, 2003. These liabilities relate to
anticipated remediation and monitoring costs in respect of two
sites and are undiscounted.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">15.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Operating Leases</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has entered into several operating
lease agreements covering buildings and office space and office
equipment. The terms of these agreements generally range from
three to five years. Rent expense totaled $2,043 in 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Future minimum lease payments under existing
agreements for each of the next five years ending
December&nbsp;31 and thereafter are as follows: 2004&nbsp;&#151;
$1,709, 2005&nbsp;&#151; $419, 2006&nbsp;&#151; $364,
2007&nbsp;&#151; $312, 2008&nbsp;&#151; $88,
thereafter&nbsp;&#151; $697.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">16.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Net Loss per Common Share</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the computation of
net loss per common share:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="84%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss applicable to common shareholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,003</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average number of common shares
    outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss per common share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.33</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Shares issued pursuant to the Restricted Share
Plan (Note&nbsp;13) are not included in the computation of net
loss per share as their effect was anti-dilutive.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">17.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Business Segments</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company is viewed and managed as two
separate, but highly integrated, reportable business segments,
&#147;Illinois Telephone Operations&#148; and &#147;Other
Illinois Operations&#148;. Illinois Telephone Operations
consists of local telephone, long-distance and network access
services, and data and Internet products provided to both
residential and business customers, primarily in central
Illinois. ICTC and CCNS are included in Illinois Telephone
Operations during the period covered in these consolidated
financial statements. All other entities comprise &#147;Other
Illinois Operations&#148;. Services include operator services
products, telecommunications services to state prison
facilities, equipment sales and maintenance,
</FONT>

<P align="center"><FONT size="2">F-20
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousand, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">
<FONT size="2">inbound/outbound telemarketing and fulfillment
services, and paging services. Management evaluates the
performance of these business segments based upon revenue, gross
margins, and net operating income.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The business segment reporting information as of
and for the year ended December&nbsp;31, 2003 is as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="63%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Illinois</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Telephone</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Telephone</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">90,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,048</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132,330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,518</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,543</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,764</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,505</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,269</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,231</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,739</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,488</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,988</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net operating income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,045</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">245,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71,740</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">317,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">78,443</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">99,554</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,117</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,179</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">18.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Quarterly Financial Information
    (unaudited)</FONT></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="43%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">March&nbsp;31</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,772</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,224</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,741</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,226</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,574</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,762</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,499</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,945</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,568</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,941</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,285</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,494</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,938</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,698</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,346</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,401</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,340</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other expenses, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,889</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,961</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income tax expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">902</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,073</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,186</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,353</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,427</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-21
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED FINANCIAL STATEMENTS</FONT></B>

<DIV align="center">
<B><FONT size="2">December 30, 2002 and December 31,
2001</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">with Report of Independent Registered Public
Accounting Firm</FONT></B>
</DIV>

<P align="center"><FONT size="2">F-22
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM</FONT></B>

<P align="left">
<FONT size="2">Board of Directors
</FONT>

<DIV align="left">
<FONT size="2">Consolidated Communications, Inc.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have audited the accompanying combined balance
sheets as of December&nbsp;30, 2002 and December&nbsp;31, 2001,
of the corporations and lines of business listed in Note&nbsp;1
(then owned by McLeodUSA Inc.), and the related combined
statements of income, changes in parent company investment, and
cash flows for each of the years then ended. These financial
statements are the responsibility of management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our opinion, the combined financial statements
referred to above present fairly, in all material respects, the
combined financial position at December&nbsp;30, 2002 and
December&nbsp;31, 2001, of the corporations and lines of
business listed in Note&nbsp;1, and the combined results of
their operations and their cash flows for the years then ended,
in conformity with U.S.&nbsp;generally accepted accounting
principles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As discussed in Note&nbsp;3 to the combined
financial statements, effective January&nbsp;1, 2002, the
corporations and lines of business listed in Note&nbsp;1
discontinued the amortization of goodwill in accordance with
Statement of Financial Accounting Standards No.&nbsp;142,
&#147;Goodwill and Other Intangible Assets&#148;.
</FONT>

<P align="left">
<FONT size="2">Chicago, Illinois
</FONT>

<DIV align="left">
<FONT size="2">March&nbsp;8, 2004
</FONT>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="right">
    <FONT size="2">/S/ ERNST&nbsp;&#38; YOUNG LLP
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">F-23
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>

<P align="center">
<B><FONT size="2">COMBINED BALANCE SHEETS</FONT></B>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="60%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;30</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="11" align="center" valign="top">
    <B><FONT size="2">ASSETS</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,089</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable, net of allowances of $1,850
    and $1,142 at December&nbsp;30, 2002 and December&nbsp;31, 2001,
    respectively
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,447</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,399</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,294</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred directory costs and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">369</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,151</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,914</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,143</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,672</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant, and equipment:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Land and buildings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,825</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Network and outside plant facilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,481</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">187,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture, fixtures and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Work in process
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">260,587</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">245,552</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Accumulated depreciation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">155,526</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">145,046</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net property, plant, and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,506</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangibles and other assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,324</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,324</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,603</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred charges and other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">333</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total intangibles and other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">108,120</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118,279</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">236,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="11"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="11" align="center" valign="top">
    <B><FONT size="2">LIABILITIES AND PARENT COMPANY
    INVESTMENT</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current portion of capital lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">479</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,725</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Advance billings and customer deposits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,307</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,854</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,817</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,716</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unamortized investment tax credits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,815</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,977</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pension benefit obligations and other
    postretirement obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,471</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,965</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,178</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">903</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt, excluding current maturities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,661</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term capital lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Commitments and contingencies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,102</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Parent company investment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">174,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">178,142</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and parent company investment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">236,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes.
</FONT>

<P align="center"><FONT size="2">F-24
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>

<P align="center">
<B><FONT size="2">COMBINED STATEMENTS OF INCOME</FONT></B>

<DIV align="center">
<B><FONT size="2">Years Ended December&nbsp;30, 2002 and
December&nbsp;31, 2001</FONT></B>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="74%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Amounts in</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Operating revenues</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Illinois Telephone Operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,745</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">79,803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Illinois Operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,758</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109,904</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,561</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Operating expenses</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general, and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,171</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,544</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,780</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,980</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">106,664</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,897</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (expense):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,652</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,821</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gain on sale of assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,208</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">428</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total other income (expense)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,218</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,949</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,706</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,846</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,670</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,036</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes.
</FONT>

<P align="center"><FONT size="2">F-25
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>

<P align="center">
<B><FONT size="2">COMBINED STATEMENTS OF CHANGES IN PARENT
COMPANY INVESTMENT</FONT></B>

<DIV align="center">
<B><FONT size="2">Years Ended December&nbsp;30, 2002 and
December&nbsp;31, 2001</FONT></B>
</DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="70%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="13%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at December&nbsp;31, 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191,571</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net settlement with parent
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19,985</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at December&nbsp;31, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">178,142</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,036</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net settlement with parent
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,694</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance at December&nbsp;30, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">174,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes.
</FONT>

<P align="center"><FONT size="2">F-26
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>

<P align="center">
<B><FONT size="2">COMBINED STATEMENTS OF CASH FLOWS</FONT></B>

<DIV align="center">
<B><FONT size="2">Years Ended December&nbsp;30, 2002 and
December&nbsp;31, 2001</FONT></B>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="65%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Amounts in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Cash flows from operating activities</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,036</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to reconcile net income to net cash
    provided by operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,544</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,780</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,933</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,160</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other deferred credits, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,166</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Changes in net operating assets and liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(660</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">805</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(595</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(105</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(495</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,102</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,247</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Advance billings and customer deposits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">453</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued income taxes and liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,604</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,586</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,035</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,336</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,537</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,254</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Cash flows from investing activities</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant, and equipment expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,137</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,057</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used in investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,137</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,057</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Cash flows from financing activities</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(239</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Repayment of long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(68</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(73</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred charges and other noncurrent assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">153</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Settle intercompany receivables, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,515</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,727</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used in financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,564</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,886</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net increase (decrease) in cash and cash
    equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,164</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,311</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at beginning of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at end of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,089</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Non-cash investing and financing
    activities</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment additions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,821</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Supplemental disclosures of cash flow
    information</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash paid for interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,643</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,765</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See accompanying notes.
</FONT>

<P align="center"><FONT size="2">F-27
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Amounts in thousands)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">1.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Nature of Business</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications, Inc., or CCI, is a
direct, wholly owned subsidiary of Consolidated Communications
Holdings, Inc. or Illinois Holdings. Illinois Holdings, in turn,
is a direct, wholly owned subsidiary of Homebase Acquisition,
LLC, or Homebase.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Homebase, a Delaware limited liability company
that was formed on June&nbsp;26, 2002, entered into a sale and
purchase agreement with McLeodUSA, Inc. in July 2002 and the
transaction was concluded on December&nbsp;31, 2002. CCI was
formed on August&nbsp;6, 2002 to acquire a highly integrated
group of companies and lines of business as described below. The
accompanying combined financial statements include the accounts
of Illinois Consolidated Telephone Company and the Related
Businesses (the Business). During the periods covered by these
financial statements the Business operated under the ownership
of McLeodUSA, Inc., or McLeodUSA. The Business comprised of the
following entities and lines of business:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Illinois Consolidated Telephone Company
(ICTC)&nbsp;provides a broad range of local exchange
telecommunications services including local dialtone and central
office based vertical services features, private line services,
data services (including DSL), intraLATA toll and carrier access
services. Operations are subject to regulation by the Illinois
Commerce Commission and the Federal Communications Commission.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications Operator Services
provides both live and automated local and long distance
assistance as well as national directory assistance on a
wholesale and retail basis. CCOS also provides specialized
message center services and corporate and governmental attendant
services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">McLeodUSA Public Services, Inc. primarily offers
managed local and long distance automated calling from county
jails and state prison facilities in Illinois. These inmate
services include fraud control, customer service, call
management, and technical field support.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications Business Systems
sells and installs telecommunications equipment, and performs
cabling, wiring, and equipment maintenance services to business
and residential customers within the ICTC service territory and
to business customers in adjacent markets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Market Response, Inc. is a full
service teleservices business providing inbound and outbound
telemarketing and backend fulfillment services to corporate
clients from diverse industry segments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Consolidated Communications Mobile Services
provides one-way messaging service for both personal and
business accounts. The basic paging service has been
supplemented with complimentary mobile information services
including Internet, 800 service, info text and voice mail.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Business has two reportable segments,
Illinois Telephone Operations and Other Illinois Operations (see
note&nbsp;14, Business Segments). ICTC is represented in
Illinois Telephone Operations while all other entities and lines
of business are reflected in Other Illinois Operations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">2.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Basis of Preparation</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These combined financial statements present, on a
historical cost basis, the combined assets, liabilities,
revenues and expenses related to the entities and businesses as
if the Business had existed as an entity separate from
McLeodUSA. The historical cost basis includes the allocation of
goodwill and other intangible assets resulting from
McLeodUSA&#146;s purchase of the Business in 1997. As such, the
accompanying combined financial statements are not intended to
be a complete representation of the
</FONT>

<P align="center"><FONT size="2">F-28
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">
<FONT size="2">assets, liabilities or the results of operations
of the Business on a stand-alone basis. All material
transactions between businesses included in these financial
statements have been eliminated. Comprehensive income is
equivalent to net income for all periods presented.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">3.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Summary of Significant Accounting
    Policies</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Regulatory Accounting</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ICTC, an independent local exchange carrier,
follows the accounting for regulated enterprises prescribed by
Statement of Financial Accounting Standards
(SFAS)&nbsp;No.&nbsp;71, &#147;Accounting for the Effects of
Certain Types of Regulation&#148; which permits rates
(tariffs)&nbsp;to be set at levels intended to recover estimated
costs of providing regulated services or products, including
capital costs. SFAS&nbsp;No.&nbsp;71 requires ICTC to depreciate
wireline plant over the useful lives approved by the regulators,
which could be different than the useful lives that would
otherwise be determined by management. SFAS&nbsp;No.&nbsp;71
also requires deferral of certain costs and obligations based
upon approvals received from regulators to permit recovery of
such amounts in future years. Criteria that would give rise to
the discontinuance of SFAS&nbsp;No.&nbsp;71 include
(1)&nbsp;increasing competition restricting the wireline
business&#146; ability to establish prices to recover specific
costs and (2)&nbsp;significant changes in the manner by which
rates are set by regulators from cost-based regulation to
another form of regulation.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Use of Estimates</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual
results could differ from the estimates and assumptions used.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Cash Equivalents</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cash equivalents consist of short-term, highly
liquid investments with an original maturity of three months or
less.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Accounts Receivable and Allowance for
    Doubtful Accounts</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Accounts receivable consist primarily of amounts
due to the Business from normal activities. Accounts receivable
are determined to be past due when the amount is overdue based
on the payment terms with the customer. In certain
circumstances, the Business requires deposits from customers to
mitigate potential risk associated with receivables. The
Business maintains an allowance for doubtful accounts to reflect
management&#146;s best estimate of probable losses inherent in
the accounts receivable balance. Management determines the
allowance balance based on known troubled accounts, historical
experience and other currently available evidence. Accounts
receivable are charged to the allowance for doubtful accounts
when we have determined that the receivable will not be
collected.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Inventory</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Inventory consists mainly of copper and fiber
cable that will be used for ICTC network expansion and upgrades
as well as materials and equipment used in the maintenance and
installation of telephone systems. All inventory is stated at
the lower of average cost or market.
</FONT>

<P align="center"><FONT size="2">F-29
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Investments</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Investments primarily consist of the net cash
surrender value of variable whole life insurance policies to
cover deferred compensation liabilities for certain executives.
These investments are carried at fair value. The deferred
compensation arrangement was terminated in January 2002, and
accordingly, proceeds received from the insurance policies were
used to pay the deferred compensation obligations.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Intangible Assets and
    Goodwill</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Goodwill is stated at cost and was amortized
using the straight-line method over thirty years. Effective
January&nbsp;1, 2002, the Business adopted
SFAS&nbsp;No.&nbsp;142, &#147;Goodwill and Other Intangible
Assets&#148; (SFAS&nbsp;142), at which time amortization ceased.
Intangible assets are stated at cost and consist of customer
relationships, tradenames, and software and are being amortized
over their useful lives which range from five to ten years.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table shows the Business&#146; net
income for 2001, adjusted for the impact of SFAS&nbsp;142:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="87%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income as reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Add: Amortization of goodwill prior to the
    adoption of SFAS&nbsp;142
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,541</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income, as adjusted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,097</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Property, Plant, and
    Equipment</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Property, plant and equipment are recorded at
cost. The cost of additions, replacements and major improvements
is capitalized, while repairs and maintenance are charged to
expense. When property, plant and equipment are retired from
ICTC, the original cost, net of salvage, is charged against
accumulated depreciation, with no gain or loss recognized in
accordance with the composite group remaining life methodology
used for regulated telephone plant assets. When property
applicable to non-regulated operations is sold or retired, the
assets and related accumulated depreciation are removed from the
accounts and the associated gain or loss is recognized.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The provision for depreciation of regulated
property and equipment is computed using rates and lives
approved by the Illinois Commerce Commission. The provision is
equivalent to annual composite depreciation rates of 5.59% and
6.00% for 2002 and 2001, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The provision for depreciation of nonregulated
property and equipment is recorded using the straight-line
method based upon the following estimated useful lives:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="89%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Years</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Buildings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15-20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Telecommunications networks
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5-15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture, fixtures, and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3-10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Depreciation of assets recorded under capital
leases is included within depreciation and amortization expense.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Revenue Recognition</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Wireline local access revenues are recognized
over the period that the service is provided. Nonrecurring
installation revenues are deferred upon service activation and
are recognized over the shorter of three to five years or the
determined useful life. The associated costs are recorded in the
period in
</FONT>

<P align="center"><FONT size="2">F-30
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">
<FONT size="2">which they are incurred. Revenues from other
telecommunications services, including network access charges,
custom calling feature revenues, billing and collection
services, long distance and private line services, Internet
service provider charges, operator services, and paging services
are recognized monthly as services are provided.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Telephone equipment revenues generated from
retail channels are recorded at the point of sale.
Telecommunications systems and structured cabling project
revenues are recognized upon completion and billing of the
project. Maintenance services are provided on both a contract
and time and material basis and are recorded when the service is
provided.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Teleservices revenues include both inbound and
outbound calling as well as fulfillment services. All revenues
are recorded as program activity is completed.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Advertising Costs</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The costs of advertising are charged to expense
as incurred. Advertising expenses totaled $1,758 and $865 in
2002 and 2001 respectively.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Financial Instruments</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;30, 2002 and December&nbsp;31,
2001, the Business&#146; financial instruments consist of cash
and cash equivalents, accounts receivable and payable, long-term
debt and capital lease obligations. The fair values of the
financial instruments were not materially different from their
carrying value except for long-term debt. The aggregate fair
value of the Business&#146; long-term debt (including current
maturities) was approximately $24,212 and $24,427 at
December&nbsp;30, 2002 and December&nbsp;31, 2001, respectively.
Fair values for the long-term debt were determined using
discounted cash flow analyses based on the Business&#146;
current incremental interest rates for similar instruments.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Deferred Income Taxes</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Deferred tax assets and liabilities are
recognized for the expected tax consequences of temporary
differences between the tax bases of assets and liabilities and
their reported amounts.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Stock-Based Compensation</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Business follows the provisions of Accounting
Principle Board Opinion No.&nbsp;25, &#147;Accounting for Stocks
Issued to Employees&#148; (APB No.&nbsp;25) and related
interpretations in accounting for its employee stock options.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In September 1997, McLeodUSA granted 837,245
stock options to the Business&#146; employees at an exercise
price of $24.50&nbsp;per share. The aggregate intrinsic value of
these options at the date of grant exceeded the aggregate
exercise price by approximately $9,000. As a result, the
Business has amortized the stock compensation expense over the
four-year vesting period of the options. Compensation cost of
$1,351 has been charged to income for the year-ended
December&nbsp;31, 2001, using the intrinsic value based method
as prescribed by APB No.&nbsp;25. There is no charge for
stock-based compensation in 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pro forma information regarding net income is
required by FASB Statement No.&nbsp;123, &#147;Accounting for
Stock-based Compensation&#148; (SFAS&nbsp;No.&nbsp;123), as
amended by FASB Statement No.&nbsp;148, &#147;Accounting for
Stock-based Compensation&nbsp;&#151; Transition and
Disclosure&#148; (SFAS&nbsp;No.&nbsp;148). Had compensation cost
</FONT>

<P align="center"><FONT size="2">F-31
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">
<FONT size="2">been determined based on the grant date fair
value of awards granted during 2001, as prescribed by
SFAS&nbsp;No.&nbsp;123, reported net income would have been as
follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="89%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income as reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Add stock based compensation expense included in
    the determination of net income as reported, net of tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">838</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less stock-based compensation expense that would
    have been included in the determination of net income if the
    fair value method had been applied to awards, net of tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,331</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,063</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Recent Accounting
    Pronouncements</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2001, the FASB issued Statement of
Financial Accounting Standards No.&nbsp;143, &#147;Accounting
for Asset Retirement Obligations&#148; (SFAS&nbsp;143).
SFAS&nbsp;143 requires companies to record liabilities equal to
the fair value of their asset retirement obligations when they
are incurred. When the liability is initially recorded,
companies capitalize an equivalent amount as part of the cost of
the asset. The Business is required to adopt SFAS&nbsp;143 on
January&nbsp;1, 2003, and it does not believe that the adoption
of this new standard will have a material effect on the 2003
consolidated financial statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2001, the Financial Accounting
Standards Board issued SFAS&nbsp;144, &#147;Accounting for the
Impairment or Disposal of Long-Lived Assets.&#148; SFAS&nbsp;144
retains the requirement to recognize an impairment loss only
where the carrying value of a long-lived asset is not
recoverable from its undiscounted cash flows and to measure such
loss as the difference between the carrying amount and fair
value of the asset. SFAS&nbsp;144, among other things, changes
the criteria that have to be met in order to classify an asset
held-for-sale and requires that operating losses from
discontinued operations be recognized in the period that the
losses are incurred rather than as of the measurement date.
SFAS&nbsp;144 was adopted for the Business&#146; 2002 accounting
period and did not have a material impact on the combined
financial statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2002, the FASB issued SFAS&nbsp;146,
&#147;Accounting for Costs Associated with Exit or Disposal
Activities.&#148; Under SFAS&nbsp;146, a liability for costs
associated with an exit or disposal activity should be
recognized when the liability is incurred. Previously, such a
liability was recognized at the date of commitment to an exit
plan. SFAS&nbsp;146 also makes some changes to the timing of
recognizing severance pay costs where benefit arrangements
require employees to render future service beyond a minimum
retention period. SFAS&nbsp;146 is effective for exit or
disposal activities that are initiated after December&nbsp;31,
2002. The Business is required to adopt SFAS&nbsp;146 on
January&nbsp;1, 2003, and it does not believe that the adoption
of this new standard will have a material effect on the 2003
consolidated financial statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2002, the FASB issued Interpretation
No.&nbsp;45 (FIN&nbsp;45), &#147;Guarantor&#146;s Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others.&#148; FIN&nbsp;45 requires
certain guarantees to be recorded at fair value, which is
different from current practice, which is generally to record a
liability only when a loss is probable and reasonably estimable.
FIN&nbsp;45 also requires a guarantor to make certain new
disclosures in the financial statements; these disclosure
requirements are effective for the Business&#146; 2002 reporting
period. The Business is required to adopt the recognition and
measurement provisions of FIN&nbsp;45 on a prospective basis
with respect to guarantees issued or modified after
December&nbsp;31, 2002. The Business does not believe the
adoption of FIN&nbsp;45 will have a material effect on its 2003
consolidated financial statements.
</FONT>

<P align="center"><FONT size="2">F-32
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Interpretation No.&nbsp;46 (FIN&nbsp;46),
&#147;Consolidation of Variable Interest Entities&#148;, was
issued by the FASB in January 2003. FIN&nbsp;46 requires a
company to consolidate a variable interest entity if the company
is subject to a majority of the risk of loss from the variable
interest entity&#146;s activities or is entitled to receive a
majority of the entity&#146;s residual returns. The
interpretation also requires disclosures about variable interest
entities that the company is not required to consolidate but in
which it has a significant variable interest. FIN&nbsp;46 is
immediately effective for variable interest entities created on
or after January&nbsp;31, 2003. For variable interest entities
created or acquired prior to February&nbsp;1, 2003, the
provisions of FIN&nbsp;46 will become effective for the periods
after March&nbsp;15, 2004, except for Special Purpose Entities,
to which the provisions apply as of December&nbsp;31, 2003. The
Business has not yet determined the effect of adopting
FIN&nbsp;46, if any, on its statement of income or financial
position.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">4.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Affiliated Transactions</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">McLeodUSA provided corporate communications,
human resources, treasury and other general and administrative
services that are charged at levels consistent with the cost
allocation manual filed with the ICC. Allocations of the costs
incurred were charged to ICTC and amounted to $910 and $2,003 in
2002 and 2001 respectively, which have been recorded in general
and administrative expense.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">5.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Gain on Sale of Assets</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ICTC sold approximately 2,750 local access lines
in September 2001 to Fairpoint Communications. These two,
non-contiguous geographically, high maintenance properties were
non-strategic to our ongoing operations. Net proceeds of the
sale amounted to $7,200 and the pre-tax gain recognized as a
result of this asset disposition was $5,208.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">6.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Goodwill and Intangible Assets</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Goodwill, for acquisitions completed prior to
June&nbsp;30, 2001, was amortized using the straight-line method
over 30&nbsp;years. Amortization expense for 2001 related to
goodwill was $4,541. Effective January&nbsp;1, 2002, the
Business adopted SFAS&nbsp;142. Accordingly, goodwill and other
indefinite lived intangibles are no longer amortized but are
subject to an annual impairment test. Other intangible assets
will continue to be amortized over their useful lives. We have
determined that software and customer lists have a useful life
of five years. The Business&#146; tradenames have an estimated
useful life of ten years. Amortization of tradenames will
continue for the next five years. The amortization expense will
be $1,360 during each of the next four years through 2006, and
$1,022 in 2007.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">7.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Income Taxes</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For federal income tax purposes, the Business was
included in a consolidated tax return along with other companies
in the McLeodUSA group during 2001 and 2002. For the purpose of
these combined financial statements, the provision for income
taxes has been computed on a stand-alone basis as if the
Business had filed a separate return for the periods presented
and was not a member of a group. However, due to the fact that
the McLeodUSA group had a consolidated net operating loss, the
Business did not make any cash payments for income taxes during
2002 and 2001. Therefore, income taxes that would be payable on
a stand-alone basis have been settled as an increase in parent
company investment.
</FONT>

<P align="center"><FONT size="2">F-33
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The components of the income tax provision
charged to expense are as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="74%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Federal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,628</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,372</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Current
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Federal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,297</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,619</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(636</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(541</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Deferred
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,933</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,160</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investment tax credit amortized
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(265</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(265</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total income tax expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,670</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a reconciliation between the
statutory federal income tax rate for each of the past two
periods and the Business&#146; overall effective tax rate:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="81%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Statutory federal income tax rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State income taxes, net of federal benefit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill amortization for stock purchases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effective overall income tax rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-34
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The temporary differences which give rise to
significant portions of the net deferred tax liability at
December&nbsp;30, 2002 and December&nbsp;31, 2001, are as
follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="71%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current deferred income tax assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued vacation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">582</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">408</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reserve for uncollectible accounts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">541</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">632</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenue and regulatory reserves
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,426</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,764</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current deferred income tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,914</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,143</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Noncurrent deferred income tax assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pension and post retirement expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,771</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,316</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total noncurrent deferred income tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,091</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,561</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Noncurrent deferred income tax liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciable property
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,740</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,444</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,685</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,613</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Regulatory liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(481</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(481</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total noncurrent deferred income tax liability
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,906</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,538</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net noncurrent deferred income tax liability
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,815</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,977</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total net deferred tax liability
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,401</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,834</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">8.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Pension Costs and Other Postretirement
    Benefits</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ICTC maintains a noncontributory defined pension
and death benefit plan covering substantially all of its hourly
employees. The pension benefit formula used in the determination
of pension cost is based on the highest five consecutive
calendar years&#146; base earnings within the last ten calendar
years immediately preceding retirement or termination. It is
ICTC&#146;s policy to fund pension costs as they accrue subject
to any applicable Internal Revenue Code limitations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The changes in benefit obligation for 2002 and
2001 are as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="77%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Projected benefit obligation at beginning of
    period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,547</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">807</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">749</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefits paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,374</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,224</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Actuarial loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Projected benefit obligation at end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-35
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The changes in plan assets for 2002 and 2001
relate to the following:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="77%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fair value of plan assets at beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,769</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,018</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Actual return on plan assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,949</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefits paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,374</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,224</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fair value of plan assets at end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,769</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The reconciliations of the funded status of the
pension plans as of December&nbsp;30, 2002 and December&nbsp;31,
2001, are as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="75%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Funded status
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,191</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,390</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized net actuarial gain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(220</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,183</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized prior service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,536</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,018</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net amount recognized at period-end
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,875</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,775</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The components of net periodic benefit cost for
2002 and 2001 are as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="77%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">807</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">749</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expected return on plan assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,940</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,203</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of prior service costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of transitional (asset) or obligation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(39</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Immediate recognition of voluntary early
    retirement offer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Recognized actuarial gain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(223</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(725</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net periodic benefit cost/(income)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">366</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The assets of the plan consist principally of
equity and fixed income securities. Actuarial assumptions used
to calculate the projected benefit obligation included a
discount rate of 6.75% and 7.0% for 2002 and 2001, respectively.
Future compensation level increases were estimated to be 4.0%
and 5.0% in 2002 and 2001, respectively. The assumed long-term
rate of return on plan assets was 8.0% for 2002 and 2001,
respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to providing pension benefits, ICTC
provides an optional retiree medical program to its salaried and
union retirees and spouses under age&nbsp;65 and life insurance
coverage for the salaried retirees. All retirees are required to
contribute to the cost of their medical coverage while the
salaried life insurance is provided at no cost to the retiree.
</FONT>

<P align="center"><FONT size="2">F-36
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following postretirement benefit plan
disclosures relate to ICTC and Related Businesses. The changes
in the postretirement benefit obligation for 2002 and 2001 are
as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="79%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefit obligation at beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">143</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">117</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">424</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefits paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(393</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(180</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Actuarial (gain)&nbsp;or loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefit obligation at end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The changes in plan assets for 2002 and 2001
relate to the following:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="81%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fair value of plan assets at beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Employer contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">393</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefits paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(393</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(180</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fair value of plan assets at end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The reconciliations of the funded status of the
postretirement benefit plan as of December&nbsp;30, 2002 and
December&nbsp;31, 2001, are as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="75%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Funded status
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,966</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,710</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Contributions made after measurement date and
    before fiscal year end
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized net actuarial gain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,018</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,030</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized transition obligation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,184</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized prior service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,519</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,694</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net amount recognized at period-end
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,596</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,190</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The components of postretirement benefit cost for
2002 and 2001 are as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="81%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">143</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">117</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">424</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of prior service costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(174</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(174</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of transitional obligation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Recognized actuarial gain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(176</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net periodic benefit cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The postretirement benefit obligation is
calculated assuming that health-care costs increased by 12.0% in
2002 and 7.5% in 2001, and that the rate of increase thereafter
(the health-care cost trend rate) will decline to 6.0% in 2008
and subsequent years. The health-care cost trend rate has a
significant effect on the amounts reported for costs each year
as well as on the accumulated postretirement benefit obligation.
For example, a one percentage point increase each year in the
health-care cost trend rate would increase the accumulated
postretirement benefit obligation as of December&nbsp;30, 2002,
by approximately $643 and
</FONT>

<P align="center"><FONT size="2">F-37
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">
<FONT size="2">the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost by
approximately&nbsp;$62. A one percentage point decrease each
year in the health-care cost trend rate would decrease the
accumulated postretirement benefit obligation as of
December&nbsp;30, 2002, by approximately $529 and the aggregate
of the service and interest cost components of the net periodic
postretirement benefit cost by approximately&nbsp;$50. The
weighted-average discount rate used in determining the benefit
obligation was 6.75% in 2002 and 7.0% in 2001.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">9.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Employee Benefit Plan</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Business provides a 401(k) defined
contribution retirement savings plan made available to virtually
all employees. Each employee may elect to defer a portion of his
or her compensation subject to certain limitations. During the
periods covered in this report, for all hourly employees
participating in the plan, the Business matched employee
contributions up to a maximum of 4%. For salaried employees
during the same periods, McLeodUSA contributed a matching amount
in McLeodUSA company stock. The Business&#146; contributions
towards the hourly plan totaled $329 in 2002 and $341 in 2001.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">10.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Long-Term Debt</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ICTC&#146;s first mortgage bonds are
collateralized by substantially all real and personal property.
The Series&nbsp;K Bonds and Series&nbsp;L Bonds provide for
early redemption by payment of the principal amount to be
redeemed, any accrued interest and a make-whole amount as
described in the indenture. As a result of the Series&nbsp;K
Bond and Series&nbsp;L Bond issues, ICTC is restricted from
declaring or paying any dividends or distributions, subject to
certain exceptions, that would reduce the retained earnings
balance below $915.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">CMR entered into a $1,250 mortgage on their
building in Charleston, Illinois, on March&nbsp;18, 1994. A
floating interest rate was set at 100&nbsp;basis points above
the Harris Bank prime with a floor and cap of 5% and 9%,
respectively. The note matures on March&nbsp;18, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Long-term debt consisted of the following at
December&nbsp;31:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="74%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">ICTC First mortgage bonds:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Series&nbsp;K, 8.620%, due September&nbsp;1, 2022
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Series&nbsp;L, 7.050%, due October&nbsp;1, 2013
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CMR mortgage bond
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">661</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,661</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As disclosed in Note&nbsp;15 below, the long-term
debt balances were settled immediately following the acquisition
of the Business by Homebase Acquisition LLC on December&nbsp;31,
2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">11.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Environmental Remediation
    Liabilities</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Environmental remediation liabilities are $931
and $500 at December&nbsp;30, 2002 and December&nbsp;31, 2001,
respectively. These liabilities relate to anticipated
remediation and monitoring costs in respect of two sites and are
undiscounted.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">12.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Operating Leases</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Business has operating lease agreements
covering buildings and office space and office equipment. The
terms of these agreements generally range from three to five
years. Rent expense totaled $1,195 and $1,538 in 2002 and 2001,
respectively.
</FONT>

<P align="center"><FONT size="2">F-38
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Future minimum lease payments under existing
agreements for each of the next five years ending
December&nbsp;31 and thereafter are as follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Lease</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Payments</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">675</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">457</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">419</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">364</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">312</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008 and thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">815</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,042</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">13.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Capital Leases</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Business has capital lease agreements for
desktop computing equipment. The terms of these agreements range
from 20&nbsp;months to 39&nbsp;months, with the remaining open
leases expiring in 2003. The gross amount of assets recorded
under capital leases was $605 and $1,298 at December&nbsp;30,
2002 and December&nbsp;31, 2001. The related accumulated
amortization at December&nbsp;30, 2002 and December&nbsp;31,
2001, was $458 and $821, respectively. Lease payments related to
these obligations totaled $357 during 2002. The minimum lease
payments in 2003 under these existing agreements totaled $153.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">14.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Business Segments</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Business is viewed and managed as two
separate, but highly integrated, reportable business segments,
&#147;Illinois Telephone Operations&#148; and &#147;Other
Illinois Operations&#148;. Illinois Telephone Operations
consists of local telephone, long-distance and network access
services, and data products provided to both residential and
business customers in central Illinois. ICTC is included in
Telephone Operations during the periods covered in these
combined financial statements. All other entities and lines of
business comprise &#147;Other Illinois Operations&#148;.
Services include operator services products, telecommunications
services to state prison facilities, equipment sales and
maintenance, inbound/outbound telemarketing and fulfillment
services, and paging services. Management evaluates the
performance of these business segments based
</FONT>

<P align="center"><FONT size="2">F-39
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">
<FONT size="2">upon revenue, gross margins, and net operating
income. The business segment reporting information is as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="63%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Illinois</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Telephone</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Illinois</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,745</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109,904</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,745</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,319</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,064</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,947</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,544</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net operating income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,724</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">222,380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,023</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">236,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,265</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,324</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,005</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,132</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,137</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="63%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Illinois</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Telephone</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Illinois</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">79,803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,758</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,561</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">79,803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,045</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,848</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,776</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,395</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,171</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,780</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net operating income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,014</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,883</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,897</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">229,619</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,254</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,265</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,324</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,737</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,057</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">15.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Condensed Combining Financial
    Information</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Payments under the Company&#146;s senior notes
are unconditionally guaranteed, jointly and severally, by all of
the Company&#146;s wholly owned subsidiaries excluding ICTC, the
regulated business (collectively the &#147;Guarantors&#148;).
Financial information concerning the Guarantors as of and for
the years ended December&nbsp;31, 2002 and 2001 is presented
below for purpose of complying with the reporting requirements
of the Guarantor Subsidiaries. The financial information
concerning the Guarantors is being presented through condensed
consolidating financial statements. Separate Guarantor financial
statements have not been presented because management does not
believe that such financials are material to investors.
</FONT>

<P align="center"><FONT size="2">F-40
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A condensed combining balance sheet as of
December&nbsp;30, 2002 follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Guarantor</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">ICTC</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Subsidiaries</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Non-Guarantor)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Eliminations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Combined</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="18" align="center" valign="top">
    <B><FONT size="2">ASSETS</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,089</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,089</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,185</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,475</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,545</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,115</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,185</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,564</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,545</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant&nbsp;&#38; equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,280</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,781</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,265</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,324</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,857</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,957</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,587</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">202,361</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,545</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">236,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="18"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="18" align="center" valign="top">
    <B><FONT size="2">LIABILITIES AND SHAREHOLDERS&#146;
    EQUITY</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current portion of long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">479</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">479</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,545</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,338</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,979</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,545</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,817</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt, excluding current maturities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,509</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total shareholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,977</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">144,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">174,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and shareholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,587</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">202,361</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,545</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">236,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A condensed combining statement of income for the
year ened December&nbsp;30, 2002 follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Guarantor</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">ICTC</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Subsidiaries</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Non-Guarantor)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Combined</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,745</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109,904</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,541</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,439</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,980</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,618</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (expense)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,278</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,218</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,028</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,706</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes (benefit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,820</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,850</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,670</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,858</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,178</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,036</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-41
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A condensed combining statement of cash flows for
the year ened December&nbsp;30, 2002 follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Guarantor</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">ICTC</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Subsidiaries</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Non-Guarantor)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Combined</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,244</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,293</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,537</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(737</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,400</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,137</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used in investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(737</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,400</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,137</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Repayment of long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(68</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(68</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,562</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,934</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,496</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used in financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,630</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,934</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,564</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net decrease in cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,123</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(41</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,164</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">16.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Quarterly Financial Information
    (unaudited)</FONT></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="46%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">March&nbsp;31</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,155</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,998</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,731</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,491</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,915</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,879</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,592</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,539</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,136</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,136</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,137</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net operating income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,450</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,892</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(252</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(305</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(320</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(341</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,183</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,127</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,639</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,316</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,460</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,245</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(279</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="46%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">March&nbsp;31</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">June&nbsp;30</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;31</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,582</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,514</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,764</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,961</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,068</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,920</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,818</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,113</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,471</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,857</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,318</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,866</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,808</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,259</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net operating income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,811</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,411</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,781</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,894</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income(expense), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(338</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(324</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(310</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,921</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">112</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,435</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,359</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,359</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-42
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">17.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Subsequent Event</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Effective December&nbsp;31, 2002, Homebase
purchased the entities and lines of business that comprise the
Business for a total consideration of $271,200 (excluding
acquisition-related expenses) from McLeodUSA. As a result of the
acquisition, the Business&#146; long-term debt of approximately
$20,593 was immediately extinguished. These financial statements
do not include any adjustments that would be required to reflect
this acquisition transaction in the Business&#146; combined
balance sheet.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A condensed combining balance sheet as of
December&nbsp;31, 2001 follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="43%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Guarantor</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">ICTC</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Subsidiaries</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Non-Guarantor)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Eliminations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Combined</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="18" align="center" valign="top">
    <B><FONT size="2">ASSETS</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,123</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,527</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,348</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,419</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,363</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,657</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,348</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,672</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant&nbsp;&#38; equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,541</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,965</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,506</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,265</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,324</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,941</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,371</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,110</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,348</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="18"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="18" align="center" valign="top">
    <B><FONT size="2">LIABILITIES AND SHAREHOLDERS&#146;
    EQUITY</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current portion of long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,046</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,689</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,348</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,387</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,046</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,018</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,348</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,716</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt, excluding current maturities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">661</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,661</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,334</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,020</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total shareholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,069</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149,073</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">178,142</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and shareholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,110</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">209,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,348</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A condensed combining statement of income for the
year ended December&nbsp;31, 2001 follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="55%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Guarantor</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">ICTC</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Subsidiaries</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Non-Guarantor)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Combined</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,758</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">79,803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,561</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,043</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">77,621</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">106,664</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,182</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,897</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (expense)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,879</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,949</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,785</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,846</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes (benefit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,967</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,462</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,094</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-43
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO COMBINED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">December&nbsp;30, 2002 and December&nbsp;31,
2001</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A condensed combining statement of cash flows for
the year ended December&nbsp;31, 2001 follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="55%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Guarantor</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">ICTC</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Subsidiaries</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Non-Guarantor)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Combined</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,254</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,254</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,320</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,737</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,057</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used in investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,320</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,737</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,057</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flows from financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Repayment of long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(73</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(239</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(312</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,891</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,683</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,574</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,964</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,922</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,886</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net increase in cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,970</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">341</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,311</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-44
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>

<DIV align="center">
<B><FONT size="2">Dallas, Texas</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">CONSOLIDATED FINANCIAL STATEMENTS</FONT></B>

<DIV align="center">
<B><FONT size="2">with Report of Independent Registered Public
Accounting Firm</FONT></B>
</DIV>

<P align="center"><FONT size="2">F-45
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM</FONT></B>

<P align="left">
<FONT size="2">To the Board of Directors and Shareholder of
</FONT>

<DIV align="left">
<FONT size="2">TXU Communications Ventures Company
</FONT>
</DIV>

<DIV align="left">
<FONT size="2">Irving, TX
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have audited the accompanying consolidated
balance sheets of TXU Communications Ventures Company and
subsidiaries (the &#147;Company&#148;) as of April&nbsp;13,
2004, December&nbsp;31, 2003 and 2002, and the related
consolidated statements of operations and comprehensive income
(loss), shareholder&#146;s equity, and cash flows for the period
from January&nbsp;1, 2004 to April&nbsp;13, 2004 and each of the
three years in the period ended December&nbsp;31, 2003. These
consolidated financial statements are the responsibility of the
Company&#146;s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of the Company at April&nbsp;13, 2004,
December&nbsp;31, 2003 and 2002, and the results of its
operations and its cash flows for the period from
January&nbsp;1, 2004 to April&nbsp;13, 2004 and each of the
three years in the period ended December&nbsp;31, 2003 in
conformity with accounting principles generally accepted in the
United States of America.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As discussed in Note N to the consolidated
financial statements, effective January&nbsp;1, 2002, the
Company changed its method of accounting for goodwill and other
intangible assets to conform to Statement of Financial
Accounting Standards No.&nbsp;142, &#147;Goodwill and Other
Intangible Assets&#148;.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">DELOITTE&nbsp;&#38; TOUCHE LLP
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Dallas, Texas
</FONT>

<DIV align="left">
<FONT size="2">October&nbsp;15, 2004
</FONT>
</DIV>

<P align="center"><FONT size="2">F-46
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED BALANCE SHEETS</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="17" align="center" valign="top">
    <B><FONT size="2">ASSETS</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CURRENT ASSETS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and Cash Equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,897</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,464</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,427</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts Receivable&nbsp;&#151; net of allowance
    of $1,316 in 2004, $1,501 in 2003 and $5,021 in 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,555</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,778</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,825</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Short-Term Investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">117</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid Federal Income Taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Materials and Supplies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,102</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred Income Taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,974</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,527</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Assets Held for Sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Current Assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,467</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,519</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL CURRENT ASSETS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,515</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,360</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">NONCURRENT ASSETS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,862</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,118</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,260</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">304,336</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">304,336</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">317,536</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid Pension Cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">997</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,669</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred Income Taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,709</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">961</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">771</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL NONCURRENT ASSETS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">358,062</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">381,937</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">372,945</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">PROPERTY, PLANT&nbsp;&#38; EQUIPMENT
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Plant in Service
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">341,238</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">333,607</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">326,243</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Plant Under Construction
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,147</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,249</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL PROPERTY, PLANT&nbsp;&#38; EQUIPMENT
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">348,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">342,202</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">331,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Accumulated Depreciation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110,795</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">90,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL PROPERTY, PLANT&nbsp;&#38;
    EQUIPMENT&nbsp;&#151; NET
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">230,042</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">231,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">240,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL ASSETS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">625,162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">647,859</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">700,097</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
the consolidated financial statements.
</FONT>

<P align="center"><FONT size="2">F-47
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED BALANCE SHEETS&nbsp;&#151;
(Continued)</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="54%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April 13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="16" align="center" valign="top">
    <B><FONT size="2">LIABILITIES AND SHAREHOLDER&#146;S
    EQUITY</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CURRENT LIABILITIES
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts Payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,712</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,223</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,043</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts Payable&nbsp;&#151; Affiliates
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,314</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Advance Billing and Payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,954</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,438</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Customer Deposits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">752</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">739</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current Maturities of Long-Term Debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98,247</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued Expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,105</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,518</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,234</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Liabilities Related to Assets Held for Sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,661</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Current Liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,485</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,594</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,078</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL CURRENT LIABILITIES
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,099</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">136,589</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">LONG-TERM DEBT, LESS CURRENT MATURITIES
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,136</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">163,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">OTHER LIABILITIES AND DEFERRED CREDITS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued Postretirement and Pension Benefits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,173</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,669</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,072</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred Income Taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,513</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,486</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Deferred Credits and Liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Regulatory Liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,283</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,405</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,807</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL OTHER LIABILITIES AND DEFERRED CREDITS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">78,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96,416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL LIABILITIES
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109,936</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">235,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">291,278</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">MINORITY INTEREST
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,964</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,858</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,224</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SHAREHOLDER&#146;S EQUITY
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common Stock&nbsp;&#151; No par value,
    1,000&nbsp;shares authorized, 1,000&nbsp;shares issued and
    outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Paid-In Capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">636,868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">534,749</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">530,459</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated Deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(117,463</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(119,246</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(116,905</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated Other Comprehensive Loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,143</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,643</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,959</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL SHAREHOLDER&#146;S EQUITY
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">513,262</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">410,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">407,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL LIABILITIES AND SHAREHOLDER&#146;S EQUITY
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">625,162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">647,859</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">700,097</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
the consolidated financial statements.
</FONT>

<P align="center"><FONT size="2">F-48
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)</FONT></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period From</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;1, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">To April&nbsp;13, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">OPERATING REVENUES
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">194,818</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">214,709</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">207,451</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">OPERATING EXPENSES
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Network Operating Costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,415</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,891</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,663</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, General and Administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109,401</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,671</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and Amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,177</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring, Asset Impairment and Other Charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,390</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill Impairment Charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL OPERATING EXPENSES
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,546</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">180,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">346,672</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">234,511</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">OPERATING INCOME (LOSS)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(131,963</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27,060</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">OTHER INCOME (EXPENSE):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pre-payment Penalty on Extinguishment of Debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,914</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest Expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,275</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,422</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,669</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,625</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(Loss)/Gain on Sale of Property and Investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(101</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">558</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,158</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for Funds Used During Construction
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">179</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Partnership&nbsp;Income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,174</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,693</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,151</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority Interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(106</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(872</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,048</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(980</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">489</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL (EXPENSE)&nbsp;OTHER INCOME
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,053</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,601</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,937</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,136</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">INCOME (LOSS)&nbsp;BEFORE INCOME TAXES
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,256</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(128,026</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,196</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income Tax Expense (Benefit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(38,261</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">NET INCOME (LOSS)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,783</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,341</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(89,765</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,892</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">OTHER COMPREHENSIVE INCOME (LOSS)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minimum Pension Liability Adjustment, Net of Tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,494</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,316</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,028</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrealized (Loss) Gain on Marketable Securities,
    Net of Tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(136</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">169</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">COMPREHENSIVE INCOME (LOSS)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">283</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,025</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(95,929</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,723</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
the consolidated financial statements.
</FONT>

<P align="center"><FONT size="2">F-49
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF SHAREHOLDER&#146;S
EQUITY</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Paid In</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Comprehensive</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Capital</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deficit</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Loss</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, January&nbsp;1, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">495,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,248</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,892</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,784</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized Gain on Marketable Securities, Net
    of Tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">169</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;31, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">523,485</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27,140</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(89,765</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,974</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minimum Pension Liability Adjustment, Net of Tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,028</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrealized Loss on Marketable Securities, Net of
    Tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(136</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">530,459</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(116,905</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,959</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,341</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minimum Pension Liability Adjustment, Net of Tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,316</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">534,749</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(119,246</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,643</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,783</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minimum Pension Liability Adjustment, Net of Tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,494</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrealized Loss on Marketable Securities, Net of
    Tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, April&nbsp;13, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">636,868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(117,463</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,143</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
the consolidated financial statements.
</FONT>

<P align="center"><FONT size="2">F-50
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>

<P align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF CASH
FLOWS</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period from</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;1,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">OPERATING ACTIVITIES
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Income (Loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,783</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,341</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(89,765</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,892</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to Reconcile Net Income (Loss) to
    Cash Provided by Operating Activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pre-payment Penalty on Extinguishment of Debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,914</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred Income Tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,428</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(38,908</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,368</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and Amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,177</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for Postretirement Benefits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,007</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,583</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">838</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loss/(Gain) on Disposition of Property and
    Investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(558</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,158</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring, Asset Impairment and Other Charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">101,390</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill Impairment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Partnership&nbsp;Income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,174</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,693</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,332</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,151</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for Funds Used During Construction
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(81</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(179</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(572</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority Interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">106</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,048</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(507</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for Bad Debt Losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">542</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(804</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,981</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Changes in Operating Assets and Liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts Receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,319</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,349</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,287</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Materials and Supplies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,048</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid Federal Income Tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(45</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,664</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,299</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,164</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">105</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,075</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,688</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts Payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,051</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,858</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,003</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,520</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued Expenses and Other Liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,429</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,323</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,772</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Cash Provided by Operating Activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,319</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75,055</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,714</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,804</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">INVESTING ACTIVITIES
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,735</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,189</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(27,374</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(66,976</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Business Assets Purchased
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,467</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds From Sale-Leaseback Transactions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds From Investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">432</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">998</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">188</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds From Sale of Assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,101</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Cash Used in Investing Activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,303</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,251</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,272</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(59,946</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">FINANCING ACTIVITIES
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Paid-In Capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,479</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds From TXU Investment Company
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,974</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,784</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds From Long-Term Obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,895</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,319</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority Interest Equity Distribution
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(238</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pre-payment Penalty on Extinguishment of Debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,914</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments Made on Long-Term Obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,669</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(71,714</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(34,724</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(24,619</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Cash (Used in) Provided by Financing
    Activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(583</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(61,767</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,431</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,264</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,567</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(963</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,011</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,878</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CASH AND CASH EQUIVALENTS&nbsp;&#151; BEGINNING
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,464</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,427</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,294</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CASH AND CASH EQUIVALENTS&nbsp;&#151; ENDING
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,897</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,464</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,427</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SUPPLEMENTAL CASH FLOW INFORMATION:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Debt for Equity Swap with TXU Investment
    Co.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest Paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,045</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,045</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,820</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Taxes Paid (Refunds) Received
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,329</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(153</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,333</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,761</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
the consolidated financial statements.
</FONT>

<P align="center"><FONT size="2">F-51
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS</FONT></B>

<P align="left">
<B><FONT size="2">Note A&nbsp;&#151; Summary of Significant
Accounting Policies</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXU Communications Ventures Company
(&#147;TXUCV&#148;) is a direct, wholly owned subsidiary of
Pinnacle One Partners, L.P. (&#147;Pinnacle One&#148;). TXU
Corp. owns a 100% voting interest in Pinnacle One. In May 2003,
TXU Corp. acquired, for $150&nbsp;million in cash, its joint
venture partner&#146;s interest in Pinnacle One under a put/call
agreement that was executed in February, 2003. Also in May 2003,
TXU Corp. finalized a formal plan to dispose of TXUCV by sale.
On January&nbsp;15, 2004, Consolidated Communications
Acquisition Texas Corp. (&#147;Texas Acquisition&#148;), a
subsidiary of Homebase Acquisition, LLC, and Pinnacle One, an
indirect, wholly owned subsidiary of TXU Corp., entered into a
stock purchase agreement providing for the purchase by Texas
Acquisition of all of the capital stock of TXUCV. Texas
Acquisition is a Delaware corporation formed solely for the
purpose of entering into the stock purchase agreement and
closing the transactions contemplated in the agreement. The
purchase transaction closed on April&nbsp;14, 2004. By acquiring
all the capital stock of TXUCV, Texas Acquisition acquired
substantially all of TXU Corp&#146;s telecommunications
business, for a cash price of $527&nbsp;million, subject to
certain upward or downward adjustments (see
Note&nbsp;O&nbsp;&#151; Sale of TXUCV).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Principles of Consolidation&nbsp;&#151;
</FONT></I></B><FONT size="2">The consolidated financial
statements include the accounts of TXUCV and its wholly owned
subsidiaries, TXU Communications Services Company (&#147;TXU
Services&#148;), TXU Communications Telephone Company
(&#147;TXUCV Telephone&#148;), TXU Communications Telecom
Services Company (&#147;TXUCV Telecom&#148;), TXU Communications
Transport Company (&#147;Transport Services&#148;),
Fort&nbsp;Bend Telephone Company (&#147;Fort&nbsp;Bend
Telephone&#148;), Fort&nbsp;Bend Long Distance Company
(&#147;Fort&nbsp;Bend LD&#148;), Fort&nbsp;Bend Wireless Company
(&#147;Fort&nbsp;Bend Wireless&#148;), Telcon, Inc.
(&#147;Telcon&#148;) and FBCIP, Inc. (&#147;FBCIP&#148;).
Transport Services include East Texas Fiber Line, Inc.
(&#147;ETFL&#148;), a 63%-owned affiliate. Fort&nbsp;Bend
Telephone includes Fort&nbsp;Bend Cellular, Inc.
(&#147;Fort&nbsp;Bend Cellular&#148;), a wholly owned
subsidiary. All material intercompany balances and transactions
have been eliminated in consolidation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Description of Business&nbsp;&#151;
</FONT></I></B><FONT size="2">TXUCV is the parent company to TXU
Services, TXUCV Telephone (now known as Consolidated
Communications of Texas Company), TXUCV Telecom, Transport
Services, Fort&nbsp;Bend Telephone (now known as Consolidated
Communications of Fort&nbsp;Bend Company), Fort&nbsp;Bend LD,
Fort&nbsp;Bend Wireless, Telcon and FBCIP.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV is a rural local exchange company that
provides communications services to residential and business
customers in east Texas and rural and suburban areas surrounding
Houston. As of April&nbsp;13, 2004, TXUCV was the 18th largest
local telephone company in the United States, based on industry
sources, with approximately 171,000 local access lines and
11,000 digital subscriber lines, or DSL lines, in service.
TXUCV&#146;s main sources of revenue are its local telephone
businesses in Texas, which offer an array of services, including
local dial tone, custom calling features, private line services,
long distance, dial-up and high-speed Internet access and
carrier access services, including access charges for the use of
its network and its billing and collection system.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each of the subsidiaries through which TXUCV
operates its local telephone businesses is classified as a Rural
Local Exchange Carrier, commonly referred to as an RLEC, under
the Telecommunications Act of 1996. These subsidiaries are
Fort&nbsp;Bend Telephone and TXUCV Telephone. For ease of
reference, we refer to these subsidiaries as the Texas RLECs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV also sells directory advertising and
publishes yellow and white pages directories in and around our
Texas RLECs&#146; service areas and provides connectivity to
customers within Texas over a fiber optic transport network
consisting of approximately 2,500 route-miles of fiber. This
transport network supports TXUCV&#146;s long distance, Internet
access and data services and provides bandwidth on a wholesale
basis to third party customers, including national long distance
and wireless carriers. The transport network includes fiber
owned by Transport Services, a wholly owned subsidiary of TXUCV,
ETFL, a corporation in
</FONT>

<P align="center"><FONT size="2">F-52
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">which TXUCV owns a 63% equity interest, and
Fort&nbsp;Bend Fibernet, a partnership in which Transport
Services is the managing partner and owns a 39% equity interest.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, TXUCV holds equity interests in the
following two cellular partnerships:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">GTE Mobilnet of South Texas, which serves the
    greater Houston metropolitan area. TXUCV owns 2% of the equity
    of this partnership.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">GTE Mobilnet of Texas RSA&nbsp;#17, which serves
    rural areas in and around Conroe, Texas. TXUCV owns 17% of the
    equity of this partnership.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">San&nbsp;Antonio MTA, L.P., a wholly owned
partnership of Cellco Partnership (doing business as Verizon
Wireless), is the general partner for both partnerships.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Telcon and TXU Services provide information
management, human resources, accounting, executive and other
administrative services to TXUCV affiliate companies.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Fort&nbsp;Bend Cellular, Fort&nbsp;Bend Wireless,
and FBCIP had no significant activity during the period from
January&nbsp;1, 2004 to April&nbsp;13, 2004 and the years ended
December&nbsp;31, 2003, 2002 and 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Use of Estimates&nbsp;&#151;
</FONT></I></B><FONT size="2">The preparation of the TXUCV
consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America
(&#147;GAAP&#148;) requires management to make estimates and
assumptions that affect the reported amounts disclosed in the
consolidated financial statements. Due to the prospective nature
of estimates, actual results could differ.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Accounting and Regulatory
Guidelines&nbsp;&#151; </FONT></I></B><FONT size="2">TXUCV
Telephone and Fort&nbsp;Bend Telephone follow the accounting for
regulated enterprises prescribed by SFAS&nbsp;No.&nbsp;71,
Accounting for the Effects of Certain Types of Regulation, which
permits rates (or tariffs) to be set to levels intended to
recover estimated costs of providing regulated services or
products, including capital costs. SFAS&nbsp;71 requires our
Texas RLECs to depreciate wireline plant over the useful lives
approved by the regulators, which could be different than the
useful lives that would otherwise be determined by management.
SFAS&nbsp;71 also requires deferral of certain costs and
obligations based upon approvals received from regulators to
permit recovery of such amounts in future years. Criteria that
would give rise to the discontinuance of SFAS&nbsp;71 include
(1)&nbsp;increasing competition restricting the wireline
business&#146; ability to establish prices to recover specific
costs and (2)&nbsp;significant changes in the manner in which
rates are set by regulators from cost-based regulation to
another form of regulation. Management believes the company is
consistent in the application of these provisions and does not
foresee regulatory, economic, or competitive changes in the near
future that would necessitate a change in its method of
accounting. In analyzing the effects of discontinuing the
application of SFAS&nbsp;71, management has determined that the
useful lives of plant assets used for regulatory and financial
reporting purposes are consistent with accounting principles
generally accepted in the United States and, therefore, any
adjustments to telecommunications plant would be immaterial, as
would be the write-off of regulatory assets and liabilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There are two different forms of incentive
regulation designated by the Texas Public Utility Regulatory
Act: Chapter&nbsp;58 and Chapter&nbsp;59. Generally under either
election, the access rates an ILEC may charge for basic local
services cannot be increased from the amounts on the date of
election without PUCT approval. Even with PUCT approval,
increases can only occur in very specific situations. Pricing
flexibility under Chapter&nbsp;59 is extremely limited. In
contrast, Chapter&nbsp;58 allows greater pricing flexibility on
non-basic network services, customer specific contracts and new
services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Initially, both Texas RLECs elected incentive
regulation under Chapter&nbsp;59 and fulfilled the applicable
infrastructure requirements to maintain their election status.
TXUCV Telephone made its election on August&nbsp;17, 1997.
Fort&nbsp;Bend Telephone made its election on May&nbsp;12, 2000.
On March&nbsp;25, 2003, both
</FONT>

<P align="center"><FONT size="2">F-53
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">Texas RLECs changed their election status from
Chapter&nbsp;59 to Chapter&nbsp;58. The rate freezes for basic
services with respect to the current Chapter&nbsp;58 elections
are due to expire on March&nbsp;24, 2007.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the 2003 election by each of
our Texas RLECs to be governed under an incentive network access
rate regime, our Texas RLECs were obligated to fulfill certain
infrastructure requirements. While our Texas RLECs have met the
current infrastructure requirements, the PUCT could impose
additional or other restrictions of this type in the future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The FCC regulates levels of interstate network
access charges by imposing price caps on Regional Bell Operating
Companies and large Incumbent Local Exchange Companies
(&#147;ILECs&#148;). These price caps can be adjusted based on
various formulae, such as inflation and productivity, and
otherwise through regulatory proceedings. Small ILECs may elect
to base network access charges on price caps, but are not
required to do so. Our Texas RLECs elected not to apply federal
price caps. Instead, our RLECs employ rate-of-return regulation
for their network interstate access charges, whereby they earn a
fixed return on their investment over and above operating costs.
The FCC determines the profits our RLECs can earn by setting the
rate-of-return on their allowable investment base, which is
currently 11.25%.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Texas RLECs also receive federal and state
subsidy payments designed to preserve and advance widely
available, quality telephone service at affordable prices in
rural areas
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Property, Plant, Equipment and
Depreciation&nbsp;&#151; </FONT></I></B><FONT size="2">Property,
plant and equipment are stated at historical cost. Allowance for
funds used during construction (&#147;AFUDC&#148;) is a cost
accounting concept whereby amounts based upon interest charges
on borrowed funds and a return on equity capital used to finance
construction are added to telecommunications plant cost.
Depreciation is generally computed on the straight-line method.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Cash and Cash Equivalents&nbsp;&#151;
</FONT></I></B><FONT size="2">Cash equivalents are short-term,
highly liquid investments readily convertible to known amounts
of cash and which are so near maturity, generally 30&nbsp;days,
that there is no significant risk of changes in value resulting
from changes in market interest rates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Investments&nbsp;&#151;
</FONT></I></B><FONT size="2">Investments in equity securities
that have readily determinable fair values are categorized as
available-for-sale securities and are carried at fair value. The
unrealized gains or losses on securities classified as
available-for-sale are included as a separate component of
shareholder&#146;s equity. TXUCV uses the equity method of
accounting for investments where the ability to exercise
significant influence over such entities exists.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Goodwill&nbsp;&#151;
</FONT></I></B><FONT size="2">Amounts paid for assets of other
companies in excess of fair value are charged to goodwill. Prior
to January&nbsp;1, 2002, goodwill was amortized over its useful
life, normally 15 to 40&nbsp;years. In June 2001, the Financial
Accounting Standards Board (&#147;FASB&#148;) issued Statement
of Financial Accounting Standards No.&nbsp;142
(&#147;SFAS&nbsp;No.&nbsp;142&#148;), &#147;Goodwill and Other
Intangible Assets,&#148; which is effective for fiscal years
beginning after December&nbsp;15, 2001. SFAS&nbsp;No.&nbsp;142
addresses how intangible assets that are acquired individually
or with a group of other assets should be accounted for in the
financial statements upon their acquisition and after they have
been initially recognized in the financial statements.
SFAS&nbsp;No.&nbsp;142 requires that goodwill and intangible
assets that have indefinite useful lives not be amortized but
rather be tested at least annually for impairment, and
intangible assets that have finite useful lives be amortized
over their useful lives. SFAS&nbsp;No.&nbsp;142 provides
specific guidance for testing goodwill and intangible assets
that will not be amortized for impairment. In addition,
SFAS&nbsp;No.&nbsp;142 expands the disclosure requirements about
goodwill and other intangible assets in the years subsequent to
their acquisition. TXUCV adopted this standard as of
January&nbsp;1, 2002 and recognized no impairment as of the
adoption date. TXUCV conducted impairment tests on
October&nbsp;1, 2003 and October&nbsp;1, 2002 and, as a result
of TXU Corp.&#146;s decision in 2003 to sell TXUCV for a known
price and TXUCV&#146;s decision to exit the CLEC and Transport
businesses, recognized on its consolidated financial statements,
impairment losses of $13.2&nbsp;million and $18&nbsp;million,
respectively for the years ended December&nbsp;31, 2003 and 2002
(see
</FONT>

<P align="center"><FONT size="2">F-54
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">Note&nbsp;N&nbsp;&#151; Goodwill and Other
Intangible Assets). No impairment tests were required for the
period from January&nbsp;1, 2004 to April&nbsp;13, 2004, and
consequently no impairment charges were recorded.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Impairment or Disposal of Long-Lived
Assets&nbsp;&#151; </FONT></I></B><FONT size="2">In August 2001,
the FASB issued Statement of Financial Accounting Standards
No.&nbsp;144 (&#147;SFAS&nbsp;No.&nbsp;144&#148;),
&#147;Accounting for the Impairment or Disposal of Long-Lived
Assets.&#148; SFAS&nbsp;No.&nbsp;144 addresses financial
accounting and reporting for the impairment of long-lived assets
and for long-lived assets to be disposed of. The provisions of
SFAS&nbsp;No.&nbsp;144 are generally effective for financial
statements issued for fiscal years beginning after
December&nbsp;15, 2001. TXUCV adopted this standard as of
January&nbsp;1, 2002 and recognized no impairment as of the
adoption date. TXUCV conducted an impairment test on
October&nbsp;1, 2002, as a result of TXUCV&#146;s decision to
exit certain businesses, and recognized on its consolidated
financial statements, an impairment loss of $99.3&nbsp;million
for the year ended December&nbsp;31, 2002 (see
Note&nbsp;M&nbsp;&#151; Restructuring and Impairment Charges).
Impairment tests are conducted whenever events or changes in
circumstances pertaining to TXUCV or its assets indicate that
the carrying amount of TXUCV&#146;s long-lived assets is not
recoverable. No test was required during 2003 and for the period
ended April&nbsp;13, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Materials and Supplies&nbsp;&#151;
</FONT></I></B><FONT size="2">Inventories of materials and
supplies are valued at the lower of cost or market. Cost is
determined by a moving weighted average method.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Indefeasible Rights of Use
(&#147;IRU&#148;)&nbsp;&#151;
</FONT></I></B><FONT size="2">TXUCV entered into several
agreements that entitle it to a long-term lease, or an IRU, of
local and long-haul dark fiber of another company. Generally,
each agreement required TXUCV to pay an aggregate price
consisting of an initial payment, followed by installments
during the construction period based upon achieving certain
milestones (e.g., commencement of construction, conduit
installation and fiber installation). The final payment for each
segment was made at the time of acceptance of the fiber for use
by TXUCV.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additionally, TXUCV entered into several
agreements that entitle another party to a long-term lease, or
an IRU, of certain local and long-haul dark fiber of TXUCV. In
some cases, the agreement was classified as a service agreement,
in which case revenue is recognized ratably over the life of the
lease. In other cases an exchange of similar fiber was deemed to
have occurred with another transport provider with similar
fiber. In this case, no gain or loss was recognized on the
exchange.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Pension and Postretirement
Benefits&nbsp;&#151; </FONT></I></B><FONT size="2">Pension
benefits are provided for substantially all employees of TXUCV.
TXUCV generally funds the pension plan to the extent that
contributions are deductible for federal income tax purposes.
TXUCV also has deferred compensation agreements with the former
board of directors and certain key employees. Postretirement
benefits expense is accrued on a current basis using actuarially
determined cost estimates. In addition, employees may become
eligible for certain health care and life insurance benefits
after retirement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Federal Income Taxes and Deferred
Credits&nbsp;&#151; </FONT></I></B><FONT size="2">TXUCV and its
subsidiaries file a consolidated federal income tax return. ETFL
files a separate federal income tax return. Federal income tax
expense or benefit is allocated to each subsidiary based on
separately determined taxable income or loss.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Income taxes are provided based on taxable income
or loss as reported for financial statement purposes. The
provision for income taxes differs from the amounts currently
payable because of temporary differences in the recognition of
certain income and expense items for financial reporting and tax
reporting purposes. Investment tax credits (&#147;ITC&#148;)
used to offset income tax for tax reporting purposes are
deferred and amortized over the lives of the related assets for
financial reporting.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Deferred federal income taxes are provided for
the temporary differences between assets and liabilities
recognized for financial reporting purposes and such amounts
recognized for tax purposes. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. TXUCV
records a
</FONT>

<P align="center"><FONT size="2">F-55
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">valuation allowance related to its deferred
income tax assets when, in the opinion of management, it is more
likely than not that deferred tax assets would not be realized.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV has recorded a regulatory liability to
recognize the cumulative effects of anticipated ratemaking
activities. For financial statement purposes, deferred ITC and
excess deferred federal income taxes related to depreciation of
regulated assets are being amortized as a reduction of the
provision for income taxes over the estimated useful or
remaining lives of the related property, plant and equipment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ETFL had no current or deferred federal income
taxes at April&nbsp;13, 2004 and December&nbsp;31, 2003 and 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Revenue Recognition&nbsp;&#151;
</FONT></I></B><FONT size="2">Revenues are generally recognized
and earned when evidence of an arrangement exists, service has
been rendered and collectibility is reasonably assured. Local
telephone service revenue is recorded based on tariffed rates.
Telephone network access and long distance service revenues are
derived from access and toll charges and settlement
arrangements. Revenues on billings to customers for services in
advance of providing such services are deferred and recognized
when earned.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Operating Segments&nbsp;&#151;
</FONT></I></B><FONT size="2">SFAS&nbsp;No.&nbsp;131,
Disclosures about Segments of an Enterprise and Related
Information, requires that public business enterprises report
certain information about operating segments in complete sets of
financial statements of the enterprise. SFAS&nbsp;No.&nbsp;131
defines an operating segment as a component of the organization
(1)&nbsp;that engages in business activities from which it may
earn revenues and incur expenses (2)&nbsp;whose operating
results are regularly reviewed by the enterprise&#146;s chief
operating decision maker to make decisions about performance and
resource allocation; and (3)&nbsp;for which discrete financial
information is available. Notwithstanding this definition,
SFAS&nbsp;No.&nbsp;131 provides the criteria for aggregating
segments with similar economic characteristics such as the
nature of product and services, the nature of production
processes, the type or class of customers, the distribution
method for products or services, and the nature of regulatory
environment. TXUCV identified two operating segments&nbsp;&#151;
ILEC and Transport Operations; however, Transport does not meet
the quantitative threshold for separately reportable business
segments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Guarantees&nbsp;&#151;
</FONT></I></B><FONT size="2">In November 2002, the FASB issued
Interpretation No.&nbsp;45, &#147;Guarantor&#146;s Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.&#148; Interpretation
No.&nbsp;45 requires that at the time a company issues a
guarantee, the company must recognize an initial liability for
the fair value, or market value, of the obligations it assumes
under that guarantee. This interpretation is applicable on a
prospective basis to guarantees issued or modified after
December&nbsp;31, 2002. While TXUCV has various guarantees
included in contracts in the normal course of business,
primarily in the form of indemnities, these guarantees do not
represent significant commitments or contingent liabilities
related to the indebtedness of others.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><I><FONT size="2">Recent Accounting
Pronouncements&nbsp;&#151; </FONT></I></B><FONT size="2">In
January 2003, the FASB issued Interpretation No.&nbsp;46
(&#147;FIN No.&nbsp;46&#148;) &#147;Consolidation of Variable
Interest Entities.&#148; Until this interpretation, a company
generally included another entity in its consolidated financial
statements only if it controlled the entity through voting
interests. FIN No.&nbsp;46 requires a variable interest entity
to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest
entity&#146;s activities or entitled to receive a majority of
the entity&#146;s residual returns. In December 2003, the FASB
revised and re-released FIN No.&nbsp;46 as &#147;FIN
No.&nbsp;46&#174;&#148;. The provisions of FIN No.&nbsp;46&#174;
were effective for TXUCV beginning in the first quarter of 2004
and the related disclosure requirements were previously
effective immediately. The impact of this interpretation did not
have a material effect on the financial condition or results of
operations of TXUCV.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2003, the U.S.&nbsp;Congress enacted
the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (&#147;Act&#148;) that will provide a prescription
drug subsidy, beginning in 2006, to companies that sponsor
postretirement health care plans that provide drug benefits.
Additional legislation is
</FONT>

<P align="center"><FONT size="2">F-56
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">anticipated that will clarify whether a company
is eligible for the subsidy, the amount of the subsidy available
and the procedures to be followed in obtaining the subsidy. In
May 2004, the FASB issued Staff Position 106-2 &#147;Accounting
and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003&#148; that
provides guidance on the accounting and disclosure for the
effects of the Act. The Company has determined that its
postretirement prescription drug plan is actuarially equivalent
and will begin reflecting the impact on July&nbsp;1, 2004.
</FONT>

<P align="left">
<B><FONT size="2">Note B&nbsp;&#151; Property, Plant and
Equipment</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Property, plant and equipment are summarized as
follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Estimated</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Useful Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Land
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,228</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,280</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,433</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Buildings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,209</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,922</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,938</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">15-35 years
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Telephone Plant
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">264,352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">258,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">242,934</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">5-30 years
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture and Office Equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,327</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,420</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">5-17 years
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Automotive and Other Equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,994</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,078</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,518</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">3-7 years
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Construction in Progress
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,147</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,249</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">348,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">342,202</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">331,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Accumulated Depreciation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110,795</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">90,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">230,042</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">231,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">240,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Depreciation expense was $8.1&nbsp;million,
$32.8&nbsp;million, $40.8&nbsp;million and $36.5&nbsp;million
for the period from January&nbsp;1, 2004 to April&nbsp;13, 2004
and for the years ended December&nbsp;31, 2003, 2002, and 2001,
respectively.
</FONT>

<P align="left">
<B><FONT size="2">Note C&nbsp;&#151; Long-Term Debt</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Long-term debt consisted of the following:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="61%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TXU Corp. Revolving Credit Facility
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,867</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">144,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CoBank Mortgage Notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,429</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,071</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,087</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Debentures Payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">166,202</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Current Maturities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98,247</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL LONG-TERM DEBT
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,136</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">163,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After the 2000 formation of Pinnacle One, TXU
Corp. provided a $200&nbsp;million revolving credit facility
(the &#147;Revolver&#148;) to TXUCV with a term of four years.
Interest is payable by TXUCV at a rate equal to the London
Interbank Offering Rate (&#147;LIBOR&#148;) plus 1.5%, in effect
as of the beginning of each credit facility advance. The
interest rate of each advance is calculated for one, two, three,
or six-month periods, as elected by TXUCV, at the end of which
the interest rate is reset to the current LIBOR rate plus 1.5%.
The principal balance was effectively paid off on April&nbsp;13,
2004 through TXU Corp.&#146;s
</FONT>

<P align="center"><FONT size="2">F-57
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">conversion of amounts outstanding under this
arrangement into paid-in-capital and the credit facility was
terminated as called for in the stock purchase agreement
referenced in Note&nbsp;A above.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV was required to repay all of its
outstanding indebtedness at or prior to the closing of the
transactions, other than capital leases that are subject to
purchase price adjustments and inter-company indebtedness
relating to contracts that will continue following the closing
of the transactions. As a consequence, all of the remaining
CoBank notes were retired in April 2004 and a pre-payment
penalty of $1.9&nbsp;million was incurred.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Capital Lease amount results from the two
Master Lease Agreements with General Electric Capital
Corporation (&#147;GECC&#148;), which are described below (see
Note&nbsp;G&nbsp;&#151; Capital Leases).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Scheduled principal maturities on long-term debt
for the five years subsequent to April&nbsp;13, 2004 are as
follows (dollars in thousands):
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="88%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">711</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">174</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Note D&nbsp;&#151; Income Taxes</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The provision (benefit) for income taxes consists
of the following:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period From</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;1, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">To April&nbsp;13, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">U.S.&nbsp;Federal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,704</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,018</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,951</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">324</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(214</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">U.S.&nbsp;Federal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,833</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,435</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,819</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,610</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">157</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,766</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(311</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of Investment Tax Credit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(210</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(231</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(301</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of Excess Deferred Taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(213</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(214</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">INCOME TAX EXPENSE (BENEFIT)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(38,261</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-58
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The income tax expense (benefit) differs from
amounts computed at statutory rates primarily because of basis
adjustments and nondeductible change in the valuation reserve.
The following is a reconciliation of the income tax expense
(benefit) reported on the consolidated statements of operations:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="46%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period From</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;1, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">To April&nbsp;13, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income Tax Expense (Benefit) at U.S.&nbsp;Federal
    Statutory Rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,488</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,540</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(44,809</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,101</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State Income Tax Expense (Benefit)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">239</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">934</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,841</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(355</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State Income Tax Refunds
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(866</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill Amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,752</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill Impairment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,704</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority Interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">305</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,817</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(177</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of Investment Tax Credit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(210</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(231</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(301</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of Excess Deferred Taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(214</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(214</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase in Valuation Reserve
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">157</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(270</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">480</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(929</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Permanent Differences
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">INCOME TAX EXPENSE (BENEFIT)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(38,261</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Deferred income taxes reflect the net tax effects
of deductible temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The tax effects of
significant items comprising TXUCV&#146;s net deferred income
taxes consist of the following:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="60%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred Tax Assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net Operating Losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,437</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for Uncollectible Accounts Receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">570</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued Vacation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,127</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">939</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Postretirement Benefits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,833</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,164</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,496</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred Franchise Tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,183</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,918</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,666</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prior Year Minimum Tax Credit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">527</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,347</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL DEFERRED ASSETS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,338</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,761</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred Tax Liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Franchise Tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,600</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Partnership&nbsp;Investment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,212</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,698</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,151</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basis in Investment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,632</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,632</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,632</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(29,669</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,691</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(42,004</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">TOTAL DEFERRED LIABILITIES
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,513</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,021</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(48,387</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">VALUATION ALLOWANCE
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,331</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,174</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,090</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">NET DEFERRED TAX (LIABILITY)&nbsp;ASSET
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,506</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,434</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-59
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV has established a valuation allowance
relating to ETFL, Telcon, Fort&nbsp;Bend LD and TXUCV.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Telecom for net operating losses
(&#147;NOL&#148;) and franchise taxes not expected to be
realized in the future. TXUCV has determined that certain state
net operating losses are not likely to be realized; therefore,
TXUCV has established a valuation allowance against the expected
future tax benefit of these certain state net operating losses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The net deferred tax liability is classified on
the balance sheet as follows:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="60%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current Deferred Income Tax Asset
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,974</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,527</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Noncurrent Deferred Income Tax Asset
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,709</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Noncurrent Deferred Income Tax Liability
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,513</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(54,486</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(39,458</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">NET DEFERRED TAX LIABILITY (ASSET)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,506</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,434</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">ETFL, a nonconsolidated subsidiary for federal
income tax return purposes, has NOL carryforwards of
approximately $8.7&nbsp;million to offset against future taxable
income. The NOLs expire from 2007 to 2024.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV and its subsidiaries, which file a
consolidated federal income tax return, have NOL carryforwards
of approximately $16.0&nbsp;million to offset against future
taxable income. The NOL may be carried forward for 20&nbsp;years
and will expire from 2022 to 2024, if not utilized.
</FONT>

<P align="left">
<B><FONT size="2">Note E&nbsp;&#151; Postretirement Benefit
Plans</FONT></B>

<P align="left">
<B><FONT size="2">Pension Plan</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV provides pension benefits through the TXU
Communications Retirement Plan (&#147;Retirement Plan&#148;),
the TXU Communications Supplemental Retirement Plan
(&#147;Supplemental Plan&#148;) and the TXU Deferred
Compensation Plan for Emerging Businesses (&#147;Deferred
Compensation Plan&#148;).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Retirement Plan is a noncontributory defined
benefit plan that provides benefits to substantially all
employees. Benefit provisions are subject to collective
bargaining. TXUCV&#146;s funding policy for this plan is to
contribute amounts sufficient to meet minimum funding
requirements as set forth in employee benefit and tax laws.
Employees who became participants prior to January&nbsp;1, 2002
earn benefits based on their length of service and final average
pay. Employees who become participants on or after
January&nbsp;1, 2002 earn cumulative benefits based on their age
and a percentage of their monthly pay.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Telcon, Fort&nbsp;Bend Telephone and
Fort&nbsp;Bend LD elected to participate in the Retirement Plan
effective January&nbsp;1, 2002. Employees who became
participants on or after January&nbsp;1, 2002 earn cumulative
benefits based on their age and a percentage of their monthly
pay.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Supplemental Plan is a noncontributory
pay-as-you-go plan providing supplementary retirement benefits
primarily to higher-level employees.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Deferred Compensation Plan is a contributory
salary deferral plan offered on a voluntary participation basis
primarily to higher-level employees.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Changes to the projected benefit obligation, the
fair value of assets and the underlying actuarial assumptions
for the Retirement Plan and Supplemental Plan are shown below.
</FONT>

<P align="center"><FONT size="2">F-60
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<B><FONT size="2">Health Care and Life Insurance Benefits: TXUCV
Services, TXUCV Telephone, TXUCV Telecom and Transport
Services</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV provides certain postretirement health care
and life insurance benefits for employees who retire from TXUCV
after reaching age&nbsp;55 and accruing at least 15&nbsp;years
of service. Retirees share in the cost of health care benefits.
Benefit provisions are subject to collective bargaining. Funding
policy for retiree health benefits is generally to pay covered
expenses as they are incurred. Postretirement life insurance
benefits are fully insured.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Historically, TXUCV used a December&nbsp;31
measurement date for its plans; however, due to the sale of
TXUCV, the Company additionally measured its plans at
April&nbsp;13, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Obligations and Funded Status are reflected as
follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="33%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Pension Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Other Benefits</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Change in benefit obligation</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefit obligation at beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,534</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,838</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">928</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,973</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,321</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,480</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,232</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">472</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,486</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Plan participants&#146; contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amendments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefit vesting due to partial plan termination
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,105</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Actuarial loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">736</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,624</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,672</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,743</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,561</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Curtailment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,250</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,388</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,933</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,606</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Assumption change
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefits paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(768</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,115</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,191</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(311</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(976</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(722</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Administrative expenses paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(108</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(342</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(363</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefit obligation at end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,984</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Change in plan assets</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fair value of plan assets at beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,399</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,468</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,397</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Actual return on plan assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,105</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,667</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,375</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Employer contribution
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,705</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">264</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">882</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">626</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Plan participants&#146; contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Benefits paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(763</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,099</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,191</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(311</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(976</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(723</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Administrative expenses paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(108</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(342</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(363</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fair value of plan assets at end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,633</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,399</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,468</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Funded status
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,351</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,567</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,065</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,629</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(24,320</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18,701</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized net actuarial loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,687</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,255</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,251</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,153</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrecognized prior service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">302</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">443</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net amount recognized
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(362</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">997</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,669</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,378</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,655</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,548</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-61
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amounts recognized in the statement of financial
position consist of:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="34%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Pension Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Other Benefits</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(Accrued) Prepaid benefit cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(362</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">997</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,669</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued benefit liability
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,324</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,176</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,378</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,655</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,548</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangible assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">311</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">318</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">453</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated other comprehensive income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,603</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,723</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net amount recognized
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(362</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">997</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,669</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,378</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,655</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,548</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Information for pension plans with an accumulated
benefit obligation in excess of plan assets:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Projected benefit obligation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,984</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated benefit obligation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,197</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fair value of plan assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,633</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,399</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,468</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Components of Net Periodic Benefit Cost:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="38%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Pension Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Other Benefits</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period from</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period from</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Jan.&nbsp;1, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Jan.&nbsp;1, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">928</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,973</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,321</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,480</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,232</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">472</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,486</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expected return on plan assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(994</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,066</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,478</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of prior service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net actuarial loss recognition
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net periodic benefit cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,364</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,288</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,405</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">988</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,989</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">SFAS&nbsp;No.&nbsp;87, &#147;Employers&#146;
Accounting for Pensions,&#148; required TXUCV to record an
additional minimum pension liability of $10.3, $7.9&nbsp;million
and $10.2&nbsp;million at April&nbsp;13, 2004 and
December&nbsp;31, 2003 and 2002, respectively. This liability
represents the amount by which the accumulated benefit
obligation exceeded the sum of the fair market value of plan
assets and accrued amounts previously recorded. The additional
minimum pension liability was offset by $0.3&nbsp;million,
$0.3&nbsp;million and $0.5&nbsp;million of intangible assets at
April&nbsp;13, 2004 and December&nbsp;31, 2003 and 2002,
respectively, and resulted in a $1.5&nbsp;million charge, a
$1.3&nbsp;million credit, and a $6.0&nbsp;million charge to
comprehensive income, net of related tax benefit of
$0.9&nbsp;million, tax expense of $0.8&nbsp;million and tax
benefit of $3.7&nbsp;million for the period from January&nbsp;1,
2004 to April&nbsp;13, 2004 and the years ended
December&nbsp;31, 2003 and 2002, respectively. The intangible
assets are included in other noncurrent assets in TXUCV&#146;s
consolidated balance sheet at April&nbsp;13, 2004 and
December&nbsp;31, 2003 and 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV recorded a reduction in earnings of
$106,000 in 2003 and a credit to earnings of $243,000 in 2002
for pension and postretirement termination benefits due to a
large reduction in workforce. There was no similar event for the
period from January&nbsp;1, 2004 to April&nbsp;13, 2004. The
2003 reduction to earnings
</FONT>

<P align="center"><FONT size="2">F-62
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">was due to a curtailment loss resulting from
recognition of prior service costs for pension benefits. The
December&nbsp;31, 2002 credit was the net of a $494,000
curtailment gain recognized for postretirement healthcare and
life insurance benefits offset by a $251,000 curtailment loss
due to the recognition of prior service costs related to pension
benefits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Weighted-average assumptions used to determine
benefit obligations at April&nbsp;13, 2004 and December&nbsp;31,
2003 and 2002 are as follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="46%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Pension Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Other Benefits</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Discount rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.75</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.75</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Rate of compensation increase
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.30</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.30</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.30</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Weighted-average assumptions used to determine
net periodic benefit cost for the period ended April&nbsp;13,
2004 and the year ended December&nbsp;31, 2003 and 2002 are as
follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Pension Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Other Benefits</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Discount rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.75%/6.50%</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.75</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.25</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expected long-term return on plan assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.50</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.50%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.50</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Rate of compensation increase
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.30</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.30%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.30</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">6.75% from 1/1/2003&nbsp;-&nbsp;8/1/2003
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left">
<FONT size="2">6.5% from 8/1/2003&nbsp;- 12/31/2004
</FONT>
</DIV>

<DIV align="left">
<FONT size="2">for qualified plan only
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The expected return on plan assets assumption was
based on the categories of the assets and the past history of
the return on the assets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Assumed health care cost trend rates at
April&nbsp;13, 2004 and December&nbsp;31, 2003 and 2002:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="68%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Health care cost trend rate assumed for next year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.00</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.00</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.00</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Rate to which the cost trend rate is assumed to
    decline (the ultimate trend rate)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.00</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.00</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.00</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Year that the rate reaches the ultimate trend rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care
plan. A one-percentage-point change in assumed health care cost
trend rates would have the following effects:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1-Percentage-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1-Percentage-</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Point Increase</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Point Decrease</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect on total of service and interest cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">176</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(135</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect on postretirement benefit obligation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,215</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-63
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<B><FONT size="2">Plan Assets</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s pension plan weighted-average
asset allocations by asset category are as follows:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Plan Assets</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Asset Category</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Debt securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s investment strategy at
April&nbsp;13, 2004 was to target its allocation percentage at
50% equity funds and 50% fixed income funds.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company expects to contribute
$2.9&nbsp;million to its pension plan and $0.9&nbsp;million to
its other postretirement plan from April&nbsp;14, 2004 through
December&nbsp;31, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following benefit payments, which reflect
expected future service, as appropriate, are expected to be paid:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="75%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Pension</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(Dollars in</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">4/14&nbsp;&#151; 12/31/2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,452</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">647</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,182</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">983</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,353</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,594</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,139</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,239</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Years 2009-2013
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,759</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,357</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Deferred Compensation Agreements: TXUCV
Services, TXUCV Telephone, TXUCV Telecom and Transport
Services</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV has deferred compensation agreements with
the former board of directors of TXUCV&#146;s predecessor
company, Lufkin-Conroe Communications, and certain former
employees. The benefits are payable for up to 15&nbsp;years and
may begin as early as age&nbsp;65 or upon the death of the
participant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV has purchased life insurance policies on
certain former directors and key employees. The excess of the
cash surrender value of life insurance policies over the notes
payable balances related to these policies is reflected in
TXUCV&#146;s financial statements. These plans do not qualify
under the Internal Revenue Code (&#147;the Code&#148;) and
therefore, federal income tax deductions are allowed only when
benefits are paid.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Payments relating to deferred compensation
agreements were $0.1&nbsp;million for the period from
January&nbsp;1, 2004 to April&nbsp;13, 2004 and
$0.4&nbsp;million for the years ended December&nbsp;31, 2003,
2002 and 2001. Accrued costs were $0.2&nbsp;million for the
period from January&nbsp;1, 2004 to April&nbsp;13, 2004 and
$0.5&nbsp;million for the years ended December&nbsp;31, 2003 and
2002 and $0.1&nbsp;million for the year ended December&nbsp;31,
2001. Accrued liability amounted to $3.5&nbsp;million at
April&nbsp;13, 2004, $3.4&nbsp;million at December&nbsp;31, 2003
and $3.3&nbsp;million at December&nbsp;31, 2002.
</FONT>

<P align="center"><FONT size="2">F-64
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<B><FONT size="2">401(k) Plans</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Nonbargaining: TXUCV Services, TXUCV
    Telephone, TXUCV Telecom, Transport Services, Telcon,
    Fort&nbsp;Bend Telephone and Fort&nbsp;Bend LD</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV sponsors a 401(k) plan for all
nonbargaining employees (&#147;Nonbargaining TXUCV Plan&#148;)
who have completed 90&nbsp;days of full-time service (or at
least 1,000&nbsp;hours of service in any year) and are
age&nbsp;21 or older. On December&nbsp;31, 2001, the
nonbargaining 401(k) plan covering Telcon, Fort&nbsp;Bend
Telephone and Fort&nbsp;Bend LD was merged into this plan. The
plan allows participants to contribute up to 15% of their
eligible annual compensation to the plan, up to the maximum
permitted by the Code. TXUCV matches 100% of the first 3% of
employee contributions. TXUCV&#146;s matching contributions to
the plan amounted to $0.3&nbsp;million for the period from
January&nbsp;1, 2004 to April&nbsp;13, 2004 and
$0.5&nbsp;million, $0.6&nbsp;million and $0.6&nbsp;million for
2003, 2002 and 2001, respectively. TXUCV recognized a
$0.5&nbsp;million loss in 2003 resulting from a partial plan
termination of the 401(k) plan in which affected participants
became fully vested in accrued benefits.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Bargaining: TXUCV Services, TXUCV
    Telephone, TXUCV Telecom and Transport Services</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV sponsors a 401(k) plan for all bargaining
employees (&#147;Bargaining TXUV Plan&#148;) who have completed
one year of full-time service (or at least 1,000&nbsp;hours of
service in any year) and are age&nbsp;21 or older. For the
period from January&nbsp;1, 2004 to April&nbsp;13, 2004 and
years 2003 and 2002, the plan allowed participants to contribute
up to 15% of their eligible annual compensation to the plan, up
to the maximum permitted by the Code. Beginning in 2002, TXUCV
matched 50% of the first 3% of employee contributions, in
accordance with the terms of the collective bargaining
agreement. In 2001, TXUCV matched 40% of the first 3% of
employee contributions. TXUCV&#146;s matching contributions to
the plan amounted to $30,000 for the period from January&nbsp;1,
2004 to April&nbsp;13, 2004 and $0.1&nbsp;million for years
2003, 2002 and 2001.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I><FONT size="2">Nonbargaining: Telcon, Fort&nbsp;Bend
    Telephone and Fort&nbsp;Bend LD</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV sponsored a 401(k) plan for all employees
who had completed at least one month of full-time service and
who were at least 21&nbsp;years of age. Effective
December&nbsp;31, 2001, the plan was merged into the 401(k)
savings plan for nonbargaining employees of TXUCV.
Participants&#146; accounts and participation eligibility were
transferred to the TXUCV plan effective January&nbsp;1, 2002.
Employees who became eligible on or after January&nbsp;1, 2002
participated in the Nonbargaining TXUCV plan. The plan allowed
participants to contribute up to 8% of their eligible annual
compensation to the plan, up to the maximum permitted by the
Code. TXUCV matched 50% of the first 8% of eligible employee
contributions. TXUCV&#146;s matching contributions to the plan
amounted to $0.7&nbsp;million for 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The plan provided for discretionary TXUCV-paid
profit sharing contributions of up to 15% of each eligible
employee&#146;s total compensation. Discretionary profit sharing
contributions to the plan, which were accrued during the year
and paid following the close of the year, amounted to
$0.2&nbsp;million for 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On December&nbsp;8, 2003, President Bush signed
into law the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (&#147;The Act&#148;). The Act
expanded Medicare to include, for the first time, coverage for
prescription drugs. TXUCV sponsors retiree medical programs for
certain of its locations. In May 2004, the FASB issued guidance
for the accounting and disclosure effects of the Act. TXUCV has
determined that its postretirement prescription drug plan is
actuarially equivalent and will begin reflecting the impact on
July&nbsp;1, 2004.
</FONT>

<P align="center"><FONT size="2">F-65
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<B><FONT size="2">Note F&nbsp;&#151; Operating Leases</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV is the lessor of fiber optic systems,
agreements to lease capacity to customers over fiber optic
lines. The leases, accounted for as operating leases, provide
for minimum future rentals to be received for the remainder of
the lease period and in the aggregate as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="81%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fiber Optic</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">As of April&nbsp;13, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Systems</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Dollars in</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">4/14-12/31/2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,267</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following is a summary of property on lease:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fiber Optic System
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">245</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Accumulated Depreciation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">216</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">245</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Note G&nbsp;&#151; Capital Leases</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV leases certain furniture, fixtures,
equipment and leasehold improvements at its current corporate
headquarters in Irving pursuant to two Master Lease Agreements
with between TXUCV and GECC.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The leasehold improvement lease had an initial
term of 30&nbsp;months that ended on October&nbsp;1, 2004. At
the termination of the initial term of this lease, TXUCV elected
to purchase the scheduled leasehold improvement for
$1.1&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At the termination of the initial term of the
second lease for furniture, fixtures and equipment, TXUCV
elected to extend the term of the agreement until April&nbsp;1,
2007, at which time the company will have an option to purchase
the equipment for its then fair market value.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the period from January&nbsp;1, 2004 to
April&nbsp;13, 2004, TXUCV paid a total of $0.2&nbsp;million to
GECC pursuant to these capital leases. As of April&nbsp;13, 2004
the outstanding principal amount of these capital leases was
$2.8&nbsp;million. These leases require Texas Acquisition to
maintain a specified debt rating. Texas Acquisition is not in
compliance with this covenant, although we are not aware of the
delivery of any notice of default. Upon a default under these
leases, GECC may take possession of the scheduled equipment and
require TXUCV to pay certain stipulated loss amounts. These
capital lease obligations have been classified as current
liabilities on the balance sheet.
</FONT>

<P align="center"><FONT size="2">F-66
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<B><FONT size="2">Note H&nbsp;&#151; Investments in
Nonaffiliated Companies</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Marketable equity securities have been
categorized as available for sale and, as a result, are stated
at fair value. Unrealized gains and losses are included as a
component of accumulated other comprehensive income until
realized.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the purpose of determining gross unrealized
gains and losses, marketable securities include the following at
April&nbsp;13, 2004 and December&nbsp;31, 2003 and 2002:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="31%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="-2147483648%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2147483647%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Cost</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Unrealized Gain</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Realized Gain</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">4/13/04</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">4/13/04</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">4/13/04</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">4/13/04</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="47"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="47" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Other Marketable Equity Securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">117</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">125</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">125</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">106</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">114</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">114</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">230</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following investments are accounted for using
the equity method:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="44%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Percentage Owned</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Investment Amount</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">GTE Mobilnet of South Texas Limited Partnership
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.34</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.34</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.34</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,045</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,384</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">GTE Mobilnet of Texas RSA&nbsp;#17 Limited
    Partnership
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,731</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,794</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fort&nbsp;Bend Fibernet Limited Partnership
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39.06</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39.06</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39.06</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">187</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">139</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">731</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following investments are accounted for using
the cost method:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="67%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CoBank, ACB Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,452</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,347</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Rural Telephone Bank Stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,921</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,921</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,921</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The CoBank stock represents purchases of CoBank
stock as required by the CoBank loan agreement and patronage
distributions from CoBank in the form of stock. Although there
is no CoBank loan balance outstanding at April&nbsp;13, 2004,
TXUCV will begin receiving annual refunds of a portion of this
stock only when its stock balance reaches 11.5% of the five-year
moving average of CoBank loan balance. The CoBank stock is owned
by TXUCV, now known as Consolidated Communications Ventures
Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Fort&nbsp;Bend Telephone owns 5,921&nbsp;shares
of $1,000&nbsp;par value Class&nbsp;C Rural Telephone Bank,
which is stated at original cost plus a gain recognized at
conversion of Class&nbsp;B to Class&nbsp;C stock.
</FONT>

<P align="left">
<B><FONT size="2">Note I&nbsp;&#151; Minority Interest</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 1990, Transport Services, in a joint
venture with Eastex Celco (&#147;ETC&#148;), formed ETFL.
Transport Services and ETC own 63% and 37%, respectively, of the
outstanding stock of ETFL.
</FONT>

<P align="center"><FONT size="2">F-67
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<B><FONT size="2">Note J&nbsp;&#151; Transactions with Related
Parties</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Following is a summary of transactions with
related parties:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="54%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid to Oncor for Transmission Fees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts Payable&nbsp;&#151; TXU
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,314</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts Payable&nbsp;&#151; Oncor
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">245</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">117</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-Term Debt Payable&nbsp;&#151; TXU
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,867</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">144,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital Contributions&nbsp;&#151; Pinnacle
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,974</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,784</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest Expense Paid to TXU
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">636</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,597</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Billings From Oncor for Transmission Line Fees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,139</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,324</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,184</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Billings From TXU for Management Fees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,350</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,647</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,331</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,594</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Billings From TXU for Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">660</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,487</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,427</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,885</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Note K&nbsp;&#151; Commitments and
Contingencies</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV and its subsidiaries are subject to various
claims and lawsuits, including property damage claims, which
arise from time to time in the normal course of business. It is
the opinion of management and counsel that the disposition or
ultimate determination of such claims and lawsuits will not have
a material effect on the financial position, results of
operations or liquidity of TXUCV, since TXUCV has insurance to
cover such claims.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November&nbsp;25, 2002, TXUCV entered into a
60-month High-Capacity Term Payment Plan agreement with
Southwestern Bell (&#147;SWB&#148;). The agreement requires
TXUCV to make monthly purchases of at least $33,000 from SWB on
a take-or-pay basis. The agreement also provides for an early
termination charge of 45% of the monthly minimum commitment
multiplied by the number of months remaining through the
expiration date of November&nbsp;25, 2007. As of April&nbsp;13,
2004, the potential early termination charge is approximately
$0.6&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV is also a party to another take-or-pay
agreement with Grande Communications to provide certain
directory assistance-related services to the TXUCV. The
agreement which was entered into on August&nbsp;28, 2001, for an
initial 12-month term, has an automatic 12-month renewal
provision with a minimum monthly commitment of $8,950. This
agreement is still in effect at April&nbsp;13, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV has executed various building space leases,
with terms ranging from 36 to 84&nbsp;months and monthly
payments ranging from $0.1&nbsp;million to $0.3&nbsp;million.
All but one of the leases contains provisions for escalation of
the monthly payments. TXUCV&#146;s consolidated financial
statements for the period from January&nbsp;1, 2004 to
April&nbsp;13, 2004 and the years ended December&nbsp;31, 2003
and 2002 include $0&nbsp;million, $0.6&nbsp;million, and
$0.3&nbsp;million of charges, respectively, representing
obligations on leased facilities that were sublet to unrelated
parties for amounts less than the related obligations. TXUCV
also has executed several equipment leases with varying terms up
to 36&nbsp;months and monthly payments totaling approximately
$0.1&nbsp;million.
</FONT>

<P align="center"><FONT size="2">F-68
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The future minimum payments required by capital
and operating leases for the next five years are as follows
(dollars in thousands):
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="89%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">4/14&nbsp;-&nbsp;12/31/2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,451</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,747</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,546</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,368</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,038</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Rent expense on operating leases was
$1.0&nbsp;million for the period from January&nbsp;1, 2004 to
April&nbsp;13, 2004, $4.1&nbsp;million for the year ended
December&nbsp;31, 2003, $3.6&nbsp;million for the year ended
December&nbsp;31, 2002 and $2.3&nbsp;million for the year ended
December&nbsp;31, 2002.
</FONT>

<P align="left">
<B><FONT size="2">Note L&nbsp;&#151; Fair Value of Financial
Instruments</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following methods and assumptions were used
to estimate the fair value of each of the material financial
instruments for which it is practicable to estimate the value:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Cash, Cash Equivalents and Short-Term
Investments</FONT></B><FONT size="2">&nbsp;&#151; Cash, cash
equivalents and short-term investments are valued at their
carrying amounts, which are reasonable estimates of their fair
value because of the short maturity of those instruments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Long-Term Investments&nbsp;&#151;
</FONT></B><FONT size="2">The fair value of investments is
estimated based on the quoted market price for that investment.
Other investments for which there are no quoted market prices
because the stocks are not publicly traded are carried at cost
since reasonable estimates of fair value could not be made
without incurring excessive costs. These investments include
$1.5&nbsp;million of CoBank stock and $5.9&nbsp;million of Rural
Telephone Bank stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Long-Term Debt&nbsp;&#151;
</FONT></B><FONT size="2">The fair value of TXUCV&#146;s
long-term debt, including current maturities, is estimated based
on the current rates offered to TXUCV for debt of the same
remaining maturities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The carrying amounts and estimated fair values of
TXUCV&#146;s material financial instruments are as follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="34%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Carrying Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Fair Value</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Dec.&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="23" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-Term Investments For Which It Is Not
    Practicable To Estimate Fair Value
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,862</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,884</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,862</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,884</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">166,202</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,663</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,077</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">166,202</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash Surrender Value of Life Insurance Policies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,526</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,526</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Note M&nbsp;&#151; Restructuring and
Impairment Charges</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Beginning in 1999, TXUCV began operating a CLEC
in a number of local markets within Texas. In late 2001, TXUCV
decided to refocus its business strategy on the Texas RLECs. In
December 2002, TXUCV made a decision to hold its CLEC and
Transport assets for sale. TXUCV examined the value of the
assets held for sale based on third party sale negotiations and
similar recent sales transactions and recorded an impairment
charge of $90.9&nbsp;million ($56.6&nbsp;million after taxes and
minority interest). In
</FONT>

<P align="center"><FONT size="2">F-69
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">addition, TXUCV recorded restructuring charges of
$2.1&nbsp;million under the provisions of Emerging Issues Task
Force Abstract 94-3.
</FONT>

<P align="left">
<FONT size="2">Impairment Charges
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">CLEC</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Transport</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">PPE Net Book Value
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated Cost of Sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">232</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">360</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">592</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,744</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71,191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98,935</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Estimated FMV
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">947</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,083</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Assets Held For Sale Impairment Charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,797</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,108</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">90,905</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">Restructuring Charges
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="89%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Employee Separations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">736</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Facility Closure Costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">916</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Contractual Commitments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">417</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,069</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Employee separation restructuring charges relate
to 55 affected employees. These restructuring costs were all
paid in 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Earlier in 2002, TXUCV recorded impairment
charges of $8.4&nbsp;million related to certain CLEC information
technology and collocation assets. The evaluation occurred in
conjunction with exiting certain unprofitable activities and
decommissioning non-strategic collocation sites. The information
technology assets were fully written-off and taken out of
service. The collocation assets were valued at fair market value
based on third party pricing. This impairment occurred prior to
the decision to hold those assets for sale.
</FONT>

<P align="left">
<B><FONT size="2">Assets Held for Sale</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In late 2001, TXUCV decided to refocus its
business strategy on the Texas RLECs. During the subsequent
18&nbsp;months, TXUCV systematically exited certain less
profitable CLEC markets, ceased service to residential customers
and focused solely on business customers within limited
geographic markets. In December 2002, TXUCV decided to exit the
CLEC business entirely and placed its CLEC assets and customer
base for sale. In March 2003, TXUCV sold the majority of its
remaining CLEC assets and customer base to Texas-based Grande
Communications for $1.2&nbsp;million. TXUCV also anticipated
selling its Transport Services activities in the near term and
as a result, the assets and liabilities related to the CLEC and
Transport assets held for sale were presented separately in the
assets and liabilities sections of the consolidated balance
sheets at December&nbsp;31, 2002. The assets held for sale
consisted of $8.0&nbsp;million of property, plant and equipment
recorded at fair market value based on the estimated sales
price. The liabilities represented estimated costs to sell of
$0.6&nbsp;million and restructuring charges of $2.1&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2003, in light of the decision to sell
the entire company, TXUCV decided that it would no longer
attempt to sell the transport network separately. Consequently,
in accordance with the provisions of SFAS&nbsp;No.&nbsp;144,
these assets were reclassified from assets held for sale to
assets held and used and are reported on the consolidated
balance sheet at the lower of fair market value or adjusted
carrying amount. The resulting $0.3&nbsp;million loss on
long-lived assets converted to held and used is reflected in
TXUCV&#146;s results of operations for the year ended
December&nbsp;31, 2003.
</FONT>

<P align="center"><FONT size="2">F-70
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<B><FONT size="2">Note N&nbsp;&#151; Goodwill and Other
Intangible Assets</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amounts paid for assets of other companies in
excess of fair value are recorded as goodwill. Goodwill was
amortized over its useful life, normally 15 to 40&nbsp;years
through December&nbsp;31, 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">SFAS&nbsp;No.&nbsp;142 became effective for TXUCV
on January&nbsp;1, 2002. SFAS&nbsp;No.&nbsp;142 requires, among
other things, the allocation of goodwill to reporting units
based upon the current fair value of the reporting units, and
the discontinuance of goodwill amortization. The amortization of
TXUCV goodwill ($13.6&nbsp;million in 2001) ceased effective
January&nbsp;1, 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, SFAS&nbsp;No.&nbsp;142 required
completion of a transitional goodwill impairment test within six
months from the date of adoption. It established a new method of
testing goodwill for impairment on an annual basis, or on an
interim basis if an event occurs or circumstances change that
would reduce the fair value of a reporting unit below its
carrying value. TXUCV completed the transitional impairment test
in the second quarter of 2002, the results of which indicated no
impairment of goodwill at that time. In conjunction with
TXUCV&#146;s decision to exit the CLEC and Transport businesses,
additional evaluations were performed as of October&nbsp;1, 2003
and 2002, TXUCV&#146;s annual impairment test date. The testing,
utilizing the discounted cash flow methodology, resulted in an
impairment charge of $13.2&nbsp;million and $18&nbsp;million for
the years ended December&nbsp;31, 2003 and 2002, respectively.
There were no impairment charges for the period from
January&nbsp;1, 2004 to April&nbsp;13, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There were no changes in the carrying amount of
goodwill for the period from January&nbsp;1, 2004 to
April&nbsp;13, 2004. Changes in the carrying amount of goodwill
for the years ended December&nbsp;31, 2003 and 2002 is
summarized as follows (in thousands):
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="75%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, January 1
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">317,536</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">335,536</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less impairment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;31
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">304,336</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">317,536</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The table below reflects what reported net income
would have been in the 2001 period, exclusive of goodwill
amortization expense recognized for consolidated entities in
those periods compared to the period from January&nbsp;1, 2004
to April&nbsp;13, 2004, 2003, 2002 and 2001:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="53%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">April&nbsp;13,</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(Dollars in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reported Net Income (Loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,783</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,341</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(89,765</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,892</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Add: Goodwill Amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,419</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proforma Net Income (Loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,783</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,341</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(89,765</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,473</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Note O&nbsp;&#151; Sale of TXUCV</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;15, 2004, Consolidated
Communications Acquisition Texas Corp. (&#147;Texas
Acquisition&#148;), a subsidiary of Homebase Acquisition, LLC,
and Pinnacle One, an indirect, wholly owned subsidiary of TXU
Corp., entered into a stock purchase agreement providing for the
purchase by Texas Acquisition of all of the capital stock of
TXUCV. Texas Acquisition is a Delaware corporation formed solely
for the purpose of entering into the stock purchase agreement
and closing the transactions contemplated by that
</FONT>

<P align="center"><FONT size="2">F-71
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<FONT size="2">agreement. By acquiring the capital stock of
TXUCV, Texas Acquisition acquired substantially all of TXU
Corp.&#146;s telecommunications business, which includes the
following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Fort&nbsp;Bend Telephone (now known as
    Consolidated Communications of Fort&nbsp;Bend Company) and TXUCV
    Telephone (now known as Consolidated Communications of Texas
    Company), two RLECs, which together serve markets in Conroe,
    Katy and Lufkin, Texas;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">TXUCV&#146;s investments in the cellular
    partnership (see Note&nbsp;H&nbsp;&#151; Investments in
    Nonaffiliated Companies);
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a telephone directory publishing
    business;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">a transport services business.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The cash purchase price for the sale of
TXUCV&#146;s capital stock was $527.0&nbsp;million, subject to
the following adjustments:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The purchase price was reduced by
$2.8&nbsp;million, the outstanding principal amount of the
capital lease obligations between TXUCV and GECC.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The purchase price assumed $4.6&nbsp;million of
cash on the balance sheet of TXUCV at closing and was adjustable
upward (or downward) by the amount cash on the balance sheet at
closing greater than (or less than) $4.6&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The purchase price was also adjustable upward (or
downward) to the extent that TXUCV&#146;s working capital was
greater than (or less than) negative $2.8&nbsp;million. At
April&nbsp;13, 2004, TXUCV&#146;s adjusted working capital (as
defined in the stock purchase agreement) was negative
$3.9&nbsp;million. As a result of differences in assumed working
capital (including cash) and other balances and related actual
balances at April&nbsp;13, 2004, Homebase Acquisition, LLC made
an additional cash payment to TXU Corp. of $5.1&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXUCV was required to repay all of its
outstanding indebtedness at or prior to the closing of the
transactions, other than capital leases that were subject to the
purchase price adjustment described above and affiliate
indebtedness relating to contracts that continued following the
closing of the transaction. Accordingly, all indebtedness deemed
to be affected by the stock purchase agreement was reflected in
the current liabilities section of TXUCV&#146;s balance sheet as
of December&nbsp;31, 2003 and subsequently extinguished prior to
or as of April&nbsp;13. 2004. In addition, Pinnacle One was to
bear the first $5.1&nbsp;million of any severance and similar
expenses associated with work force reductions occurring between
the date of the signing of the stock purchase agreement on
January&nbsp;15, 2004 and the closing of the transactions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The stock purchase agreement contained customary
representations and warranties, covenants and indemnification
provisions. Most representations and warranties expire on the
later of the first anniversary of the closing of the
transactions and April&nbsp;30, 2005.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">TXU Corp. agreed to guarantee the payment
obligations of Pinnacle One for up to the purchase price and
further agreed to guarantee certain tax indemnification
obligations up to, and in excess of, the purchase price.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The stock purchase agreement further provided
that certain agreements and arrangements between TXU Corp. and
TXUCV and its subsidiaries, and all the related liabilities and
obligations of TXUCV and its subsidiaries automatically
terminate in their entirety effective as of the closing without
any further actions by the parties and thereby be deemed voided,
cancelled and discharged in their entirety.
</FONT>

<P align="center"><FONT size="2">F-72
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151; (Continued)</FONT></B>

<P align="left">
<B><FONT size="2">Note P&nbsp;&#151; Subsequent Events</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The sale of TXUCV to Texas Acquisition closed on
April&nbsp;14, 2004. In association with the close of the sale,
Texas Acquisition and other subsidiaries of Homebase
Acquisition, LLC issued $200&nbsp;million of Senior Notes and
entered into a new $437&nbsp;million credit facility.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The initial terms of the two GECC leases expired
on October&nbsp;1, 2004. As provided under the terms of the
lease agreements, TXUCV, now known as Consolidated
Communications Ventures Company, elected to purchase the
leasehold improvements under one lease for $1.1&nbsp;million and
extend the term of the furniture, fixtures and equipment under
the second lease through April&nbsp;1, 2007.
</FONT>

<P align="center"><FONT size="2">F-73
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS</FONT></B>

<DIV align="center">
<B><FONT size="2">September&nbsp;30, 2004</FONT></B>
</DIV>

<P align="center"><FONT size="2">F-74
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">CONDENSED CONSOLIDATED BALANCE SHEET</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands, except share and per
share amounts)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Unaudited)</FONT></B>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="75%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="6" align="center" valign="top">
    <B><FONT size="2">ASSETS</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,489</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,720</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses and other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,312</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">350,291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangibles and other assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">341,706</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Customer lists, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other intangibles, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,471</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred financing costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,867</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,723</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,051,718</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="6"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="6" align="center" valign="top">
    <B><FONT size="2">LIABILITIES AND MEMBERS&#146; EQUITY</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current portion of long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,044</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48,160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">79,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt less current maturities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">615,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,588</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,753</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">857,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interests
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,254</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Redeemable preferred shares:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Class&nbsp;A, redeemable preferred shares,
    $1,000&nbsp;par value, 182,000&nbsp;shares authorized, issued
    and outstanding; liquidation preference of $201,126
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">201,126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common members&#146; deficit:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common shares, no par value,
    10,000,000&nbsp;shares authorized, issued and outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Paid in capital
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,482</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated other comprehensive loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(714</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total common members&#146; deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,138</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and members&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,051,718</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<I><FONT size="2">See accompanying notes</FONT></I>

<P align="center"><FONT size="2">F-75
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">CONDENSED CONSOLIDATED STATEMENTS OF
INCOME</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands, except share and per
share amounts)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Unaudited)</FONT></B>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="72%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Nine Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,858</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,562</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling, general and administrative expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74,938</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (expense):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,522</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,083</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Partnership income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,027</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(290</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,511</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income tax expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,662</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,647</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Dividends on redeemable preferred shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,623</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,356</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss applicable to common shareholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,479</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,492</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss per common share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.61</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<I><FONT size="2">See accompanying notes.</FONT></I>

<P align="center"><FONT size="2">F-76
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">CONDENSED CONSOLIDATED STATEMENTS OF COMMON
MEMBERS&#146; DEFICIT</FONT></B>

<DIV align="center">
<B><FONT size="2">For the Nine Months Ended September&nbsp;30,
2004</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Unaudited)</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="23%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Comprehensive</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Comprehensive</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Paid in Capital</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deficit</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Loss</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Income</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance, January&nbsp;1, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">9,975</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(3,003</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(515</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(3,518</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Capital contributions
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">25</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">58</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">58</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Dividends on redeemable preferred shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(10,623</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(10,623</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,144</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,144</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,144</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Unrealized loss on marketable securities, net of
    tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(49</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(49</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(49</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Change in fair value of cash flow hedges, net of
    tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(150</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(150</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(150</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Balance, September&nbsp;30, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">10,000</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">58</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(8,482</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(714</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(9,138</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4,945</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<I><FONT size="2">See accompanying notes.</FONT></I>

<P align="center"><FONT size="2">F-77
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Unaudited)</FONT></B>
</DIV>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Nine Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">OPERATING ACTIVITIES</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,144</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to reconcile net income to cash
    provided by operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for bad debt losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income tax
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,994</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,577</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for postretirement benefits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,480</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Partnership income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Minority interest in net income of subsidiary
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,670</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(233</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Changes in operating assets and liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,327</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,354</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">560</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">324</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,863</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(435</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,269</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,630</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses and other liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">INVESTING ACTIVITIES</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,272</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,938</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquisition, net of cash acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(523,944</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(284,834</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(80</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">505</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used in investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(541,296</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(293,267</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">FINANCING ACTIVITIES</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital contributions from investors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">152,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Distributions to investors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(63,400</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from long-term obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">637,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">190,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payments made on long-term obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(186,316</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,200</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payment of deferred financing costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,311</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from sale of building
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,338</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">751</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">526,093</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">285,731</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net increase in cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,087</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,844</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at beginning of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,142</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at end of period
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,844</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<I><FONT size="2">See accompanying notes.</FONT></I>

<P align="center"><FONT size="2">F-78
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO UNAUDITED CONDENSED
CONSOLIDATED</FONT></B>

<DIV align="center">
<B><FONT size="2">FINANCIAL STATEMENTS</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Nine months ended September&nbsp;30, 2004 and
2003</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands, except share and per
share amounts)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">1.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Description of Business</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Homebase Acquisition, LLC, a Delaware limited
liability company (&#147;Homebase&#148; or &#147;the
Company&#148;), was formed on June&nbsp;26, 2002, and commenced
operations in Illinois on December&nbsp;31, 2002 with its
acquisition of Illinois Consolidated Telephone Company and the
related businesses (collectively, &#147;ICTC&#148;) and in Texas
on April&nbsp;14, 2004 with its acquisition of TXU
Communications Ventures Company (&#147;TXUCV&#148;). Homebase is
a holding company with no income from operations or assets
except for the capital stock of Consolidated Communications
Illinois Holdings, Inc. (&#147;Illinois Holdings&#148;) and
Consolidated Communications Texas Holdings, Inc. (&#147;Texas
Holdings&#148;). Homebase and its wholly owned subsidiaries
operate under the name Consolidated Communications.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Illinois Holdings is a holding company with no
income from operations or assets except for the capital stock of
Consolidated Communications, Inc. (&#147;CCI&#148;). Illinois
Holdings operates its business through, and receives all of its
income from, CCI and its subsidiaries. CCI was formed for the
sole purpose of acquiring ICTC. Texas Holdings is a holding
company with no income from operations or assets except for the
capital stock of Consolidated Communications Texas, Inc.
(&#147;Texas Acquisition&#148;). Texas Holdings and Texas
Acquisition were formed for the sole purpose of acquiring TXUCV,
which was subsequently renamed Consolidated Communications
Ventures Company (&#147;CCV&#148;). Texas Holdings operates its
business through, and receives all of its income from, CCV and
its subsidiaries.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For purposes of these interim financial
statements, our financial results include CCV and its
subsidiaries from April&nbsp;14, 2004, the date of the TXUCV
acquisition, through September&nbsp;30, 2004. As a result,
period to period comparisons of our financial results as of and
for the nine months ended September&nbsp;30, 2004 and 2003 are
not necessarily meaningful.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">2.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Presentation of Interim Financial
    Statements</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These unaudited interim condensed consolidated
financial statements include the accounts of Homebase and all
majority owned subsidiaries (&#147;the Company&#148;). All
significant intercompany accounts and transactions have been
eliminated. These interim statements have been prepared in
accordance with Securities and Exchange Commission
(&#147;SEC&#148;) guidelines and do not include all of the
information and footnotes required by generally accepted
accounting principles (&#147;GAAP&#148;) for complete financial
statements. These interim financial statements reflect all
adjustments which are, in the opinion of management, necessary
for a fair presentation of its financial position and results of
operations for the interim periods. Interim results are not
necessarily indicative of the results that may be expected for
the entire year. These interim financial statements should be
read in conjunction with the financial statements and related
notes for the year ended December&nbsp;31, 2003, which are
included as part of this prospectus.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">3.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Recent Accounting Pronouncements</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2003, the Financial Accounting
Standards Board (&#147;FASB&#148;) issued Interpretation
No.&nbsp;46 Consolidation of Variable Interest Entities
(&#147;FIN&nbsp;46&#148;). The primary objective of FIN&nbsp;46
is to provide guidance on the identification of entities for
which control is achieved through means other than voting
rights, defined as variable interest entities, and to determine
when and which business enterprise should consolidate the
variable interest entity as the &#147;primary beneficiary&#148;.
This new model applies when either (1)&nbsp;the equity
investors, if any, do not have a controlling financial interest
or (2)&nbsp;the entity investment at risk is insufficient to
finance that entity&#146;s activities without additional
financial support. In addition,
</FONT>

<P align="center"><FONT size="2">F-79
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">
<FONT size="2">FIN&nbsp;46 requires additional disclosures. The
adoption of this interpretation had no effect on the financial
condition or results of operations of the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2003, the U.S.&nbsp;Congress enacted
the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (&#147;the Medicare Act&#148;) that will provide a
prescription drug subsidy beginning in 2006 to companies that
sponsor post-retirement health care plans that provide drug
benefits. Additional legislation is anticipated that will
clarify whether a company is eligible for the subsidy, the
amount of the subsidy available and the procedures to be
following in obtaining the subsidy. In May 2004, the FASB issued
Staff Position&nbsp;106-2, Accounting Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (SAP&nbsp;106-2), that provides
guidance on the accounting and disclosure for the effects of the
Medicare Act. Our post-retirement prescription drug plans are
actuarially equivalent and accordingly began reflecting the
Medicare Act&#146;s impact on July&nbsp;1, 2004 without a
material adverse effect on the financial condition or results of
operations of the Company.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">4.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Acquisition</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On April&nbsp;14, 2004 Homebase, through its
wholly owned subsidiary Texas Acquisition, acquired all of the
capital stock of TXUCV from Pinnacle One Partners L.P.
(&#147;Pinnacle One&#148;). By acquiring all of the capital
stock of TXUCV , Homebase acquired substantially all of the
telecommunications assets of TXU Corp., including two rural
local exchange carriers (&#147;RLECs&#148;), that together serve
markets in Conroe, Katy and Lufkin, Texas, a directory
publishing business, a transport services business that provides
connectivity within Texas and minority interests in cellular
partnerships.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the closing of the TXUCV
acquisition, the Company, through its wholly owned subsidiaries,
issued $200,000 in the aggregate principal amount of
9&nbsp;3/4%&nbsp;Senior Notes due 2012. The Company, through its
wholly owned subsidiaries, also entered into a new $437,000 bank
credit facility, repaid its old credit facility and entered into
certain related transactions. The indenture governing the notes
and the existing credit facility contain covenants, events of
default and other provisions (see Note&nbsp;7).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company accounted for the TXUCV acquisition
using the purchase method of accounting; accordingly, the
financial statements reflect the allocation of the total
purchase price to the net tangible and intangible assets
acquired based on their respective fair values. The purchase
price, including acquisition costs and net $9,897 of cash
acquired, was allocated to assets acquired and liabilities
assumed as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,547</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">260,554</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">242,153</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">152,226</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Liabilities assumed
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(176,536</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net purchase price
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">523,944</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with the provisions of Statement of
Financial Accounting Standards No.&nbsp;142, Goodwill and Other
Intangible Assets (&#147;SFAS&nbsp;142&#148;), the $242,153 in
goodwill recorded as part of the TXUCV acquisition will not be
amortized and will be tested for impairment at least annually.
The goodwill is not deductible for tax purposes.
</FONT>

<P align="center"><FONT size="2">F-80
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s consolidated financial
statements include the results of operations for the TXUCV
acquisition since the April&nbsp;14, 2004 acquisition date.
Unaudited pro forma results of operations data for the nine
month periods ended September&nbsp;30, 2004 and 2003 as if the
Acquisition had occurred at the beginning of each period
presented are as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="75%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Nine Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proforma net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,908</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income per share&nbsp;&#151; basic
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The above pro forma amounts may not be
representative of future periods.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">5.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Property, Plant and Equipment</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Property, plant and equipment, net consisted of
the following at September&nbsp;30, 2004:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Land and buildings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,830</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Network and outside plant facilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">469,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture, fixtures and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,412</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Work in process
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,086</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">610,978</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: accumulated depreciation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(260,687</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">350,291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">6.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Goodwill and Other Intangible Assets</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with SFAS&nbsp;142, Goodwill and
Other Intangible Assets, goodwill and tradenames are not
amortized but are subject to an annual impairment test, or to
more frequent testing if circumstances indicate that they may be
impaired.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At September&nbsp;30, 2004, the carrying amounts
of other intangible assets and related accumulated amortization
are as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="58%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Net Carrying</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amortization</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amout</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Customer lists
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">164,217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,163</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Software
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,780</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,608</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tradenames
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,863</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,863</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the nine&nbsp;months ended September&nbsp;30,
2004 the aggregate amortization of customer lists and software
totaled $9,935 and was recorded in depreciation and amortization
expense. The estimated
</FONT>

<P align="center"><FONT size="2">F-81
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">
<FONT size="2">amortization expense of customer lists and
software for the remainder of 2004 and future periods is as
follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="80%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">October 1&nbsp;- December&nbsp;31, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,275</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Calendar year 2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,832</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Calendar year 2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,832</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Calendar year 2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,832</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Calendar year 2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,328</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,563</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">160,662</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">7.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Long-Term Debt</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Long-term debt consisted of the following at
September&nbsp;30, 2004:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="83%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Senior Secured Credit Facility
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revolving loan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Term loan&nbsp;A
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118,667</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Term loan&nbsp;B
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Senior Notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,314</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">633,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: current portion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">615,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Senior Secured Credit Facility</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company, through its wholly-owned
subsidiaries, entered into a credit agreement dated
April&nbsp;14, 2004 with various financial institutions, which
provides for aggregate borrowings of $467,000 consisting of a
$122,000 term loan&nbsp;A facility, a $315,000 term loan&nbsp;B
facility and a $30,000 revolving credit facility. Borrowings
under the credit facility are secured by substantially all of
the assets of CCI and Texas Acquisition, other than ICTC. A
security interest in ICTC&#146;s assets is contingent upon
obtaining the consent of the Illinois Commerce Commission
(ICC)&nbsp;for ICTC to guarantee $195,000 of total borrowings
under the credit facility.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The term loans are due in quarterly installments,
which increase annually, with all borrowings under term
loan&nbsp;A and term loan&nbsp;B due April&nbsp;14, 2010 and
October&nbsp;14, 2011, respectively. The revolving credit
facility matures on April&nbsp;14, 2010. Within 90&nbsp;days
after the end of the Company&#146;s fiscal year, commencing on
December&nbsp;31, 2004, the Company shall be obligated to repay
the loans in an amount equal to 50% of the excess cash flow for
such fiscal year, provided that certain leverage ratios are
maintained at the end of the fiscal year. In addition, subject
to certain exceptions, the Company is required to prepay the
outstanding term loans with 100% of the net proceeds of all
non-ordinary course of business asset sales and any insurance or
condemnation proceeds not reinvested within a required time
period, 100% of the net
</FONT>

<P align="center"><FONT size="2">F-82
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">
<FONT size="2">proceeds of certain occurrences of indebtedness
and 50% of the net proceeds from certain issuances of equity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At the Company&#146;s election, borrowings bear
interest at fluctuating interest rates based on: (a)&nbsp;a base
rate (the highest of the administrative agent&#146;s base rate
in effect on such day, 0.5%&nbsp;per annum above the latest
three&nbsp;week moving average of secondary market morning
offering rates in the United States for three&nbsp;month
certificates of deposit or 0.5% above the Federal Funds rate);
or (b)&nbsp;the London Interbank Offered Rate, or LIBOR plus, in
either case, an applicable margin within the relevant range of
margins (0.75% to 2.50%) provided for in the credit agreement.
The applicable margin is based upon the Company&#146;s total
leverage ratio. As of September&nbsp;30, 2004, the margins for
interest rates on LIBOR based loans was 2.5% on the term
loan&nbsp;A facility and 2.75% under the term loan&nbsp;B
facility. At September&nbsp;30, 2004 the weighted average rate,
including swaps, of interest on the Company&#146;s term debt
facilities was 4.74%&nbsp;per annum. Interest is payable at
least quarterly.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The credit agreement contains various provisions
and covenants, which include, among other items, restrictions on
the ability to pay dividends, incur additional indebtedness, and
issue capital stock, as well as, limitations on future capital
expenditures. The Company has also agreed to maintain certain
financial ratios, including interest coverage, fixed charge
coverage and leverage ratios, all as defined in the credit
agreement.
</FONT>

<P align="left">
<B><FONT size="2">Senior Notes</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On April&nbsp;14, 2004, the Company, through its
wholly owned subsidiaries, issued $200,000 of
9&nbsp;3/4%&nbsp;Senior Notes due on April&nbsp;1, 2012. The
senior notes pay interest semi-annually on April&nbsp;1 and
October 1. The senior notes may be redeemed on or prior to
October&nbsp;6, 2005 using all or a portion of the proceeds of a
qualified income depository security offering. The redemption
price plus accrued interest will be, as a percentage of the
principal amount, 107.313% through April&nbsp;10, 2004 and
109.75% between April&nbsp;1, 2005 and October&nbsp;6, 2005.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Up to 35% of the senior notes may be redeemed
using the proceeds of certain equity offerings completed on or
prior to April&nbsp;1, 2007. Some or all of the senior notes may
be redeemed on or after April&nbsp;1, 2008. The redemption price
plus accrued interest will be, as a percentage of the principal
amount, 104.875% in 2008, 102.438% in 2009 and 100% in 2010 and
thereafter. In addition, holders may require the repurchase of
the notes upon a change in control, as such term is defined in
the indenture governing the senior notes. The indenture contains
certain provisions and covenants, which include, among other
items, restrictions on the ability to issue certain types of
stock, incur additional indebtedness, make restricted payments,
pay dividends and enter other lines of business.
</FONT>

<P align="center"><FONT size="2">F-83
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Future maturities of long-term debt as of
September&nbsp;30, 2004 are as follows:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="80%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">October 1&nbsp;- December&nbsp;31, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Calendar year 2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Calendar year 2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Calendar year 2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,247</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Calendar year 2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">538,288</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">633,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">8.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Derivative Instruments</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company entered into interest rate swap
agreements that effectively convert a portion of the
floating-rate debt to a fixed-rate basis, thus reducing the
impact of interest rate changes on future interest expense. At
September&nbsp;30, 2004 the Company has interest rate swap
agreements covering $220,000 in aggregate principal amount of
its variable rate debt at fixed LIBOR rates ranging from 2.99%
to 3.35%. The swap agreements expire on December&nbsp;31, 2006,
May&nbsp;19, 2007 and December&nbsp;31, 2007.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the nine months ended September&nbsp;30,
2004, there is no significant gain or loss related to the
ineffective portion of hedging instruments in our interest
expense.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">9.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Other liabilities</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other long-term liabilities consisted of the
following at September&nbsp;30, 2004:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="87%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pension and posts retirement benefit obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,022</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,731</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,753</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">10.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Pension Costs and Other Postretirement
    Benefits</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Components of the defined pension net periodic
cost for the nine months ended September&nbsp;30 are as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="77%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Nine Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Pension Plan</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,780</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">578</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,787</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,405</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Expected return on plan assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,875</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,630</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net periodic benefit cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,692</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">353</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-84
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands, except share and per
share amounts)</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Components of the postretirement periodic cost
for the nine months ended September&nbsp;30 are as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="79%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Nine Months</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Postretirement Plan</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">632</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">418</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of prior service costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Recognized actuarial gain
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net periodic benefit cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,676</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">539</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">11.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Redeemable Preferred Shares</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has authorized 182,000 Class&nbsp;A
Preferred Shares, all of which were issued and outstanding at
September&nbsp;30, 2004. The preferred shares are redeemable to
the holders with a preferred return on their capital
contributions at the rate of 9%&nbsp;per annum. The preferred
return is cumulative and compounded annually in arrears on
December&nbsp;31 of each year. At any time on or after
June&nbsp;30, 2007 certain members have the right to require the
Company to redeem all of their Class&nbsp;A Preferred Shares and
common shares. Preferred shares are redeemable at a price equal
to $1,000&nbsp;per share plus any accrued but unpaid preferred
return and common shares are redeemable based upon an appraised
value by a third party.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">12.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Restricted Share Plan</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2003, the Company established the 2003
Restricted Share Plan (&#147;the Plan&#148;) to award certain
employees of the Company restricted common shares of the Company
as an incentive to enhance their long-term performance as well
as an incentive to join or remain with the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2003, the Company granted
975,000&nbsp;shares of its common shares to certain Company
executives under the Plan. These shares vest at the rate of 25%
every December&nbsp;31, beginning December&nbsp;31, 2004 through
December&nbsp;31, 2007. These consolidated financial statements
do not include any expense relating to the grant of these shares
and none of these shares are vested as of September&nbsp;30,
2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2004, 25,000&nbsp;shares of common
shares were issued to certain Company executives at
$2.32&nbsp;per share.
</FONT>

<P align="center"><FONT size="2">F-85
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands, except share and per
share amounts)</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">13.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Net Loss per Common Share</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the computation of
income per common share
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="71%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Nine Months Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">September&nbsp;30,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss applicable to common shareholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,479</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,492</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average number of common shares
    outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss per common share&nbsp;&#151; basic and
    diluted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.61</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.28</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Shares issued pursuant to the Restricted Share
Plan (Note&nbsp;13) are not included in the computation of net
loss per share as their effective was anti-dilutive.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">14.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Business Segments</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Business segment reporting information is as
follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="63%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Telephone</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Nine months ended September&nbsp;30,
    2004:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">161,155</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,721</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,137</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,858</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">135,434</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,718</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">147,152</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,045</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74,938</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,453</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,031</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net operating income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,088</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(358</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,366</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,272</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-86
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">HOMEBASE ACQUISITION, LLC</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Doing Business as</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED COMMUNICATIONS</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</FONT></B>

<DIV align="center">
<B><FONT size="2">(Dollars in thousands, except share and per
share amounts)</FONT></B>
</DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="61%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Telephone</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Operations</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Nine months ended September&nbsp;30,
    2003:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating revenues
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services and products
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,813</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,749</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,562</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,722</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,454</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,176</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,983</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,472</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,709</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net operating income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,219</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,026</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,912</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,938</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="13"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">As of September&nbsp;30, 2004:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320,716</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">341,706</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">984,580</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,051,718</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">15.</FONT></B></TD>
    <TD>
    <B><FONT size="2">Subsequent event</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005, Homebase merged its wholly owned subsidiary Consolidated
Communications Texas Holdings, Inc. into Communications Illinois
Holdings, Inc (&#147;CCI Holdings&#148;). Homebase subsequently
contributed all of its preferred and common shares to CCI
Holdings in exchange for all of the outstanding shares of CCI
Holdings.
</FONT>

<P align="center"><FONT size="2">F-87
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">

</DIV>

<P align="center">
<IMG src="y69344y6934400.gif" alt="(CONSOLIDATED COMMUNICATIONS LOGO)">

<DIV>&nbsp;</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">PART&nbsp;II</FONT></B>

<P align="center">
<B><FONT size="2">INFORMATION NOT REQUIRED IN
PROSPECTUS</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;13.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Other Expenses of Issuance and
    Distribution.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the costs and
expenses, other than underwriting discounts and commissions,
payable by us in connection with the offer and sale of the
securities being registered:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="69%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount to be Paid(1)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SEC Registration Fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,680</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">New York Stock Exchange Listing Fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">NASD Filing Fee
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal Fees and Expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Printing and Engraving Expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounting Fees and Expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">500,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Transfer Agent&#146;s Fees and Expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Miscellaneous Expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,820</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,235,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">All amounts are estimates except the SEC
    registration fee, the NASD filing fee and the New York Stock
    Exchange listing fee.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;14.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Indemnification of Directors and
    Officers.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Registrant is incorporated under the laws of
the State of Delaware. Section&nbsp;145
(&#147;Section&nbsp;145&#148;) of the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be
amended (the &#147;DGCL&#148;), provides that a Delaware
corporation may indemnify any persons who were, are or are
threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such
person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses
(including attorneys&#146; fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the
corporation&#146;s best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe that his conduct was illegal. A Delaware corporation may
indemnify any persons who are, were or are threatened to be
made, a party to any threatened, pending or completed action or
suit by or in the right of the corporation by reasons of the
fact that such person was a director, officer, employee or agent
of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses
(including attorneys&#146; fees) actually and reasonably
incurred by such person in connection with the defense or
settlement of such action or suit, provided such person acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the corporation&#146;s best interests, provided
that no indemnification is permitted without judicial approval
if the officer, director, employee or agent is adjudged to be
liable to the corporation. Where an officer, director, employee
or agent is successful on the merits or otherwise in the defense
of any action referred to above, the corporation must indemnify
him against the expenses which such officer or director has
actually and reasonably incurred.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;145 further authorizes a corporation
to purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation or enterprise,
</FONT>

<P align="center"><FONT size="2">II-1
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">against any liability asserted against him and
incurred by him in any such capacity, arising out of his status
as such, whether or not the corporation would otherwise have the
power to indemnify him under Section&nbsp;145.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Section&nbsp;102(b)(7) of the DGCL permits a
corporation to include in its certificate of incorporation a
provision eliminating or limiting the personal liability of a
director of a corporation to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the
liability of a director (i)&nbsp;for any breach of the
directors&#146; duty of loyalty to the corporation or its
stockholders, (ii)&nbsp;for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law, (iii)&nbsp;under Section&nbsp;174 of the DGCL (relating
to unlawful payment of dividends and unlawful stock purchase and
redemption) or (iv)&nbsp;for any transaction from which the
director derived an improper personal benefit.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The registrant&#146;s amended and restated
certificate of incorporation provides that to the fullest extent
permitted by the DGCL and except as otherwise provided in its
bylaws, none of the registrant&#146;s directors shall be liable
to it or its stockholders for monetary damages for a breach of
fiduciary duty. In addition, the registrant&#146;s amended and
restated certificate of incorporation provides for
indemnification of any person who was or is made or threatened
to be made a party to any action, suit or other proceeding,
whether criminal, civil, administrative or investigative,
because of his or her status as a director or officer of the
registrant, or service as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or
other enterprise at the request of the registrant to the fullest
extent authorized under the DGCL against all expenses,
liabilities and losses reasonably incurred by such person.
Further, all of the directors and officers of the registrant are
covered by insurance policies maintained and held in effect by
the registrants against certain liabilities for actions taken in
their capacities as such, including liabilities under the
Securities Act.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;15.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Recent Sales of Unregistered
    Securities.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On April&nbsp;14, 2004, the registrant issued
$200,000,000 of 9&nbsp;3/4%&nbsp;Senior Notes due 2012 (the
&#147;Senior Notes&#148;). The initial purchasers of the Senior
Notes and the principal amount purchased by each such purchaser
are listed in the table below.
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="73%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Name of Purchaser</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Principal Amount</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Credit Suisse First Boston LLC
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Citigroup Global Markets Inc.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deutsche Bank Securities Inc.&nbsp;</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The issuance of the Senior Notes to the initial
purchasers was made in reliance on Section&nbsp;4(2) under the
Securities Act and the Senior Notes were subsequently resold by
the initial purchasers pursuant to Rule&nbsp;144A promulgated
thereunder. The sale of the Senior Notes was made without
general solicitation or advertising.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;16.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Exhibits and Financial Statement
    Schedules.</FONT></I></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">(a)&nbsp;<I>Exhibits.</I></FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A list of exhibits filed with this registration
statement is in the Exhibit&nbsp;Index that immediately precedes
such exhibits and is incorporated by reference herein.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">(b)&nbsp;<I>Financial Statement
    Schedules.</I></FONT></B></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">II-2
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<FONT size="2">Report of Independent Registered Public
Accounting Firm
</FONT>

<P align="left">
<FONT size="2">Homebase Acquisition, LLC
</FONT>

<DIV align="left">
<FONT size="2">The Board of Directors
</FONT>
</DIV>

<DIV align="left">
<FONT size="2">Homebase Acquisition, LLC
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have audited the consolidated financial
statements of Homebase Acquisition, LLC as of December&nbsp;31,
2003 for year then ended and of the combined financial
statements of Illinois Consolidated Telephone Company and
Related Businesses (as predecessor company to Homebase
Acquisition, LLC) as of and for the years ended
December&nbsp;30, 2002 and 2001, and have issued our reports
thereon dated March&nbsp;8, 2004 (included elsewhere in this
Registration Statement). Our audits also included the financial
statement schedules listed in Item&nbsp;16(b) of Form&nbsp;S-1
of this Registration Statement. This schedule is the
responsibility of the Company&#146;s and its predecessor&#146;s
management. Our responsibility is to express an opinion based on
our audits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">/s/ ERNST &#38; YOUNG LLP
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">Chicago, Illinois
</FONT>

<DIV align="left">
<FONT size="2">March&nbsp;8, 2004
</FONT>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">SCHEDULE&nbsp;II-VALUATION RESERVES</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Uncollectible</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accounts and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Inventory</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Write&nbsp;Offs,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Net of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Collection of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Balance at the</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Charged to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accounts</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Beginning of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Costs and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Previously</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Balance at the</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Expenses</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Written Off</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">End of Period</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Homebase Acquisition, LLC
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Year ending December&nbsp;31, 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for doubtful accounts (shown as a
    deduction from Accounts receivable in the consolidated balance
    sheet)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,850</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,412</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,425</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventory valuation reserve (included in
    Inventories in the consolidated balance sheet)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">143</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Predecessor (Illinois Consolidated Telephone
    Company and Related Businesses)<BR>
    Year ending December&nbsp;30,&nbsp;2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for doubtful accounts (shown as a
    deduction from Accounts receivable in the combined balance
    sheets)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,142</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,527</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,819</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,850</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventory valuation reserve (included in
    Inventories in the combined balance sheets)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">177</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Predecessor (Illinois Consolidated Telephone
    Company and Related Businesses)<BR>
    Year ending December&nbsp;30,&nbsp;2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for doubtful accounts (shown as a
    deduction from Accounts receivable in the combined balance
    sheets)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,195</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">884</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,142</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventory valuation reserve (included in
    Inventories in the combined balance sheets)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;17.</FONT></B></TD>
    <TD>
    <B><I><FONT size="2">Undertakings.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(a)&nbsp;The undersigned registrant hereby
undertakes to provide to the underwriters at the closing
specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(b)&nbsp;Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the provisions described under Item&nbsp;14 above,
or otherwise, the registrant has been advised that in the
opinion of the SEC such indemnification is against public policy
as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(c)&nbsp;The undersigned registrant hereby
undertakes that:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;For purposes of determining any
    liability under the Securities Act, the information omitted from
    the form of prospectus filed as part of this registration
    statement in reliance upon Rule&nbsp;430A
    </FONT></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">and contained in a form of prospectus filed by
    the registrant pursuant to Rule&nbsp;424(b)(1) or (4)&nbsp;or
    497(h) under the Securities Act shall be deemed to be part of
    this registration statement as of the time it was declared
    effective.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;For the purpose of determining any
    liability under the Securities Act, each post-effective
    amendment that contains a form of prospectus shall be deemed to
    be a new registration statement relating to the securities
    offered therein, and this offering of such securities at that
    time shall be deemed to be the initial bona fide offering
    thereof.
    </FONT></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">SIGNATURES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this registration
statement on Form&nbsp;S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mattoon,
State of Illinois, on the 8th&nbsp;day of December, 2004.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">CONSOLIDATED COMMUNICATIONS ILLINOIS
    HOLDINGS,&nbsp;INC.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">By:&nbsp;</FONT></TD>
    <TD align="center">
    <FONT size="2">/s/ ROBERT J. CURREY
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <HR size="1" align="left" noshade></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Name:&nbsp;Robert J. Currey
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Title:&nbsp;&nbsp;&nbsp;President and Chief
    Executive Officer
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">POWER OF ATTORNEY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints and
hereby authorizes each of Robert J. Currey and Steven L.
Childers his true and lawful attorney-in-fact, acting alone,
with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign
on such person&#146;s behalf, individually and in each capacity
stated below, any and all amendments (including any
post-effective amendments and supplements) to this registration
statement, and any additional registration statements filed
pursuant to Rule&nbsp;462(b), and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the SEC, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully and to all
intents and purposes such person might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact
and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of the Securities
Act of 1933, this registration statement on Form&nbsp;S-1 has
been signed by the following persons in the capacities and on
the date indicated.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="29%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="25%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Signature</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Title</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Date</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ ROBERT J. CURREY<BR>
    <HR size="1" noshade>Robert J. Currey
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director Chief Executive Officer<BR>
    (Principal Executive Officer)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">December&nbsp;8, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ STEVEN L. CHILDERS<BR>
    <HR size="1" noshade>Steven L. Childers
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Chief Financial Officer (Principal<BR>
    Financial and Accounting Officer)
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">December&nbsp;8, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ RICHARD A. LUMPKIN<BR>
    <HR size="1" noshade>Richard A. Lumpkin
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Chairman of the Board of Directors
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">December&nbsp;8, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ KEVIN J. MARONI<BR>
    <HR size="1" noshade>Kevin J. Maroni
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">December&nbsp;8, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <FONT size="2">/s/ MARK A. PELSON<BR>
    <HR size="1" noshade>Mark A. Pelson
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Director
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">December&nbsp;8, 2004
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">EXHIBIT INDEX</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="85%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">No.</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">1</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Underwriting Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Stock Purchase Agreement, dated January&nbsp;15,
    2004, between Pinnacle One Partners, L.P. and Consolidated
    Communications Acquisitions Texas Corp. (f/k/a Homebase
    Acquisition Texas Corp.)
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Amended and Restated Certificate of
    Incorporation to be effective upon closing
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Amended and Restated Bylaws to be
    effective upon closing
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Specimen Class&nbsp;A Common Stock Certificate
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Specimen Class&nbsp;B Common Stock Certificate
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Indenture, dated April&nbsp;14, 2004, by and
    among Consolidated Communications Illinois Holdings, Inc.,
    Consolidated Communications Texas Holdings, Inc., Homebase
    Acquisition, LLC and Wells Fargo Bank, N.A., as Trustee, with
    respect to the 9&nbsp;3/4%&nbsp;Senior Notes due 2012
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form&nbsp;9&nbsp;3/4%&nbsp;Senior Note due 2012
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Registration Rights Agreement, dated
    April&nbsp;14, 2004, among Consolidated Communications Illinois
    Holdings, Inc., Consolidated Communications Texas Holdings,
    Inc., Homebase Acquisition, LLC and Credit Suisse First Boston
    LLC, Citigroup Global Markets Inc. and Deutsche Bank Securities
    Inc.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Registration Rights Agreement,
    dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
    2005, among Consolidated Communications Holdings, Inc. and
    Central Illinois Telephone, LLC, Providence Equity Partners IV,
    L.P. and Spectrum Equity Investors IV, L.P.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Opinion of King&nbsp;&#38; Spalding LLP
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Amended and Restated Credit Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Amended and Restated Pledge&nbsp;&#38;
    Guarantee Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Pledge Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.4**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Security Agreement
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.5**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of CCI Illinois Borrower Group Guarantee
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.6**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of CCI Texas Borrower Group Guarantee
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.7*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Services and Facilities Agreement, dated
    December&nbsp;31, 2002, among Consolidated Communications, Inc.,
    Illinois Consolidated Telephone Company, Consolidated
    Communications Market Response, Inc., Consolidated
    Communications Public Services, Inc., Consolidated
    Communications Operator Services, Inc., Consolidated
    Communications Mobile Services, Inc., Consolidated
    Communications Business Services, Inc. and Consolidated
    Communications Network Services, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.8*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lease Agreement, dated December&nbsp;31, 2002,
    between LATEL, LLC and Consolidated Market Response, Inc.
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.9*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Lease Agreement, dated December&nbsp;31, 2002,
    between LATEL, LLC and Illinois Consolidated Telephone Company
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.10*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master Lease Agreement, dated February&nbsp;25,
    2002, between General Electric Capital Corporation and TXU
    Communications Ventures Company
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.11*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment No.&nbsp;1 to Master Lease Agreement,
    dated February&nbsp;25, 2002, between General Electric Capital
    Corporation and TXU Communications Ventures Company, dated
    March&nbsp;18, 2002
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.12*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master Lease Agreement, dated February&nbsp;25,
    2002, between General Electric Capital Corporation and TXU
    Communications Ventures Company
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.13*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment No.&nbsp;1 to Master Lease Agreement,
    dated February&nbsp;25, 2002, between General Electric Capital
    Corporation and TXU Communications Ventures Company, dated
    March&nbsp;18, 2002
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.14*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Homebase Acquisition, LLC 2003 Restricted Share
    Plan
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.15*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Grant of Restricted Share Award
    </FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">21</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">List of subsidiaries of registrant
    </FONT></TD>
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    <TD></TD>
    <TD></TD>
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    <TD colspan="3" align="center" nowrap><B><FONT size="1">No.</FONT></B></TD>
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    <TD align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
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    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Ernst&nbsp;&#38; Young LLP,
    Independent Registered Public Accounting Firm
    </FONT></TD>
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<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of Deloitte&nbsp;&#38; Touche LLP,
    Independent Registered Public Accounting Firm
    </FONT></TD>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.3**</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of King&nbsp;&#38; Spalding LLP (included
    in Exhibit&nbsp;5.1)
    </FONT></TD>
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    <TD align="right" valign="top" nowrap><FONT size="2">24</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Powers of Attorney (set forth on the signature
    page hereto)
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    <FONT size="2">Previously filed on October&nbsp;26, 2004 as an
    exhibit to the Registrant&#146;s Registration Statement on
    Form&nbsp;S-4 (File No.&nbsp;333-119968)
    </FONT></TD>
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    <FONT size="2">To be filed by amendment
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[{"type": "S-1", "sequence": "1", "filename": "y69344sv1.htm", "description": "FORM S-1", "secsgml_size_bytes": 3058369}]
{"company-data": {"conformed-name": "Consolidated Communications Illinois Holdings, Inc.", "cik": "0001304421", "assigned-sic": "4813", "irs-number": "020636095", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-121086", "film-number": "041191459"}, "business-address": {"street1": "121 SOUTH 17TH STREET", "city": "MATTOON", "state": "IL", "zip": "61938", "phone": "(217) 235-3311"}, "mail-address": {"street1": "121 SOUTH 17TH STREET", "city": "MATTOON", "state": "IL", "zip": "61938"}}
FORM S-1
Table of Contents
As filed with the Securities and Exchange
Commission on December 8, 2004.
Registration
No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Consolidated Communications Illinois Holdings,
Inc.
(Exact name of registrant as specified in its
charter)
Delaware
4813
02-0636095
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)
121 South 17th Street
Mattoon, Illinois 61938-3987
(217) 235-3311
(Address, including zip code, and telephone
number,
including area code, of registrant's
principal executive offices)
Steven L. Childers
Chief Financial Officer
121 South 17th Street
Mattoon, Illinois 61938-3987
(217) 235-3311
(Name, address, including zip code, and
telephone number,
including area code, of agent for
service)
Copies to:
Alexander A. Gendzier, Esq.
King & Spalding LLP
1185 Avenue of the Americas
New York, New York 10036
(212) 556-2100
Gary A. Brooks, Esq.
Cahill Gordon & Reindel LLP
80 Pine Street
New York, New York 10005
(212) 701-3000
Approximate date of commencement of proposed
sale to the public:
As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act of 1933, check the
following box.
o
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under
the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same offering.
o
If delivery of the prospectus is expected to be
made pursuant to Rule 434, check the following
box.
o
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Title of Class of
Aggregate
Amount of
Securities to be Registered
Offering Price(1)(2)
Registration Fee
Class A Common Stock, $0.01 par value
    per share
$400,000,000
$50,680
(1)
Includes shares to be sold upon exercise of
    underwriters' over-allotment option.
(2)
Estimated solely for the purpose of calculating
    the registration fee in accordance with Rule 457(o) under
    the Securities Act.
The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further
amendment which specifically states that this registration
statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this
registration statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
Table of Contents
The information in this
prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED
DECEMBER 8, 2004
Shares
Class A Common Stock
This is an initial public offering of shares of
Class A common stock of Consolidated Communications
Holdings, Inc. Of
the                      shares
of Class A common stock to be sold in the
offering,                      shares
are being sold by us
and                      shares
are being sold by the selling stockholders identified in this
prospectus. We will not receive any of the proceeds from the
shares of Class A common stock sold by the selling
stockholders.
Prior to this offering, there has been no public
market for our Class A common stock. The initial public
offering price of our Class A common stock is expected to
be between
$          and
$           per
share. We will apply to list our Class A common stock on
the New York Stock Exchange under the trading symbol
"            ".
Following this offering, we will have two classes
of authorized common stock, Class A common stock and
Class B common stock. The rights of the holders of
Class A common stock and Class B common stock are
identical, except with respect to voting and conversion. Each
share of Class A common stock is entitled to one vote per
share. Each share of Class B common stock is entitled to
ten votes per share and is convertible voluntarily at any time
and automatically in connection with certain transfers into one
share of Class A common stock.
The underwriters have an option to purchase a
maximum
of            additional
shares from the selling stockholders to cover over-allotments of
shares, if any.
Investing in our Class A common stock
involves risks. See "Risk Factors" beginning on
page 16.
Underwriting
Proceeds to
Price to
Discounts and
Proceeds to
Selling
Public
Commissions
Us
Stockholders
Per share
$
$
$
$
Total
$
$
$
$
Delivery of the shares of Class A common
stock will be made on or
about                     ,
2005.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal
offense.
Credit Suisse First Boston
The date of this prospectus
is                     ,
2005
TABLE OF CONTENTS
Page
SHORTHAND REFERENCES
ii
FORWARD-LOOKING
    STATEMENTS
ii
MARKET AND INDUSTRY DATA
iii
WHERE YOU CAN FIND MORE
    INFORMATION
iv
SUMMARY
1
RISK FACTORS
16
USE OF PROCEEDS
36
DIVIDEND POLICY AND
    RESTRICTIONS
37
CAPITALIZATION
44
DILUTION
46
SELECTED HISTORICAL AND
    OTHER FINANCIAL DATA — CCI HOLDINGS
47
SELECTED HISTORICAL AND
    OTHER FINANCIAL DATA — CCI TEXAS
49
MANAGEMENT'S DISCUSSION
    AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS — CCI HOLDINGS
51
MANAGEMENT'S DISCUSSION
    AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS — CCI TEXAS
74
BUSINESS
85
REGULATION
107
MANAGEMENT
115
PRINCIPAL AND SELLING
    STOCKHOLDERS
123
CERTAIN RELATIONSHIPS AND
    RELATED PARTY TRANSACTIONS
126
DESCRIPTION OF
    INDEBTEDNESS
129
DESCRIPTION OF CAPITAL
    STOCK
138
SHARES ELIGIBLE FOR FUTURE
    SALE
144
MATERIAL U.S. FEDERAL INCOME
    TAX CONSIDERATIONS
146
UNDERWRITING
149
NOTICE TO CANADIAN
    RESIDENTS
152
VALIDITY OF THE CLASS A
    COMMON STOCK
153
EXPERTS
153
INDEX TO UNAUDITED PRO FORMA
    FINANCIAL STATEMENTS
P-1
INDEX TO FINANCIAL
    STATEMENTS
F-1
CONSENT OF ERNST & YOUNG LLP
CONSENT OF DELOITTE & TOUCHE LLP
You should rely only on the information
contained in this document or to which we have referred you. We
have not authorized anyone to provide you with information that
is different. This document may only be used where it is legal
to sell these securities. The information in this document may
only be accurate on the date of this document.
Dealer Prospectus Delivery
Obligation
Until                     ,
2005 (25 days after commencement of this offering), all
dealers selling shares of our Class A common stock, whether
or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or
subscriptions.
i
Table of Contents
SHORTHAND REFERENCES
In this prospectus, we use the following terms
for ease of reference, unless stated otherwise or it is
otherwise evident from the context:
•
"CCI Holdings", "our
    company", "we", "us" and
    "our" each refer to Consolidated Communications
    Holdings, Inc. and its subsidiaries on a consolidated basis;
•
"CCI Illinois" refers to CCI and its
    subsidiaries on a consolidated basis;
•
"CCI Texas" refers to Texas Holdings
    and its subsidiaries on a consolidated basis;
•
"CCI" refers to Consolidated
    Communications, Inc., a wholly owned subsidiary of CCI Holdings
    and its consolidated subsidiaries;
•
"CCV" refers to Consolidated
    Communications Ventures Company, a wholly owned subsidiary of
    Texas Holdings; and
•
"common stock" refers collectively to
    our Class A common stock and Class B common stock.
On April 14, 2004, we acquired through our
wholly owned subsidiary Consolidated Communications Acquisition
Texas, Inc., which we refer to as "Texas Holdings",
all of the capital stock of TXU Communications Ventures Company,
which we refer to as "TXUCV". After the acquisition,
TXUCV was renamed CCV. In connection with this offering and the
related transactions, we plan to effect a plan of reorganization
as summarized under "Summary — CCI Holdings
Reorganization". Upon completion of the reorganization and
in connection with this offering and the related transactions,
we will amend and restate our certificate of incorporation to,
among other things, change our name from Consolidated
Communications Illinois Holdings, Inc. to Consolidated
Communications Holdings, Inc. Throughout this prospectus, unless
the context otherwise requires, we have assumed that the
foregoing reorganization and name change have been completed.
Please see our organizational charts under
"Summary — Our Current Organizational
Structure" and "— Post Offering
Organizational Structure" for an illustration of our
current organizational structure as well as our organizational
structure upon completion of this offering and the related
transactions.
FORWARD-LOOKING STATEMENTS
Any statements contained in this prospectus that
are not statements of historical fact, including statements
about our beliefs and expectations, are forward-looking
statements and should be evaluated as such. The words
"anticipates", "believes",
"expects", "intends", "plans",
"estimates", "targets",
"projects", "should", "may",
"will" and similar words and expressions are intended
to identify forward-looking statements. These forward-looking
statements are contained throughout this prospectus, for example
in "Summary", "Risk Factors", "Dividend
Policy and Restrictions", "Management's
Discussion and Analysis of Financial Condition and Results of
Operations — CCI Holdings and CCI Texas",
"Business", "Regulation" and the unaudited
pro forma condensed consolidated financial statements and the
related notes. Such forward-looking statements reflect, among
other things, our current expectations, plans and strategies,
and anticipated financial results, all of which are subject to
known and unknown risks, uncertainties and factors that may
cause our actual results to differ materially from those
expressed or implied by these forward-looking statements. Many
of these risks are beyond our ability to control or predict.
These forward-looking statements are subject to risks,
uncertainties and assumptions, regarding, among other things:
•
the effect of our current and future indebtedness
    and our dividend policy on our ability to pursue growth
    opportunities;
•
our substantial amount of debt and our need for a
    significant amount of cash to service and repay our debt and pay
    dividends;
ii
Table of Contents
•
restrictive covenants in the indenture governing
    our 9 3/4% senior notes due 2012, or the senior notes, and
    the amended and restated credit facilities to be entered into in
    connection with this offering and the related transactions;
•
competition in our industry;
•
our ability to successfully adapt to new
    technologies, respond effectively to customer requirements or
    provide new services;
•
the acquisition of TXUCV and any other
    acquisitions we make;
•
the economic conditions of our service areas in
    Illinois and Texas;
•
system failures;
•
loss of major customers and the risks of
    government contracts;
•
the ability to obtain and maintain necessary
    rights-of-way for our network;
•
dependence on third party vendors for our
    information and billing systems;
•
dependence on third party vendors for our
    information and billing systems;
•
our ability to attract and retain qualified
    management and other personnel;
•
the expense and administrative workload
    associated with being a public company with listed securities;
    and
•
extensive government legislation and regulations
    that apply to us and the telecommunications industry.
All forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their
entirety by the cautionary statements contained throughout this
prospectus. Because of these risks, uncertainties and
assumptions, you should not place undue reliance on these
forward-looking statements. Furthermore, forward-looking
statements speak only as of the date they are made. We do not
undertake any obligation to update or review any forward-looking
information, whether as a result of new information, future
events or otherwise. The safe harbor provided by the Private
Securities Litigation Reform Act of 1995 does not apply to any
forward-looking statements made in connection with this offering.
MARKET AND INDUSTRY DATA
Market and industry data and other information
used throughout this prospectus are based on independent
industry publications, government publications, publicly
available information, reports by market research firms or other
published independent sources. Some data is also based on
estimates of our management, which are derived from their review
of internal surveys and industry knowledge. Although we believe
these sources are reliable, we have not independently verified
the information, and we cannot guarantee its accuracy or
completeness.
iii
Table of Contents
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on
Form S-1 with the SEC regarding this offering. This
prospectus, which is part of the registration statement, does
not contain all of the information included in the registration
statement, and you should refer to the registration statement
and its exhibits to read that information. As a result of the
effectiveness of the registration statement, we are subject to
the informational reporting requirements of the Securities
Exchange Act of 1934, as amended, and, under that Exchange Act,
we will file reports, proxy statements and other information
with the SEC. You may read and copy the registration statement,
the related exhibits and the reports, proxy statements and other
information we file with the SEC at the SEC's public
reference facilities maintained by the SEC at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. You can also
request copies of those documents, upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the
public reference rooms. The SEC also maintains an Internet site
that contains reports, proxy and information statements and
other information regarding issuers that file with the SEC. The
site's Internet address is www.sec.gov.
You may also request a copy of these filings, at
no cost, by writing or telephoning us at:
Consolidated Communications Holdings, Inc.
121 South 17th Street
Mattoon, Illinois 61938-3987
Attention: Secretary
Telephone: (217) 235-3311
iv
Table of Contents
SUMMARY
This summary highlights some of the
information contained elsewhere in this prospectus. It may not
include all the information that is important to you. You should
read the entire prospectus carefully, including the more
detailed information in the financial statements and the related
notes included elsewhere in this prospectus. See "Risk
Factors" for factors that you should consider before
investing in our Class A common stock and
"Forward-Looking Statements" for information relating
to statements contained in this prospectus that are not
historical facts.
CCI Holdings is a holding company with no
income from operations or assets except for the capital stock of
CCI and Texas Holdings. CCI was formed for the sole purpose of
acquiring Illinois Consolidated Telephone Company, or ICTC, and
the related businesses on December 31, 2002. We believe the
operations of ICTC and the related businesses prior to
December 31, 2002 represent the predecessor of CCI
Holdings. Texas Holdings is a holding company with no income
from operations or assets except for the capital stock of CCV.
Texas Holdings was formed for the sole purpose of acquiring
TXUCV on April 14, 2004, which was subsequently renamed
CCV. Texas Holdings operates its business through, and receives
all of its income from, CCV and its subsidiaries.
CCI Holdings, the issuer in this offering, is
presently a wholly owned subsidiary of Homebase Acquisition,
LLC, a Delaware limited liability company, or Homebase, which is
itself wholly owned by our existing stockholders. Prior to the
consummation of this offering, we plan to effect a
reorganization pursuant to which (1) our sister subsidiary
Consolidated Communications Texas Holdings, Inc. will merge with
and into CCI Holdings and (2) Homebase will merge with and
into CCI Holdings, in each case, with CCI Holdings being the
company surviving the merger. See "Summary — Our
Current Organizational Structure" and
"— Post-Offering Organizational
Structure".
Throughout this prospectus, unless the context
otherwise requires or we specifically state otherwise, we are
presenting all financial and other information on a pro forma
basis for:
•
the acquisition of TXUCV;
•
the reorganization described above and
    described more fully under "Certain Relationships and
    Related Party Transactions — Reorganization
    Agreement";
•
the issuance of our Class A common stock
    in this offering;
•
the expected amendment and restatement of our
    existing credit facilities described under "Description of
    Indebtedness — Amended and Restated Credit
    Facilities";
•
the application of proceeds from this
    offering, proceeds from the amendment and restatement of our
    existing credit facilities and cash on hand as described under
    "Use of Proceeds";
•
the payment of fees and expenses relating to
    this offering and the related transactions; and
•
the termination of professional service fee
    agreements with certain affiliates of the existing equity
    investors.
The Company
We are an established rural local exchange
company that provides communications services to residential and
business customers in Illinois and in Texas. As of
September 30, 2004, we were the 16th largest local
telephone company in the United States, based on industry
sources, with approximately 257,726 local access lines and
approximately 24,385 digital subscriber lines, or DSL lines, in
service. Our main sources of revenues are our local telephone
businesses in Illinois and Texas, which offer an array of
services, including local dial tone, custom calling features,
private line services, long distance, dial-up and high-speed
Internet access, carrier access and billing and collection
services. We also operate a number of complementary businesses.
In Illinois, we provide additional services such as telephone
services to county jails and state prisons, operator and
national directory assistance and telemarketing and order
fulfillment
1
Table of Contents
services. In Texas, we publish telephone
directories and offer wholesale transport services on a fiber
optic network.
Each of the subsidiaries through which we operate
our local telephone businesses is classified as a rural
telephone company, commonly referred to as an RLEC, under the
Telecommunications Act of 1996, or the Telecommunications Act.
Our RLECs are ICTC, Consolidated Communications of Fort Bend
Company and Consolidated Communications of Texas Company. RLECs
are typically characterized by stable operating results and
consistently strong cash flow and operate in generally
supportive regulatory environments. In addition, because our
RLECs primarily provide service in rural areas, competition for
local telephone service has been limited due to the generally
unfavorable economics of constructing and operating competitive
systems in these areas.
We had $327.1 million and
$244.9 million of revenues for the year ended
December 31, 2003 and for the nine months ended
September 30, 2004, respectively. We had a
$9.5 million net loss for the year ended December 31,
2003 and $8.5 million of net income for the nine months
ended September 30, 2004, respectively.
We operate our business in two segments, which we
refer to as Telephone Operations and Other Operations.
Telephone Operations
Illinois
Our Illinois Telephone Operations consist of
local telephone, long distance and data and Internet services
and serves residential and business customers in central
Illinois. As of September 30, 2004, our Illinois Telephone
Operations had approximately:
•
88,254 local access lines in service, of which
    approximately 64% served residential customers and 36% served
    business customers;
•
61% long distance penetration of its local access
    lines;
•
8,038 dial-up Internet customers; and
•
10,109 DSL lines, which represented an
    approximately 11.5% penetration of total local access lines.
    Approximately 90% of our Telephone Operations' total local
    access lines in Illinois, excluding local access lines already
    served by other high speed connections, are DSL-capable.
In 2003, our Illinois Telephone Operations
generated $90.3 million of revenues and $28.2 million
of cash flows from operating activities on a historical basis.
For the nine months ended September 30, 2004, our Telephone
Operations in Illinois generated $71.9 million of revenues
and $17.6 million of cash flows from operating activities
on a historical basis.
Texas
Our Texas Telephone Operations serve residential
and business customers in east Texas and rural and suburban
areas surrounding Houston. As of September 30, 2004, our
Texas Telephone Operations had approximately:
•
169,472 local access lines in service, of which
    approximately 67% served residential customers and 33% served
    business customers;
•
39% long distance penetration of local access
    lines;
•
14,971 dial-up Internet customers; and
•
14,276 DSL lines, which represented an
    approximately 8.4% penetration of total local access lines.
    Approximately 90% of our total local access lines, excluding
    local access lines already served by other high speed
    connections, are DSL-capable.
2
Table of Contents
Our Texas Telephone Operations also include the
following complementary businesses:
•
Directory
    Publishing
— sells directory
    advertising and publishes yellow and white pages directories in
    and around Consolidated Communications of Fort Bend
    Company's and Consolidated Communications of Texas
    Company's, which we refer to as our Texas RLECs, service
    areas. The three directories are each published once per year
    and have a combined circulation in excess of 400,000.
•
Transport
    Services
— provides
    connectivity to customers within Texas over a fiber optic
    transport network consisting of approximately 2,500 route-miles
    of fiber. This transport network supports our long distance,
    Internet access and data services in Texas and provides
    bandwidth on a wholesale basis to third party customers,
    including national long distance and wireless carriers.
In 2003, our Texas Telephone Operations generated
$194.8 million of revenues and $75.1 million of cash
flows from operating activities on an historical basis. For the
nine months ended September 30, 2004, our Texas Telephone
Operations generated $143.1 million of revenues and
$46.1 million of cash flows from operating activities on an
historical basis.
Other Operations
Our Other Operations consist of the following
complementary businesses:
•
Public
    Services
— provides local
    and long distance service and automated collect calling from
    county jails and state prisons in Illinois;
•
Operator
    Services
— offers both live
    and automated local and long distance operator assistance and
    national directory assistance on a wholesale and retail basis;
•
Market
    Response
— provides
    telemarketing and order fulfillment services to customers
    nationwide;
•
Business
    Systems
— sells, installs
    and maintains telecommunications equipment and wiring to
    residential and business customers in and around our Illinois
    service area; and
•
Mobile
    Services
— provides one-way
    messaging service to residential and business customers.
In 2003, our Other Operations generated
$42.0 million of revenues and $0.7 million of cash
flows from operating activities on a historical basis. For the
nine months ended September 30, 2004, our Other Operations
generated $29.9 million of revenues and $1.9 million
of cash flows from operating activities on a historical basis.
Our Strengths
We believe our strengths include:
•
consistently strong cash flows;
•
favorable regulatory environment;
•
attractive markets and limited competition;
•
technologically advanced network;
•
broad service offerings and service bundles; and
•
experienced management team with proven track
    record.
Business Strategy
Our current business strategy includes:
•
improving operating efficiency and maintaining
    capital expenditure discipline;
•
increasing revenues per customer;
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•
continuing to provide high quality service; and
•
pursuing selective acquisitions.
TXUCV Acquisition and Integration
On April 14, 2004, through our indirect
wholly owned subsidiary Texas Holdings, we acquired all of the
capital stock of TXUCV for $527.0 million in cash, subject
to adjustment for, among other things, our assumption of $2.8
million of capital leases and for TXUCV's working capital
on the closing date. On August 10, 2004, we made an
additional cash payment of $5.1 million as a result of the
final working capital adjustment. Promptly following the TXUCV
acquisition, an integration project management team started
integrating CCI Texas' and CCI Illinois' operations.
Our objective is to improve our cash flows by reducing
individual company costs through centralization, standardization
and the sharing of best practices.
We currently expect to incur approximately
$14 million in operating expenses associated with the
integration and restructuring process in 2004 and 2005. Of the
$14 million, approximately $11 million relates to
integration and approximately $3 million relates to
restructuring. As of September 30, 2004, $2.3 million
had been spent on integration. These one-time integration and
restructuring costs will be in addition to certain ongoing
expenses we expect to incur to expand certain administrative
functions, such as those relating to SEC reporting and
compliance, and do not take into account other potential cost
savings and expenses of the TXUCV acquisition. Approximately
$5.2 million in severance expenses were incurred in
connection with the separation of approximately 70 TXUCV
employees at the closing of the TXUCV acquisition. The full year
impact of the cost savings of the headcount reduction is
currently expected to be approximately $8.0 million. We do
not expect to incur costs relating to the TXUCV integration
after 2005.
Amended and Restated Credit
Facilities
Concurrently with the closing of this offering,
we expect to amend and restate our existing credit facilities.
We currently expect that the amended and restated credit
facilities will provide financing of $419.6 million,
consisting of:
•
an increased $389.6 million term loan C
    facility maturing on October 14, 2011; and
•
a $30.0 million revolving credit facility
    maturing on April 14, 2010.
The amended and restated credit facilities have
not yet been agreed upon, and the descriptions set forth in this
prospectus represent our current expectations regarding the
terms of these facilities. The definitive terms of the amended
and restated credit facilities could differ from those described
in this prospectus, and those differences could be material.
We intend to repay in full the
$118.7 million of debt under our term loan A facility
(plus any revolving debt, which we anticipate will be zero) upon
consummation of the amendment and restatement. Upon the closing
of the amended and restated credit facilities and such
repayment, we expect to have a total of $389.6 million
outstanding under the term loan C facility and no debt
outstanding under the revolving credit facility.
CCI Holdings Reorganization
CCI Holdings, the issuer in this offering, is
presently a wholly owned subsidiary of Homebase. Prior to the
consummation of this offering, and subject to obtaining the
prior approval of the Illinois Commerce Commission, or ICC, we
plan to effect a reorganization pursuant to which (1) our
sister subsidiary Consolidated Communications Texas Holdings,
Inc. will merge with and into CCI Holdings and (2) Homebase
will then merge with and into CCI Holdings, in each case, with
CCI Holdings being the entity surviving the merger. See
"Summary — Our Current Organizational
Structure" and "— Post-Offering Organizational
Structure".
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After giving effect to the offering and the
related transactions:
•
Central Illinois Telephone, LLC, an entity
    affiliated with our chairman Richard Lumpkin, and its
    affiliates, or Central Illinois Telephone, will receive from
    Homebase            million
    shares of our Class B common stock,
    representing           %
    of the voting power of our outstanding common stock;
•
Providence Equity Partners IV, L.P. and its
    affiliates, or Providence Equity, will receive from
    Homebase            million
    shares of our Class A common stock,
    representing           %
    of the voting power of our outstanding common stock;
•
Spectrum Equity Investors IV, L.P. and its
    affiliates, or Spectrum Equity, will receive from
    Homebase            million
    shares of our Class A common stock,
    representing           %
    of the voting power of our outstanding common stock; and
•
our management stockholders will
    receive            million
    restricted shares of our Class A common stock,
    representing           %
    of the voting power of our outstanding common stock.
Our Existing Equity Investors
Currently, all of our capital stock is owned by
Homebase. All of Homebase's outstanding preferred equity
interests and 90.0% of Homebase's common equity interests
are currently owned in equal amounts by Central Illinois
Telephone, Providence Equity, and Spectrum Equity. The remainder
of Homebase's equity interests are owned by members of our
management. In connection with our reorganization, Homebase will
merge with and into CCI Holdings and our existing stockholders
will receive from Homebase shares of our common stock
representing 100% of our outstanding common stock. We refer to
Central Illinois Telephone, Providence Equity and Spectrum
Equity, which are the selling stockholders in this offering, as
our existing equity investors and to our existing equity
investors and management who will receive shares of our common
stock in the reorganization collectively as our existing common
stockholders.
Use of Proceeds
We estimate that we will receive net proceeds
from this offering of approximately $81.5 million, after
deducting underwriting discounts and commissions and other
offering-related expenses. We will use the net proceeds from
this offering, together with additional borrowings under the
amended and restated credit facilities and approximately
$47.7 million of cash on hand, to:
•
repay in full outstanding borrowings under our
    term loan A facility, together with accrued but unpaid
    interest through the closing date of this offering;
•
redeem 35.0% of the aggregate principal
    amount of our senior notes, which will include the payment of
    the associated redemption premium of 9.75% of the principal
    amount to be redeemed, together with accrued but unpaid interest
    through the date of redemption;
•
pre-fund expected integration and restructuring
    costs for 2005 relating to the TXUCV acquisition; and
•
pay fees and expenses associated with the
    repayment of the term loan A facility and entering into the
    amended and restated credit facilities.
We will not receive any of the proceeds from the
selling stockholders' sale of shares of Class A common
stock in the offering. The closing of this offering is
conditioned on the closing of the reorganization, which requires
the prior approval of the ICC, and the entering into, and
borrowing under, the amended and restated credit facilities.
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Table of Contents
The following table lists the estimated sources
and uses of funds from this offering and the related
transactions. The actual amounts on the date that this offering
and the related transactions close may vary.
Sources
Uses
(dollars in millions)
Cash(1)
$
47.7
Repayment of term loan A facility(2)(3)
$
118.7
Offering proceeds
90.0
Senior notes redemption(3)
70.0
Increase in term loan C facility(2)
75.7
Redemption premium
6.8
Fees and expenses(4)
10.4
Pre-funding integration
    and
restructuring costs
7.5
Total sources
$
213.4
$
213.4
(1)
Includes $7.5 million of cash that will be
    used to pre-fund expected integration and restructuring costs
    for 2005 relating to the TXUCV acquisition.
(2)
We expect that our existing credit facilities
    will be amended and restated to, among other things, repay the
    term loan A facility and to increase the amount of
    borrowings available under our existing term loan C
    facility, which is expected to mature on October 14, 2011.
    See "Description of Indebtedness — Amended and
    Restated Credit Facilities".
(3)
Excludes accrued but unpaid interest on the term
    loan A facility and the senior notes to be redeemed,
    respectively, through the closing date of this offering.
(4)
Transaction fees and expenses include estimated
    underwriting discounts and commissions, commitment and financing
    fees payable in connection with the amended and restated credit
    facilities, and legal, accounting, advisory and other costs
    payable in connection with this offering and the related
    transactions.
Recent Developments
Introduction of Digital Video Service in
Illinois
In late 2003, we commenced the network
improvements needed to support the introduction of an
all-digital video service that is functionally similar to a
digital cable television offering in our Illinois markets of
Mattoon, Charleston and Effingham. We have since completed the
initial capital investments necessary to provide these services
in these Illinois markets and have begun to test market this
product. Other than the success-based provision of set-top
boxes, we do not anticipate having to make any material capital
upgrades to our network infrastructure in connection with our
introduction of digital video services in these markets. We
expect that these services, when introduced, will be available
to approximately 78% of our residential customers in these
markets, which represent approximately 27% of all of our
Illinois residential customers.
In-House Production of Illinois Telephone
Directories
Prior to the 1997 acquisition of our predecessor
by McLeodUSA, we sold advertising and published our own
telephone directories in our Illinois markets. Subsequent to
McLeodUSA's acquisition, these operations were provided
internally by McLeodUSA's directory publishing operations,
which were subsequently sold to Yellow Book USA in 2002. Since
2002, Yellow Book has published our phone directories in
Illinois and served as our sales agent pursuant to a
five year agreement entered into in connection with the
Yellow Book USA transaction.
In connection with the TXUCV acquisition, we
acquired a directory sales and publishing group, which currently
publishes the telephone directories for our Texas markets. We
intend to have this group publish directories for our Illinois
markets as well. As such, we notified Yellow Book on
November 8, 2004 of our intention to terminate our
directory publishing agreement. We expect to begin publishing
telephone directories for our Illinois markets beginning in the
third quarter of 2005.
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Table of Contents
Our Current Organizational Structure
The following chart illustrates our current
organizational structure:
7
Table of Contents
Post-Offering Organizational
Structure
The following chart illustrates our
organizational structure upon completion of this offering and
the related transactions:
8
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The Offering
Shares of Class A common stock offered by us
shares.
Shares of Class A common stock offered by
    the selling stockholders
shares.
Shares of Class A common stock to be
    outstanding following the offering
shares.
Shares of Class B common stock to be
    outstanding following the offering
shares.
    Each share of Class B common stock is entitled to ten votes
    per share and is convertible voluntarily at any time and
    automatically in connection with certain transfers into one
    share of Class A common stock.
Total shares of common stock to be outstanding
    following the offering
shares.
Dividends
Our board of directors has adopted a dividend
    policy, effective upon the closing of this offering, which
    reflects an intention to distribute as regular quarterly
    dividends to our stockholders a substantial portion of the cash
    generated by our business in excess of various cash needs and
    other possible uses. These expected cash needs include interest
    and principal payments on our indebtedness, capital
    expenditures, integration, restructuring and related costs of
    the TXUCV acquisition in 2004 and 2005, incremental costs
    associated with being a public company, taxes and certain other
    costs.
In accordance with our dividend policy, we
    currently intend to pay an initial dividend of
    $           per
    share on or
    about                     ,
    2005 and to continue to pay quarterly dividends at an annual
    rate of
    $           per
    share for the first full year following the closing of this
    offering, subject to our board of directors' decision to
    declare these dividends and various restrictions on our ability
    to do so. We are not required to pay dividends, and our
    stockholders will not be guaranteed, or have contractual or
    other rights, to receive dividends. Our board of directors may
    decide, in its discretion, at any time, to decrease the amount
    of dividends, otherwise modify or repeal the dividend policy or
    discontinue entirely the payment of dividends.
Our ability to pay dividends will be restricted
    by current and future agreements governing our debt, including
    the amended and restated credit facilities, the indenture
    governing our senior notes and by Delaware law and may be
    limited by state regulatory authorities.
Our existing credit facilities currently do not
    permit us to pay the dividends contemplated in this prospectus.
    As such, concurrently with the closing of this offering, we
    intend to enter into the amended and restated credit facilities
    to enable us to pay dividends, subject to the satisfaction of
    certain financial covenants, conditions and other restrictions.
    The specific terms of these covenants, conditions and other
    restrictions, however, have
9
Table of Contents
not yet been agreed upon. Once finalized, the
    specific terms of these covenants, conditions and other
    restrictions will be contained in the amended and restated
    credit agreement to be filed as an exhibit to the registration
    statement of which this prospectus forms a part. For the twelve
    months ended September 30, 2004, we expect we would have
    generated cash available to pay dividends of $63.1 million
    under the amended and restated credit facilities (based on our
    expectation of the terms of these facilities). The amount of
    dividends we are able to pay in the future under the amended and
    restated credit facilities will increase or decrease based upon,
    among other things, our cumulative Bank EBITDA and our needs for
    Available Cash, as each of these terms are defined under
    "Description of Indebtedness — Amended and
    Restated Credit Facilities." For a more complete
    description of the expected terms of the amended and restated
    credit facilities see "Description of
    Indebtedness — Amended and Restated Credit
    Facilities."
The indenture also restricts the amount of
    dividends we may pay. As of September 30, 2004, we would
    have been permitted to pay dividends of $111.0 million
    under the general formula under the restricted payments covenant
    of the indenture, commonly referred to as the build-up amount.
    In addition, for the twelve months ended September 30,
    2004, without giving effect to an $81.5 million increase in
    the buildup amount as a consequence of this offering, we would
    have generated $72.6 million of capacity under the buildup
    amount provision of the indenture. The build-up amount will
    increase or decrease depending upon, among other things, our
    consolidated EBITDA (as defined in the indenture), our
    consolidated interest expense, the net proceeds of the sale of
    capital stock and the amount of restricted payments we may make
    from time to time, including, among other things, the payment of
    cash dividends. Regardless of whether we could make any
    restricted payments under the build-up amount referred to above,
    we may, following the first public equity offering that results
    in a public market (which includes this offering), pay dividends
    on our capital stock of up to 6.0% per year of the cash proceeds
    (net of underwriters' fees, discounts or commissions paid
    by us) of such first public equity offering subject to specified
    conditions, including that the amount of dividends are included
    in the calculation of the amount of restricted payments we have
    made under the build-up amount. Based on this provision and
    after giving effect to this offering and the related
    transactions, we expect that we would be able to pay
    approximately $5.0 million annually in dividends. For a
    more complete description of the indenture see "Description
    of Indebtedness — Senior Notes".
Under Delaware law, our board of directors may
    not authorize payment of a dividend unless it is either paid out
    of our surplus, as calculated in accordance with Delaware
    General Corporation Law, or the DGCL, or if we do not have a
    surplus, it is paid out of our net profits for the fiscal year
    in which the dividend is declared and/or the preceding fiscal
    year.
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Table of Contents
The ICC and the Texas Public Utilities
    Commission, or PUCT, could require our Illinois and Texas RLECs
    to make minimum amounts of capital expenditures and could limit
    the amount of cash available to transfer from our RLECs to us.
    At the moment, there are no such restrictions in place. But, in
    connection with the ICC's review of the reorganization, the
    ICC could impose various conditions as part of its approval of
    the reorganization, including restrictions on cash transfers
    from our Illinois RLEC to us and other requirements. See
    "Dividend Policy and Restrictions — Restrictions
    on Payment of Dividends — State Regulatory
    Requirements".
See "Risk Factors — Risks Relating
    to Our Class A Common Stock — You may not receive
    any dividends, and there are several risks relating to our
    paying, and the restrictions on our ability to pay,
    dividends," "— Our dividend policy may limit
    our ability to pursue growth opportunities" and
    "Dividend Policy and Restrictions".
Listing
We will apply to have our Class A common
    stock listed on the New York Stock Exchange under the trading
    symbol
    "          ".
General Information About This
Prospectus
Throughout this prospectus, unless the context
otherwise requires or we specifically state otherwise, we have
assumed the following:
•
no exercise by the underwriters of their
    over-allotment option described on the cover of this prospectus
    and the "Underwriting" section;
•
the initial offering price shall be
    $          ,
    the midpoint of the estimated price range shown of the cover
    page of this prospectus; and
•
we refer to this offering, the refinancing of our
    existing credit facilities, the reorganization, the redemption
    of our senior notes and the related transactions collectively as
    this offering and the related transactions.
Risk Factors
Investing in our Class A common stock
involves substantial risks. See "Risk Factors"
immediately following this summary for a discussion of certain
risks relating to an investment in our Class A common stock.
Information About Us
Our principal executive office is located at 121
South 17th Street, Mattoon, Illinois 61938-3987. Our telephone
number at that address is (217) 235-3311, and our website
address is www.consolidated.com. Information on our website is
not deemed to be a part of this prospectus.
11
Table of Contents
Summary Consolidated Pro Forma Financial and
Other Data
The consolidated pro forma statement of
operations data, other consolidated pro forma financial data and
consolidated pro forma financial data summarized below have been
derived from the unaudited pro forma condensed consolidated
financial statements of CCI Holdings. The unaudited pro
forma condensed consolidated financial statements of CCI
Holdings have been prepared to give pro forma effect to the
TXUCV acquisition and this offering and the related transactions
as if they had occurred on the first day of the period
presented. The consolidated balance sheet data as of and for the
nine months ended September 30, 2004 summarized below have
been derived from the financial statements of CCI Holdings.
The other consolidated data referred to below are approximations
as of the end of the indicated periods. You should read the
information summarized below in conjunction with
"Management's Discussion and Analysis of Financial
Condition and Results of Operations —
CCI Holdings" and "— CCI Texas",
the unaudited pro forma condensed consolidated financial
statements of CCI Holdings and the related notes and the
financial statements of each of CCI Holdings and TXUCV and
the related notes included elsewhere in this prospectus.
Nine Months
Nine Months
Year Ended
Ended
Ended
December 31, 2003
September 30, 2003
September 30, 2004
(unaudited)
(dollars in thousands)
Consolidated Pro Forma Statement of Operations
    Data:
Total operating revenues
$
327,148
$
248,864
$
244,865
Cost of revenues
88,476
64,932
59,154
Selling, general and administrative
124,072
97,868
94,189
Restructuring, asset impairment and other charges
248
—
—
Goodwill impairment charges
13,200
—
—
Depreciation and amortization
66,645
50,483
50,483
Income from operations
34,507
35,581
41,039
Interest expense, net
(35,374
)
(26,331
)
(28,100
)
Other, net
806
225
3,273
Income/(loss) before income taxes
(61
)
9,475
16,212
Income taxes
9,408
3,371
7,729
Net income/(loss)
$
(9,469
)
$
6,104
$
8,483
Other Consolidated Pro Forma Financial
    Data:
Telephone Operations revenues
$
285,100
$
217,661
$
215,010
Other Operations revenues
42,048
31,203
29,855
Total Operating revenues
$
327,148
$
248,864
$
244,865
EBITDA(1)
$
101,958
$
86,298
$
94,795
Non-cash charges included in EBITDA(a)
12,642
(225
)
(3,273
)
Unusual items included in EBITDA(b)
8,235
6,886
10,956
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Nine Months
Nine Months
Year Ended
Ended
Ended
December 31, 2003
September 30, 2003
September 30, 2004
(unaudited)
(dollars in thousands)
Other Consolidated Data (as of end of
    period):
Local access lines in service
Residential
175,323
177,207
170,933
Business
87,206
87,060
86,793
Total local access lines
262,529
264,267
257,726
DSL subscribers
16,619
15,365
24,385
Consolidated Pro Forma Data:
Cash interest expense
$
33,054
$
24,793
$
24,801
As of September 30, 2004
Actual
As Adjusted(2)
(unaudited)
(dollars in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents
$
55,229
$
15,000
Total current assets
104,750
64,521
Net plant, property & equipment
350,291
350,291
Total assets
1,051,718
1,014,205
Total long-term debt (including current portion)
633,931
520,943
Redeemable preferred shares
201,126
—
Stockholders' equity (deficit)
(9,138
)
267,463
(1)
EBITDA is defined as net earnings (loss) before
    interest expenses, income taxes, depreciation and amortization
    as adjusted to give effect to the TXUCV acquisition and this
    offering and related transactions consistent with the unaudited
    pro forma condensed consolidated financial statements of CCI
    Holdings. We believe that net income is the most directly
    comparable financial measure to EBITDA under generally accepted
    accounting principles, or GAAP. We present EBITDA for several
    reasons. Management believes that EBITDA is useful as a means to
    evaluate our ability to pay our estimated cash needs and pay
    dividends. In addition, we have historically presented EBITDA to
    investors because it is frequently used by investors, securities
    analysts and other interested parties in the evaluation of
    companies in our industry, and we believe that presenting it
    here provides a measure of consistency in our financial
    reporting. EBITDA is also a component of restrictive covenants
    and financial ratios contained in the agreements governing our
    debt (and that we expect will be contained in our amended and
    restated credit facilities), which require us to maintain
    compliance with these covenants and which limit certain
    activities, such as our ability to incur debt and to pay
    dividends. The definitions in these covenants and ratios are
    based on EBITDA after giving effect to specified charges. As a
    result, we believe that the presentation of EBITDA as
    supplemented by these other items provides important additional
    information to investors. See "Management's Discussion
    and Analysis of Results of Operations and Financial
    Condition — CCI Holdings — Liquidity and
    Capital Resources — Debt and Capital
    Leases — Covenant Compliance". In addition,
    EBITDA provides our board of directors meaningful information to
    determine, with other data, assumptions and considerations, our
    dividend policy and our ability to pay dividends under the
    restrictive covenants in the agreements governing our debt. For
    a more complete description of our dividend policy and the
    factors, assumptions and considerations relating to it, see
    "Dividend Policy and Restrictions".
EBITDA is a non-GAAP financial measure.
Accordingly, it should not be construed as an alternative to net
income (loss), cash flows from operations or net cash from
operating or investing activities as defined by GAAP and is not
on its own necessarily indicative of cash available to fund our
cash needs
13
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as determined in accordance with GAAP. In
addition, not all companies use identical calculations, and this
presentation of EBITDA may not be comparable to other similarly
titled measures of other companies.
The following table illustrates our calculation
of EBITDA, the reconciliation of EBITDA to net income on the
bases described above (which management believes is the most
nearly equivalent GAAP measure).
Pro Forma
Year Ended
Nine Months Ended
Nine Months Ended
December 31, 2003
September 30, 2003
September 30, 2004
(unaudited)
(in thousands)
Net Income (Loss)
$
(9,469
)
$
6,104
$
8,483
Income Taxes
9,408
3,371
7,729
Interest Expense, net
35,374
26,331
28,100
Depreciation and Amortization
66,645
50,483
50,483
EBITDA
$
101,958
$
86,298
$
94,795
(a)
Non-cash charges are further detailed in the
    following table:
Year Ended
Nine Months Ended
Nine Months Ended
December 31, 2003
September 30, 2003
September 30, 2004
(unaudited)
(in thousands)
Goodwill impairment
$
13,200
$
—
$
—
Restructuring and asset impairment
248
—
—
Other, net
(806
)
(225
)
(3,273
)
$
12,642
$
(225
)
$
(3,273
)
(b)
Unusual items are further detailed in the
    following table:
Year Ended
Nine Months Ended
Nine Months Ended
December 31, 2003
September 30, 2003
September 30, 2004
(unaudited)
(in thousands)
Retention bonuses(i)
$
2,436
$
1,717
$
259
Severance costs(ii)
4,391
4,217
5,707
TXUCV sales due diligence and transaction
    costs(iii)
1,408
952
2,729
Integration costs(iv)
—
—
2,261
$
8,235
$
6,886
$
10,956
(i)
During 2003 and the nine months ended
    September 30, 2004, TXUCV paid retention bonuses to keep
    key employees to run its day-to-day business operations while it
    was being prepared for sale. Other than retention costs payable
    in connection with the TXUCV acquisition, we do not expect to
    incur such charges in the future.
(ii)
During 2003, TXUCV incurred $4.4 million in
    severance costs as a result of employee terminations. Severance
    costs incurred in the nine months ended September 30, 2004
    were $5.7 million, primarily driven by employee
    terminations associated with the TXUCV acquisition. For a
    summary of future integration and restructuring costs, see
    note (d) below.
(iii)
During 2003, TXUCV incurred $1.4 million in
    financial and legal costs in connection with TXU Corp. having
    prepared TXUCV for sale and the related sales process. We do not
    expect to incur such charges in the future. For the nine months
    ended September 30, 2004, TXUCV incurred $2.2 million
    in costs associated with the sale of the company and we incurred
    $0.5 million associated with the sale of TXUCV.
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(iv)
We currently expect to incur approximately
    $14 million in operating expenses associated with the TXUCV
    integration and restructuring process in 2004 and 2005. Of the
    $14 million, approximately $11 million relates to
    integration and approximately $3 million relates to
    restructuring. As of September 30, 2004, we had spent
    $2.3 million on integration. In connection with this
    offering and the related transactions, we will pre-fund
    $7.5 million of expected integration and restructuring
    expenses for 2005 with cash from our balance sheet. We do not
    expect that the pre-funding of these estimated expenses will
    change any of our expected cash plans or otherwise effect our
    expected working capital requirements. These one-time
    integration and restructuring costs will be in addition to
    certain ongoing costs we expect to incur to expand certain
    administrative functions, such as those relating to SEC
    reporting and compliance, and do not take into account other
    potential cost savings and expenses of the TXUCV integration. We
    do not expect to incur any significant costs relating to the
    TXUCV acquisition after 2005.
(2)
As adjusted to give effect to this offering and
    the related transactions as if they occurred on
    September 30, 2004.
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RISK FACTORS
You should carefully consider the following
factors in addition to the other information contained in this
prospectus before investing in our Class A common
stock.
Risks Relating to Our Class A Common
Stock
You may not receive dividends, and there
    are several risks relating to our paying, and the restrictions
    on our ability to pay, dividends.
There are several risks relating to our paying,
and the restrictions on our ability to pay, dividends, including
the following:
•
We are not required to pay dividends, and our
    stockholders will not be guaranteed, or have contractual or
    other rights, to receive dividends. Our board of directors may
    decide, in its discretion, at any time, to decrease the amount
    of dividends, otherwise modify or repeal the dividend policy or
    discontinue entirely the payment of dividends. Our board could
    depart from or change our dividend policy, for example, if it
    were to determine that we had insufficient cash to take
    advantage of other opportunities with attractive rates of return.
•
We might not generate sufficient cash from
    operations in the future to pay dividends in the intended
    amounts or at all. Our ability to pay dividends, and our board
    of directors' determination to keep the dividend policy,
    will depend on numerous factors, including the following:
•
the state of our business, the environment in
    which we operate and the various risks we face, including, but
    not limited to, competition, technological change, changes in
    our industry, regulatory and other risks summarized in this
    prospectus;
•
changes in the factors, assumptions and other
    considerations made by our board of directors in reviewing and
    adopting the dividend policy, as described under "Dividend
    Policy and Restrictions";
•
our future results of operations, financial
    condition, liquidity needs and capital resources;
•
our various expected cash needs, including
    interest and principal payments on our indebtedness, capital
    expenditures, integration and restructuring costs associated
    with TXUCV acquisition, incremental costs associated with being
    a public company, taxes and certain other costs; and
•
potential sources of liquidity, including
    borrowing under our revolving credit facility or possible asset
    sales.
•
If our estimated cash available to pay dividends
    for the first year following the closing of the offering were to
    fall below our expectations, our assumptions as to estimated
    cash needs are too low or if other applicable assumptions were
    to prove incorrect, we may need to:
•
either reduce or eliminate dividends;
•
fund dividends by incurring additional debt (to
    the extent we were permitted to do so under the agreements
    governing our then existing debt), which would increase our
    leverage, debt repayment obligations and interest expense and
    decrease our interest coverage, resulting in, among other
    things, reducing our capacity to incur debt for other purposes
    (including to fund future dividend payments);
•
amend the terms of our amended and restated
    credit facilities or indenture to permit us to pay dividends or
    make other payments if we are otherwise not permitted to do so;
•
fund dividends from future issuances of equity
    securities, which could be dilutive to our stockholders and
    negatively effect the price of our Class A common stock;
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•
fund dividends from other sources, such as such
    as by asset sales or by working capital, which would leave us
    with less cash available for other purposes; and
•
reduce other expected uses of cash, such as
    capital expenditures or TXUCV integration and restructuring
    costs, which could limit our ability to grow or delay our
    integration of the TXUCV acquisition.
We cannot assure you that our actual cash
    available to pay dividends will in fact equal or exceed the
    amount necessary to pay dividends. Over time, our capital and
    other cash needs will invariably be subject to uncertainties,
    which could affect whether we pay dividends and the level of any
    dividends we may pay in the future. In addition, to the extent
    that we would seek to raise additional cash from additional debt
    incurrence or equity security issuances, we cannot assure you
    that such financing will be available on reasonable terms or at
    all. Each of the results listed above could negatively affect
    our results of operations, financial condition, liquidity and
    ability to maintain and expand our business.
•
Our ability to pay dividends will be restricted
    by current and future agreements governing our debt, including
    the amended and restated credit facilities and the indenture and
    by Delaware law and may be limited by state regulatory
    authorities.
•
Our indenture restricts and our amended and
    restated credit facilities are expected to restrict our ability
    to pay dividends. As of September 30, 2004, we would have
    generated cash available to pay dividends of $63.1 million
    under the amended and restated credit facilities (based on our
    expectation of the terms of these facilities) and $111.0 under
    the indenture's build-up amount and approximately $5.0
    annually under the indenture's exception that applies
    following a public equity offering (which includes this
    offering). See "Description of Indebtedness —
    Amended and Restated Credit Facilities" and
    "— Senior Notes".
•
Under Delaware law, our board of directors may
    not authorize payment of a dividend unless it is either paid out
    of our surplus, as calculated in accordance with the DGCL, or if
    we do not have a surplus, it is paid out of our net profits for
    the fiscal year in which the dividend is declared and/or the
    preceding fiscal year.
•
The ICC and the PUCT could require our Illinois
    and Texas RLECs to make minimum amounts of capital expenditures
    and could limit the amount of cash available to transfer from
    our RLECs to us. At the moment, there are no such restrictions
    in place. In connection with the ICC review of the
    reorganization, however, the ICC could impose various conditions
    as part of its approval of the reorganization, including
    restrictions on cash transfers from our Illinois RLEC to us. See
    "Dividend Policy and Restrictions — Restrictions
    on Payment of Dividends — State Regulatory
    Requirements".
•
As a holding company we have no direct operations
    and our principal assets are the equity interests we hold in our
    respective subsidiaries. In addition, our subsidiaries are
    legally distinct from us and have no obligation to transfer
    funds to us. As a result, we are dependent on the results of
    operations of our subsidiaries and their ability to transfer
    funds to us to meet our obligations and to pay dividends.
The reduction or elimination of dividends would
likely have a negative affect on the market price of our
Class A common stock. See "Dividend Policy and
Restrictions".
Our dividend policy may limit our ability
to pursue growth opportunities.
We believe that our dividend policy will limit,
but not preclude, our ability to grow. If we continue paying
dividends at the level currently anticipated under our dividend
policy, we may not retain a sufficient amount of cash, and may
need to seek financing, to fund a material expansion of our
business, including any significant acquisitions or to pursue
growth opportunities requiring capital expenditures
significantly beyond our current expectations. The risks
relating to funding any dividends, or other cash needs as a
result of paying dividends, are summarized in the preceding risk
factor. In addition, because we expect a significant portion of
cash available will be distributed to the holders of our
Class A common stock under
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our dividend policy, our ability to pursue any
material expansion of our business will depend more than it
otherwise would on our ability to obtain third party financing.
We cannot assure you that such financing will be available to us
on reasonable terms or at all.
Before this offering, there has been no
public market for our Class A common stock. This may cause
volatility in the trading price of our Class A common
stock, which could negatively affect the value of your
investment.
Before this offering, there has been no public
market for our Class A common stock. The initial public
offering price of our Class A common stock has been
determined by negotiations between us and the underwriters and
may not be indicative of the market price for our Class A
common stock after this offering. It is possible that an active
trading market for our Class A common stock will not
develop or be sustained after the offering. Even if a trading
market develops, the market price of our Class A common
stock may fluctuate widely as a result of various factors, such
as period-to-period fluctuations in our operating results, sales
of our Class A common stock by principal stockholders,
developments in the telecommunications industry, the failure of
securities analysts to cover our Class A common stock after
this offering or changes in financial estimates by analysts,
competitive factors, regulatory developments, economic and other
external factors. Also, securities markets worldwide experience
significant price and volume fluctuations. This market
volatility, as well as general economic or market conditions,
and market conditions affecting the stock of telecommunications
companies in particular, could reduce the market price of our
Class A common stock in spite of our operating performance.
You may be unable to resell your shares of our Class A
common stock at or above the initial public offering price.
Future sales, or the perception of future
sales, of a substantial amount of our Class A common stock
may depress the price of the shares of our Class A common
stock.
Future sales, or the perception or the
availability for sale in the public market, of substantial
amounts of our Class A common stock could adversely affect
the prevailing market price of our Class A common stock and
could impair our ability to raise capital through future sales
of equity securities.
Upon consummation of this offering, there will
be                      shares
of common stock outstanding. The shares of Class A common
stock sold by our existing equity investors in this offering
will be freely transferable without restriction or further
registration under the Securities Act of 1933, as amended, or
the Securities Act. The
remaining                      shares
of common stock owned by our existing equity investors will be
restricted securities within the meaning of Rule 144 under
the Securities Act but will be eligible for resale subject to
applicable volume, manner of sale, holding period and other
limitations of Rule 144. We, our officers and directors and
our existing equity investors have agreed to a
"lock-up", meaning that, subject to specified
exceptions, neither we nor they will sell any shares or engage
in any hedging transactions without the prior consent of the
representative of the underwriters for 180 days after the
date of this prospectus. Following the expiration of this
180-day lock-up period, all of
these                      shares
of our common stock will be eligible for future sale, subject to
the applicable volume, manner of sale, holding period and other
limitations of Rule 144. Finally, our existing equity
investors have certain registration rights with respect to the
common stock that they will retain following this offering. See
"Shares Eligible for Future Sale" for a discussion of
the shares of common stock that may be sold into the public
market in the future.
We may issue shares of our Class A common
stock, or other securities, from time to time as consideration
for future acquisitions and investments. In the event any such
acquisition or investment is significant, the number of shares
of our Class A common stock, or the number or aggregate
principal amount, as the case may be, of other securities that
we may issue may in turn be significant. We may also grant
registration rights covering those shares or other securities in
connection with any such acquisitions and investments.
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Our organizational documents could limit or
delay another party's ability to acquire us and, therefore,
could deprive our investors of the opportunity to obtain a
takeover premium for their shares.
A number of provisions in our amended and
restated certificate of incorporation and bylaws will make it
difficult for another company to acquire us. These provisions
include the following:
•
We will have two classes of common stock. Central
    Illinois Telephone, an entity controlled by our chairman Richard
    Lumpkin, will own all of our Class B common stock, which will
    have ten votes per share and which will represent
    approximately           %
    of the voting power of our outstanding capital stock upon the
    closing of this offering.
•
Our amended and restated certificate of
    incorporation will authorize the issuance of preferred stock
    without stockholder approval upon such terms as the board of
    directors may determine.
•
We are also subject to laws that may have a
    similar effect. For example, federal and Illinois
    telecommunications laws and regulations generally prohibit a
    direct or indirect transfer of control over our business without
    prior regulatory approval. Similarly, section 203 of the DGCL,
    prohibits us from engaging in a business combination with an
    interested stockholder for a period of three years from the date
    the person became an interested stockholder unless certain
    conditions are met.
As a result of the foregoing, it will be
difficult for another company to acquire us and, therefore,
could limit the price that possible investors might be willing
to pay in the future for shares of our common stock. In
addition, the rights of our common stockholders will be subject
to, and may be adversely affected by, the rights of holders of
any class or series of preferred stock that may be issued in the
future.
The concentration of the voting power of
our common stock ownership with Central Illinois Telephone will
limit your ability to influence corporate matters.
Because Central Illinois Telephone will own
shares of Class B common stock having a majority of the
voting power of our outstanding common stock, it will be able to
decide all matters requiring stockholder approval, including the
ability to
•
elect a majority of the members of our board of
    directors;
•
enter into significant corporate transactions,
    such as a merger or other sale of our company or its assets, or
    to prevent any such transaction;
•
enter into acquisitions that increase our amount
    of indebtedness or sell revenue-generating assets;
•
determine our corporate and management policies;
•
amend our organizational documents; and
•
control of all matters submitted to our
    stockholders for approval.
This concentrated control will limit your ability
to influence corporate matters and, as a result, we may take
actions that our stockholders do not view as beneficial. As a
result, the market price of our Class A common stock could
be adversely affected.
Our existing equity investors may have
conflicts of interests with you or us in the
future.
Our existing equity investors may make
investments in companies and may from time to time acquire and
hold interests in businesses that compete directly or indirectly
with us. These other investments may:
•
create competing financial demands on our equity
    investors;
•
create potential conflicts of interest; and
•
require efforts consistent with applicable law to
    keep the other businesses separate from our operations.
Our existing equity investors may also pursue
acquisition opportunities that may be complementary to our
business, and as a result, those acquisition opportunities may
not be available to us. Furthermore, our
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equity investors also may have an interest in
pursuing acquisitions, divestitures, financings or other
transactions that, in their judgment, could enhance their equity
investment, even though such transactions might involve risks to
our common stockholders. In addition, our equity investors
rights' to vote or dispose of equity interests in our
company is not subject to restrictions in favor of our company
other than as may be required by applicable law, although
certain transfers of shares of our Class B common stock
will result in the automatic conversion of such shares into
Class A common stock.
If you purchase shares of our Class A
common stock, you will experience immediate and substantial
dilution.
Investors purchasing Class A common stock in
the offering will experience immediate and substantial dilution
in the net tangible book value of their shares. At the initial
public offering price of
$           per
share, dilution to new investors will be
$           per
share. If we sell additional shares of Class A common stock
or securities convertible into shares of Class A common
stock in the future, you may suffer further dilution of your
equity investment. See "Dilution".
We expect that our income tax liability
will increase in the future as a result of the use of, and any
limitation on, our net operating losses.
We expect that our income tax liability will
increase in the future as a result of the use of, and any
limitation on, our net operating losses. At such time as our net
operating loss has been fully used, our cash tax liability will
increase and may impact our ability to pay dividends. Our tax
liability may also be affected by limitations on the use of our
NOLs under Section 382 of the Internal Revenue Code by
reason of this offering and earlier ownership changes. See
note (4) to the tables in "Dividend Policy and
Restrictions."
Risks Relating to Our Indebtedness and Our
Capital Structure
We have a substantial amount of debt
    outstanding and may incur additional indebtedness in the future,
    which could restrict our ability to pay dividends.
We have a significant amount of debt outstanding.
As of September 30, 2004, we would have had
$520.9 million of debt outstanding and $267.5 million
of stockholders equity. Our ability to make distributions, pay
dividends or make other payments will be subject to applicable
law and contractual restrictions contained in the indenture or
to be contained in the amended and restated credit facilities.
The degree to which we are leveraged could have
important consequences for you, including the following:
•
requiring us to dedicate a substantial portion of
    our cash flow from operations to make payments on our debt,
    thereby reducing funds available for operations, future business
    opportunities and other purposes and/or dividends on our common
    stock;
•
limiting our flexibility in planning for, or
    reacting to, changes in our business and the industry in which
    we operate;
•
making it more difficult for us to satisfy our
    debt and other obligations;
•
limiting our ability to borrow additional funds,
    or to sell assets to raise funds, if needed, for working
    capital, capital expenditures, acquisitions or other purposes;
•
increasing our vulnerability to general adverse
    economic and industry conditions, including changes in interest
    rates; and
•
placing us at a competitive disadvantage compared
    to our competitors that have less debt.
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We cannot assure you that we will generate
sufficient revenues to service and repay our debt and have
sufficient funds left over to achieve or sustain profitability
in our operations, meet our working capital and capital
expenditure needs, compete successfully in our markets or pay
dividends to our stockholders.
Subject to the restrictions in the indenture or
to be contained in the amended and restated credit facilities,
we may be able to incur additional debt. Although the indenture
contains and the amended and restated credit facilities will
contain restrictions on our ability to incur additional debt,
these restrictions are subject to a number of important
exceptions. If we incur additional debt, the risks associated
with our substantial leverage, including our ability to service
our debt, would likely increase.
We will require a significant amount of
    cash to service and repay our debt and to pay dividends on our
    common stock, and our ability to generate cash depends on many
    factors beyond our control.
Our ability to make payments on and repay our
debt and to pay dividends on our Class A common stock will
depend on our ability to generate cash in the future, which will
depend on many factors beyond our control. We cannot assure you
that:
•
our business will generate sufficient cash flow
    from operations to service and repay our debt, pay dividends on
    our common stock and to fund working capital and planned capital
    expenditures;
•
future borrowings will be available under the
    amended and restated credit facilities or any future credit
    facilities in an amount sufficient to enable us to repay our
    debt and pay dividends on our common stock; or
•
we will be able to refinance any of our debt on
    commercially reasonable terms or at all.
If we cannot generate sufficient cash from our
operations to meet our debt service and repayment obligations,
we may need to reduce or delay capital expenditures, the
development of our business generally and any acquisitions. If
for any reason we are unable to meet our debt service and
repayment obligations, we would be in default under the terms of
the agreements governing our debt, which would allow the lenders
under the amended and restated credit facilities to declare all
borrowings outstanding to be due and payable, which would in
turn trigger an event of default under the indenture. If the
amounts outstanding under the amended and restated credit
facilities or our senior notes were to be accelerated, we cannot
assure you that our assets would be sufficient to repay in full
the money owed to the lenders or to our other debt holders.
The indenture contains, and the amended and
    restated credit facilities will contain, covenants that limit
    the discretion of our management in operating our business and
    could prevent us from capitalizing on business opportunities and
    taking other corporate actions.
The indenture imposes and the amended and
restated credit facilities will impose significant operating and
financial restrictions on us. These restrictions limit or
restrict, among other things, our ability and the ability of our
subsidiaries that are restricted by these agreements to:
•
incur additional debt and issue preferred stock;
•
make restricted payments, including paying
    dividends on, redeeming, repurchasing or retiring our capital
    stock;
•
make investments and prepay or redeem debt;
•
enter into agreements restricting our
    subsidiaries' ability to pay dividends, make loans or
    transfer assets to us;
•
create liens;
•
sell or otherwise dispose of assets, including
    capital stock of subsidiaries;
•
engage in transactions with affiliates;
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•
engage in sale and leaseback transactions;
•
make capital expenditures;
•
engage in business other than telecommunications
    businesses; and
•
consolidate or merge.
In addition, the amended and restated credit
facilities will require, and any future credit facilities may
require, us to comply with specified financial ratios, including
ratios regarding interest coverage, total leverage, senior
secured leverage and fixed charge coverage. Our ability to
comply with these ratios may be affected by events beyond our
control. The restrictions contained in the indenture and to be
contained in the amended and restated credit facilities will:
•
limit our ability to plan for or react to market
    conditions, meet capital needs or otherwise restrict our
    activities or business plans; and
•
adversely affect our ability to finance our
    operations, enter into acquisitions or to engage in other
    business activities that would be in our interest.
In the event of a default under the amended and
restated credit facilities, the lenders could foreclose on the
assets and capital stock pledged to them.
A breach of any of the covenants contained in the
amended and restated credit facilities, or in any future credit
facilities, or our inability to comply with the financial ratios
could result in an event of default, which would allow the
lenders to declare all borrowings outstanding to be due and
payable, which would in turn trigger an event of default under
the indenture governing our senior notes. If the amounts
outstanding under the amended and restated credit facilities or
our senior notes were to be accelerated, we cannot assure you
that our assets would be sufficient to repay in full the money
owed to the lenders or to our other debt holders.
We may not be able to refinance our senior
notes or our amended and restated credit facilities at maturity
on favorable terms or at all.
Our senior notes mature in 2012 and we expect
that our amended and restated credit facilities will mature in
full in 2011. We may not be able to refinance our senior notes
or renew or refinance the amended and restated credit
facilities, or any renewal or refinancing may occur on less
favorable terms. If we are unable to refinance or renew our
senior notes or our amended and restated credit facilities, our
failure to repay all amounts due on the maturity date would
cause a default under the indenture or the amended and restated
credit facilities. In addition, our interest expense may
increase significantly if we refinance our senior notes or our
amended and restated credit facilities on terms that are less
favorable to us than the terms of our senior notes or the
expected terms of our amended and restated credit facilities,
which could impair our ability to pay dividends.
Risk Factors Relating to Our
Business
We are subject to competition that may
adversely impact us.
The telecommunications industry has been, and we
believe will continue to be, characterized by several trends,
including the following:
•
substantial regulatory change due to the passage
    and implementation of the Telecommunications Act, which included
    changes designed to stimulate competition for both local and
    long distance telecommunications services;
•
rapid development and introduction of new
    technologies and services;
•
increased competition within established markets
    from current and new market entrants that may provide competing
    or alternative services;
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•
the blurring of traditional dividing lines
    between, and the bundling of, different services, such as local
    dial tone, long distance, wireless, cable, data and Internet
    services; and
•
the increase in mergers and strategic alliances
    that allow one telecommunications provider to offer increased
    services or access to wider geographic markets.
We historically have experienced limited
competition in our rural telephone company markets.
Nevertheless, the market for telecommunications services is
highly competitive. Regulatory changes and technological
innovations occur regularly in the telecommunications industry,
and changes in these factors historically have had, and may in
the future have, a significant impact on competitive dynamics.
We face competition for basic voice service from wireless
telephone system operators (particularly in suburban areas
around Houston), which may increase as wireless technology
improves. In addition, under new Federal Communications
Commission, or FCC, wireless number portability rules, as of May
2004, our RLECs are now required to allow consumers to move a
phone number from a wireline phone to a wireless phone, which
may result in increased competition from wireless providers. We
also expect to face competition from new market entrants, such
as cable television and electric utility companies. Furthermore,
as a result of recent technological advances and enhancements to
equipment, voice over the Internet services, commonly referred
to as VOIP, are increasingly becoming an alternative to
traditional telephone services. VOIP services essentially
involve the routing of voice calls, at least in part, over the
Internet through packets of data instead of transmitting the
calls over the existing telephone system. While current VOIP
applications typically complete calls using incumbent local
exchange carrier, or ILEC, infrastructure and networks, as VOIP
services obtain acceptance and market penetration and technology
advances further, a greater quantity of communication may be
placed without the use of the ILEC infrastructure and networks,
thereby resulting in a loss of network access fees. The Internet
services market is also highly competitive, and we expect that
competition will intensify. In addition, we could face increased
competition from competitive local exchange carriers, or CLECs.
Our ability to compete successfully in our
markets will depend on several factors, including the following:
•
how well we market our existing services and
    develop new technologies;
•
the quality and reliability of our network and
    service; and
•
our ability to anticipate and respond to various
    competitive factors affecting the telecommunications industry,
    including a changing regulatory environment that may affect us
    differently from our competitors, pricing strategies and the
    introduction of new competitive services by our competitors,
    changes in consumer preferences, demographic trends and economic
    conditions.
We expect competition to intensify as a result of
new competitors and the development of new technologies,
products and services. In addition, we believe that the
traditional dividing lines between, and bundling of, different
telecommunications services will be blurred and that mergers and
strategic alliances may allow one telecommunications provider to
offer increased services or access to wider geographic markets.
Some or all of these risks may cause us to have to spend
significantly more in capital expenditures than we currently
anticipate to keep existing, and attract new, customers.
Many of our voice and data competitors, such as
cable providers, Internet access providers, wireless service
providers and long distance carriers such as AT&T Corp., MCI
Communications Corporation, and Sprint Corp., have brand
recognition and financial, personnel, marketing and other
resources that are significantly greater than ours. In addition,
due to consolidation and strategic alliances within the
telecommunications industry, we cannot predict the number of
competitors that will emerge, especially as a result of existing
or new federal and state regulatory or legislative actions.
Increased competition from existing and new entities could lead
to price reductions, loss of customers, reduced operating
margins or loss of market share.
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We may not be able to successfully adapt to
new technologies, respond effectively to customer requirements
or provide new services.
The telecommunications industry is subject to
rapid and significant changes in technology, frequent new
service introductions and evolving industry standards.
Technological developments may reduce the competitiveness of our
services and require unbudgeted upgrades, significant capital
expenditures and the procurement of additional services that
could be expensive and time consuming. New services arising out
of technological developments may reduce the competitiveness of
our services. If we fail to respond successfully to
technological changes or obsolescence or fail to obtain access
to important new technologies, we could lose customers and be
limited in our ability to attract new customers or sell new
services to our existing customers. The successful development
of new services, which is an element of our business strategy,
is uncertain and dependent on many factors, and we may not
generate anticipated revenues from such services. We cannot
predict the effect of these changes on our competitive position
or our profitability. The failure to generate anticipated
revenues from new services could have a material adverse effect
on our business, financial condition and results of operations.
In addition, part of our marketing strategy is
based on market acceptance of DSL. We expect that an increasing
amount of our revenues will come from providing DSL service. The
market for high-speed Internet access is still developing, and
we expect current competitors and new market entrants to
introduce competing services and to develop new technologies.
The markets for our DSL services could fail to develop, grow
more slowly than anticipated or become saturated with
competitors with superior pricing or services. In addition, our
DSL offerings may become subject to newly adopted laws and
regulations. We cannot predict the outcome of these regulatory
developments or how they may affect our regulatory obligations
or the form of competition for these services. The failure to
generate anticipated revenues from DSL services could have a
material adverse effect on our business, financial condition and
results of operations.
We face several risks in connection with
our recent acquisition of TXUCV.
Our future success, and thus our ability to pay
interest and principal on our indebtedness and dividends on our
common stock will depend in part on our ability to integrate
TXUCV into our business. We currently expect to incur
approximately $14 million in operating expenses associated
with the integration and restructuring of TXUCV in 2004 and
2005. Of the $14 million, approximately $11 million
relates to integration and approximately $3 million relates
to restructuring. These one-time integration and restructuring
costs will be in addition to certain ongoing costs we expect to
incur to expand certain administrative functions, such as those
relating to SEC reporting and compliance and do not take into
account other potential cost savings and expenses of the TXUCV
acquisition. The integration of TXUCV involves numerous risks,
including the following:
•
greater demands on our management and
    administrative resources;
•
difficulties and unexpected costs in integrating
    the operations, personnel, services, technologies and other
    systems of CCI Illinois and CCI Texas;
•
possible unexpected loss of key employees,
    customers and suppliers;
•
unanticipated liabilities and contingencies of
    TXUCV and its business;
•
unexpected costs of integrating the management
    and operation of the two businesses; and
•
failure to achieve expected cost savings.
These challenges and uncertainties could have a
material adverse effect on our business, financial condition and
results of operations. We may not be able to manage the combined
operations and assets effectively or realize all or any of the
anticipated benefits of the acquisition. To the extent that we
make any additional acquisitions in the future, these risks
would likely be exacerbated.
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We may become responsible for unexpected
liabilities or other contingencies that we did not discover in
the course of performing due diligence in connection with the
acquisition. Under the stock purchase agreement, the parent
company of TXUCV agreed to indemnify us against certain
undisclosed liabilities. We cannot assure you, however, that any
indemnification will be enforceable, collectible or sufficient
in amount, scope or duration to fully offset any possible
liabilities associated with the acquisition. Any of these
contingencies, individually or in the aggregate, could have a
material adverse effect on our business, financial condition and
results of operations.
We face several risks associated with our
acquisition strategy.
Our acquisition strategy entails numerous risks.
The pursuit of acquisition candidates is expensive and may not
be successful. Our ability to complete future acquisitions will
depend on our ability to identify suitable acquisition
candidates, negotiate acceptable terms for their acquisition
and, if necessary, finance those acquisitions, in each case,
before any attractive candidates are purchased by other parties,
some of whom may have greater financial and other resources than
us. Whether or not any particular acquisition is closed
successfully, each of these activities is expensive and time
consuming and would likely require our management to spend
considerable time and effort to accomplish them, which would
detract from their ability to run our current business. We may
face unexpected challenges in receiving any required approvals
from the FCC, the ICC, or other applicable state regulatory
commissions, which could result in delay or our not being able
to consummate the acquisition. Although we may spend
considerable expense and effort to pursue acquisitions, we may
not be successful in closing them.
If we are successful in closing any acquisitions,
we would face several risks in integrating them, including those
listed above regarding the risks of integrating TXUCV. In
addition, any due diligence we perform may not prove to have
been accurate. For example, we may face unexpected difficulties
in entering markets in which we have little or no direct prior
experience or in generating expected revenue and cash flow from
the acquired companies or assets. The risks identified above may
make it more challenging and costly to integrate TXUCV if we
have not done so fully by the time of any new acquisition.
If any of these risks materialize, they could
have a material adverse effect on our business and our ability
to achieve sufficient cash flow, provide adequate working
capital, service and repay our indebtedness and leave sufficient
funds to pay dividends.
The successful operation and growth of our
business is primarily dependent on the economic conditions of
our service areas in Illinois and Texas.
Substantially all of our customers and operations
are located in Illinois and Texas. The customer base for
telecommunications services in each of our RLECs' service
areas in Illinois and Texas is small and geographically
concentrated, particularly for residential customers. Due to our
geographical concentration, the successful operation and growth
of our business is primarily dependent on economic conditions in
our RLECs' service areas. The economies of these areas, in
turn, are dependent upon many factors, including:
•
demographic trends;
•
in Illinois, the strength of the agricultural
    markets and the light manufacturing and services industries,
    continued demand from universities and hospitals and the level
    of government spending; and
•
in Texas, the strength of the manufacturing and
    retail industries and continued demand from schools and
    hospitals.
Poor economic conditions and other factors beyond
our control in our RLECs' service areas could have a
material adverse effect on our business, financial condition and
results of operations.
In 2003 and during the nine months ended
September 30, 2004, our number of local access lines
declined in Illinois by approximately 2.3% and 2.9%,
respectively. We believe the principal reason we lost
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access lines in these periods was due to the weak
economy in our Illinois service areas. In addition, we believe
our Illinois RLEC lost local access lines due to the
disconnection of second telephone lines by our residential
customers in connection with their substituting DSL or cable
modem service for dial-up Internet access and wireless services
for wireline service. In Texas, in 2003 our number of local
access lines declined by approximately 0.3% in the aggregate,
although local access lines for business customers grew by
approximately 3.3%. During the nine months ended
September 30, 2004, our Texas local access lines declined
by approximately 1.3% in the aggregate, although local access
lines for business customers grew by 0.7%. The decline in CCI
Texas' local access lines was caused by factors similar to
those of CCI Illinois. In addition, CCI Texas changed its credit
policies in 2003, which resulted in the removal of a greater
number of non-paying customers than in previous years. We
believe that due to the low growth demographics of the Illinois
market, we may continue to lose local access lines in Illinois.
A system failure could cause delays or
    interruptions of service, which could cause us to lose
    customers.
To be successful, we will need to continue to
provide our customers reliable service over our network. Some of
the risks to our network and infrastructure include:
•
physical damage to our central offices or local
    access lines;
•
disruptions beyond our control;
•
power surges or outages; and
•
software defects.
Disruptions may cause interruptions in service or
reduced capacity for customers, either of which could cause us
to lose customers and incur unexpected expenses.
Loss of a large customer could reduce our
revenues. In addition, a significant portion of our revenues
from the State of Illinois is based on contracts that are
favorable to the government.
Our success depends in part upon the retention of
our large customers such as AT&T and the State of Illinois.
AT&T accounted for 4.8% and the State of Illinois accounted
for 6.7% of our revenues during 2003, after giving effect to the
TXUCV acquisition, and 4.2% and 6.3% for the nine months ended
September 30, 2004, respectively. In general,
telecommunications companies such as ours face the risk of
losing customers as a result of a contract expiration, merger or
acquisition, business failure or the selection of another
provider of voice or data services. In addition, we generate a
significant portion of our local service revenues from
originating and terminating long distance and international
telephone calls for carriers such as AT&T and MCI, many of
which recently have experienced substantial financial
difficulties. We cannot assure you that we will be able to
retain long-term relationships or secure renewals of short-term
relationships with our customers in the future.
In 2003 and for the nine months ended
September 30, 2004, virtually all of the revenues of the
Public Services business and 55.1% and 45.8%, respectively, of
the revenues of the Market Response business of our Other
Operations were derived from our relationships with various
agencies of the State of Illinois, principally the Department of
Corrections and the Toll Highway Authority and various county
governments in Illinois. Obtaining contracts from government
agencies is challenging, and government contracts, like our
contracts with the State of Illinois, often include provisions
that are favorable to the government in ways that are not
standard in private commercial transactions. Specifically, each
of our contracts with the State of Illinois:
•
includes provisions that allow the respective
    state agency to terminate the contract without cause and without
    penalty under some circumstances;
•
is subject to decisions of state agencies that
    are subject to political influence on renewal;
•
gives the State of Illinois the right to renew
    the contract at its option but does not give us the same
    right; and
•
could be cancelled if state funding becomes
    unavailable.
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The failure of the State of Illinois to perform
under the existing agreements for any reason, or to renew the
agreements when they expire, could have a material adverse
effect on the revenues of CCI Illinois. For example, the State
of Illinois, which represented 55.1% of Market Response's
revenues for 2003, recently awarded the renewal of the Illinois
State Toll Highway Authority contract, the sole source of those
revenues, to another provider.
We have risks associated with obtaining and
maintaining necessary rights-of-way for our
network.
We need to obtain and maintain the necessary
rights-of-way for our network from governmental and
quasi-governmental entities and third parties, such as
railroads, utilities, state highway authorities, local
governments and transit authorities. We may not be successful in
obtaining and maintaining these rights-of-way or obtaining them
on acceptable terms whether in existing or new service areas.
Some of the agreements relating to these rights-of-way may be
short-term or revocable at will, and we cannot be certain that
we will continue to have access to existing rights-of-way after
they have expired or terminated. Although we believe that
alternative rights-of-way will be available, if any of these
agreements were terminated or could not be renewed, we may be
forced to remove our network facilities from under the affected
rights-of-way or relocate or abandon our networks.
Our utility right-of-way agreements are subject
to conditions and limitations on access and use and are subject
to termination upon customary default provisions. In some cases,
these agreements require our fiber network to be moved or
removed in the event that the utility needs its right-of-way for
public utility purposes or no longer owns its right-of-way. For
example, CCI Texas is a party to several facilities license
agreements with TXU Electric Delivery Company, or TXUEDC,
the electric power utility subsidiary of TXU Corp. Pursuant to
these agreements, CCI Texas has the right to place the fiber
cables that comprise parts of its transport network on the poles
and towers owned by TXUEDC and to make use of the underlying
rights-of-way and easements that are owned by TXUEDC. The terms
of the agreements are highly restrictive and the license fees
associated with them are increasingly burdensome as prices for
fiber optic cable and capacity continue to decline. Furthermore,
to the extent that CCI Texas uses fiber that is placed pursuant
to TXUEDC license agreements, CCI Texas relies on the underlying
rights-of-way and easements used by TXUEDC. We cannot assure you
that in all cases the easements used by TXUEDC also allow for
the transport of video or digital communications to our CCI
Texas transport customers over fiber cable as, in many cases,
these easements were established many years ago specifically for
power distribution and transmission lines. If we discover that a
particular easement lacks the appropriate authorization for
video or digital communications circuits, we may be unsuccessful
in establishing a provision that allows for this type of
transport on that easement and would be forced to relocate our
fiber cable. In addition, in some cases, these agreements
require CCI Texas' fiber network to be moved or removed in
the event that TXUEDC needs its right-of-way for public utility
purposes or no longer uses its right-of-way. In the event CCI
Texas must move the fiber cable, it must do so at its own cost.
If it is unable to find an alternate location for such fiber
cable, in which case it would not be able to transport video or
digital communications, CCI Texas may default on agreements with
its transport customers. While the TXUEDC license agreements are
renewable by CCI Texas for several successive five year terms,
the costs and terms of continuing the license agreements may
become increasingly difficult to sustain.
We may not be able to maintain all of our
existing rights-of-way and permits or obtain and maintain the
additional rights-of-way and permits needed to implement our
business plan. In addition, our failure to maintain the
necessary rights-of-way, franchises, easements, licenses and
permits may result in an event of default under the amended and
restated credit facilities and other credit facilities we may
enter into in the future.
As a result of the above, our operations may be
interrupted and we may need to find alternative rights-of-way
and make unexpected capital expenditures.
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We are dependent on third party vendors for
our information and billing systems.
Sophisticated information and billing systems are
vital to our ability to monitor and control costs, bill
customers, process customer orders, provide customer service and
achieve operating efficiencies. We currently rely on internal
systems and third party vendors to provide all of our
information and processing systems. Some of our billing,
customer service and management information systems have been
developed by third parties for us and may not perform as
anticipated. In addition, our plans for developing and
implementing our information and billing systems rely primarily
on the delivery of products and services by third party vendors.
Our right to use these systems is dependent upon license
agreements with third party vendors. Some of these agreements
are cancelable by the vendor, and the cancellation or
nonrenewable nature of these agreements could impair our ability
to process orders or bill our customers. Since we rely on third
party vendors to provide some of these services, any switch in
vendors could be costly and affect operating efficiencies.
Our success depends on our ability to
attract and retain qualified management and other
personnel.
Our success depends upon the talents and efforts
of key management personnel, many of whom have been with our
company and our industry for decades, including
Mr. Lumpkin, Robert J. Currey, Steven L. Childers,
Joseph R. Dively, Steven J. Shirar, C. Robert
Udell, Jr. and Christopher A. Young. There are no
employment agreements with any of these senior managers. The
loss of any such management personnel, due to retirement or
otherwise, and the inability to attract and retain highly
qualified technical and management personnel in the future,
could have a material adverse effect on our business, financial
condition and results of operations.
Being a public company will increase our
expenses and administrative workload.
As a public company with listed equity
securities, we will need to comply with new laws, regulations
and requirements, such as the Sarbanes-Oxley Act of 2002,
related SEC regulations and requirements of the New York Stock
Exchange that we did not need to comply with as a private
company. Preparing to comply and complying with new statutes,
regulations and requirements will occupy a significant amount of
time of our board of directors, management and our officers and
will increase our costs and expenses. We will need to:
•
create or expand the roles and duties of our
    board of directors, our board committees and management;
•
institute a more comprehensive compliance
    function;
•
prepare and distribute periodic public reports in
    compliance with our obligations under the federal securities
    laws;
•
involve and retain to a greater degree outside
    counsel and accountants in the above activities;
•
enhance our investor relations function; and
•
establish new internal policies, such as those
    relating to disclosure controls and procedures and insider
    trading.
In addition, we also expect that being a public
company and these new rules and regulations will make it more
expensive for us to obtain director and officer liability
insurance, and we may be required to accept reduced coverage or
incur substantially higher costs to obtain coverage. These
factors could also make it more difficult for us to attract and
retain qualified members of our board of directors, particularly
to serve on our audit committee, and qualified executive
officers.
We will be exposed to risks relating to
evaluations of controls required by Section 404 of the
Sarbanes-Oxley Act of 2002.
Changing laws, regulations and standards relating
to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002 and related regulations implemented
by the SEC and the New York Stock Exchange, are creating
uncertainty for public companies, increasing legal and financial
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compliance costs and making some activities more
time consuming. We will be evaluating our internal controls
systems to allow management to report on, and our independent
auditors to attest to, our internal controls. We will be
performing the system and process evaluation and testing (and
any necessary remediation) required to comply with the
management certification and auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act. While we anticipate
being able to fully implement the requirements relating to
internal controls and all other aspects of Section 404 by
our December 31, 2005 deadline, we cannot be certain as to
the timing of completion of our evaluation, testing and
remediation actions or the impact of the same on our operations
since there is presently no precedent available by which to
measure compliance adequacy. If we are not able to implement the
requirements of Section 404 in a timely manner or with
adequate compliance, we might be subject to sanctions or
investigation by regulatory authorities, such as the SEC or the
New York Stock Exchange. Any such action could adversely affect
our financial results or investors' confidence in our
company, and could cause our stock price to fall. In addition,
the controls and procedures that we will implement may not
comply with all of the relevant rules and regulations of the SEC
and the New York Stock Exchange. If we fail to develop and
maintain effective controls and procedures, we may be unable to
provide the financial information in a timely and reliable
manner.
Because we will be a "controlled
company" under the New York Stock Exchange rules, we will
be exempt from certain New York Stock Exchange corporate
governance standards and, as a result, you will not have the
same protections afforded to stockholders of companies that are
subject to these requirements.
We expect that, on the closing of the offering,
Central Illinois Telephone will own shares of Class B
common stock having a majority of the voting power of our
outstanding common stock. As a result, we will be a
"controlled company" within the meaning of the New
York Stock Exchange corporate governance standards. Under these
standards, a company of which more than 50% of the voting power
is held by another company or group is a "controlled
company" and may elect not to comply with certain of these
standards, including:
•
the requirement that a majority of the board of
    directors consist of independent directors;
•
the requirement that the nominating committee be
    composed entirely of independent directors with a written
    charter addressing the committee's purpose and
    responsibilities;
•
the requirement that the compensation committee
    be composed entirely of independent directors with a written
    charter addressing the committee's purpose and
    responsibilities; and
•
the requirement for an annual performance
    evaluation of the nominating and corporate governance and
    compensation committees.
Following this offering, we may take advantage of
these exemptions. As a result, we may not have a majority of
independent directors and our nominating and compensation
committees may not consist entirely of independent directors.
Accordingly, you may not have the same protection afforded to
stockholders of companies that are subject to all of the New
York Stock Exchange corporate governance requirements.
Regulatory Risks
The telecommunications industry in which we
operate is subject to extensive federal, state and local
regulation that could change in a manner adverse to
us.
Our main sources of revenues are our local
telephone businesses in Illinois and Texas. These businesses
operate in a generally supportive regulatory environment, with
subsidized revenues pursuant to federal and state statutes and
regulations, including those designed to promote widely
available, quality telephone service at affordable prices in
rural areas. Primarily due to legislative and regulatory
provisions, competitive alternatives to many of our services are
limited. These laws and regulations may be, and in some cases
have been, challenged in the courts, and could be changed by
Congress, state legislatures or regulators at any time. In
addition, new regulations could be imposed by federal or state
authorities
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increasing our operating costs or capital
requirements or that are otherwise adverse to us. We cannot
predict the impact of future developments or changes to the
regulatory environment or the impact such developments or
changes may have on us. Adverse rulings, legislation or changes
in governmental policy on issues material to us could have a
material adverse effect on our business, results of operations,
financial condition and prospects.
Furthermore, any of the following related risks
could have a significant impact on us:
Our RLECs could lose their protected status
under interconnection rules.
The Telecommunications Act imposes a number of
interconnection and other requirements on local communications
providers, including ILECs. Each of the subsidiaries through
which we operate our local telephone businesses is an ILEC and
is also classified as an RLEC under the Telecommunications Act.
The Telecommunications Act exempts RLECs from some of the more
burdensome interconnection requirements such as unbundling of
network elements and sharing information and facilities with
other communications providers. These requirements would
otherwise require our RLECs to lease to CLECs unbundled network
elements, or UNEs, to enable the delivery of services to the
competitor's customers in our service area, either in
combination with CLEC's network or as a recombined service
offering on an unbundled network element platform, or UNEP.
These unbundling requirements, and the obligation to offer UNEs
to competitors, impose substantial costs on, and result in
customer attrition for, the ILECs that must comply with these
requirements. The ICC or the PUCT can terminate the applicable
rural exemption for each of our RLECs if the RLEC receives a
bona fide request for full interconnection from another
telecommunications carrier and the state commission determines
that the request is technically feasible, not unduly
economically burdensome and consistent with universal service
requirements. None of our RLECs is currently subject to an
interconnection request inconsistent with their status as a
rural telephone company. Although state regulators have been
traditionally very protective of this status, we cannot assure
you that they will continue to be so disposed. If the ICC or
PUCT terminates the applicable rural exemption in whole or in
part for any of our RLECs, or if the applicable state commission
does not allow us adequate compensation for the costs of
providing the interconnection or UNEs, our administrative and
regulatory costs could increase significantly and we could
suffer a significant loss of customers to existing or new
competitors. These events could have a material adverse effect
on our business, revenues and profitability.
Revenues from network access charges may be
reduced or lost.
A significant portion of our RLECs' revenues
come from network access charges paid by long distance and other
carriers for originating or terminating calls in our RLECs'
service areas. The amount of network access charge revenues that
our RLECs receive is based on interstate rates set by the FCC
and intrastate rates set by the ICC and PUCT, as applicable.
These rates are subject to change. The FCC has reformed, and
continues to reform, the federal network access charge system
and the states, including Illinois and Texas, often establish
intrastate network access charges that mirror or otherwise
interrelate with the federal rules.
Traditionally, regulators have allowed network
access rates to be set higher in rural areas than the actual
cost of originating or terminating calls as an implicit means of
subsidizing the high cost of providing local service in rural
areas. In 2001, the FCC promulgated an order implementing the
beginning phases of the plan of the Multi Association Group to
reform the network access charge system for rural carriers. The
Multi Association Group is a consortium of various
telecommunications industry groups. The 2001 order reduced
network access charges and shifted a portion of cost recovery,
which historically was based on minutes of use and imposed on
long distance carriers, to flat-rate, monthly per line charges
imposed on end-user customers. While the FCC simultaneously
increased subsidies to RLECs from the federal universal service
fund, the aggregate amount of network access charges paid by
long distance and other carriers to access providers, such as
our RLECs, decreased. In the future, they may continue to
decrease. The FCC currently is considering further changes in
both access charges and federal universal service fund
subsidies. It is unknown at this time what additional changes,
if any, the FCC may eventually adopt and
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we cannot assure you that the federal universal
service fund subsidies our RLECs receive will remain at current
levels.
The FCC's 2001 access charge reform order
had a negative impact on the intrastate network access revenues
of our Illinois RLEC. Under Illinois network access regulations,
our Illinois RLEC's intrastate network access rates mirror
interstate network access rates. Illinois does not provide,
however, an explicit subsidy in the form of a universal service
fund applicable to our Illinois RLEC. As a result, while
subsidies from the federal universal service fund have offset
Illinois Telephone Operations' decrease in revenues
resulting from the reduction in interstate network access rates,
there was not a corresponding offset for the decrease in
revenues from the reduction in intrastate network access rates.
The reforms did not have an impact on the intrastate network
access rates of our Texas RLECs because the regime applicable to
our Texas RLECs does not mirror the FCC regime. But, both the
ICC and the PUCT are continuing to investigate possible changes
to the structure for intrastate network access charges in their
respective states and we cannot predict the effect any changes
they make to network access charges and their respective
subsidies regimes will have on us.
To the extent any of our RLECs become subject to
competition, and CLECs increase their operations in the areas
served by our RLECs, a portion of long distance and other
carriers' network access charges will be paid to our
competitors rather than to our RLECs. In addition, the
compensation our RLECs receive from network access charges could
be reduced due to competition from wireless carriers.
In addition, VOIP services are increasingly being
embraced by many industry participants, including AT&T, SBC
Communications Inc., or SBC, and Time Warner Inc., or Time
Warner. On March 10, 2004, the FCC issued a Notice of
Proposed Rulemaking with respect to issues relating to services
and applications of IP-enabled services. Among other things, the
FCC is considering whether VOIP services are regulated
telecommunications services or unregulated information services.
The FCC is also considering whether, and to what extent,
providers of VOIP services are obligated to pay access charges
for calls originating or terminating on ILEC facilities. Many
carriers, including ILECs, long distance carriers and cable
companies are increasingly deploying VOIP services. We cannot
predict the outcome of the FCC's rulemaking or the impact
on the revenues of our RLECs. The proliferation of VOIP,
particularly to the extent such communications do not utilize
our RLECs' networks, may have a material adverse effect on
our business, revenues and profitability.
Regulatory developments, related competitive
developments and reductions in network access charges resulting
from these developments could have a material adverse effect on
our business, revenue and profitability.
We believe long distance carriers are
disputing their obligation to pay network access charges to
ILECs for use of their networks.
In recent years, long distance carriers, such as
AT&T, MCI and Sprint, have become more aggressive in
disputing interstate access charge rates set by the FCC and the
applicability of network access charges to their
telecommunications traffic. We believe that these disputes have
increased in part due to advances in technology that have
rendered the identity and jurisdiction of traffic more difficult
to ascertain and that have afforded carriers an increased
opportunity to assert regulatory distinctions and claims to
lower access costs for their traffic. For example, in October
2002, AT&T filed a petition with the FCC challenging its
current and prospective obligation to pay network access charges
to local exchange carriers for the use of their networks. The
FCC rejected AT&T's petition. In September 2003, Vonage
Holdings Corporation filed a petition with the FCC to preempt an
order of the Minnesota Public Utilities Commission which had
issued an order requiring Vonage to comply with the Minnesota
Commission's order. The FCC determined that Vonage's
VOIP service was such that it was impossible to divide it into
interstate and intrastate components without negating federal
rules and policies. Accordingly, the FCC found it was an
interstate service not subject to traditional state telephone
regulation. While the FCC Order did not specifically
address the issue of the application of intrastate access
charges to Vonage's VOIP service, the fact that the service
was found to be solely interstate raises that concern. We cannot
predict other actions
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that other long distance carriers may take before
the FCC or with their local exchange carriers, including our
RLECs, to challenge the applicability of access charges. To
date, no long distance or other carrier has made a claim to us
contesting the applicability of network access charges billed by
our RLECs. We cannot assure you, however, that long distance or
other carriers will not make such claims to us in the future
nor, if such a claim is made, can we predict the magnitude of
the claim. As a result of the increasing deployment of VOIP
services and other technological changes, we believe that these
types of disputes and claims will likely increase.
A decrease in network access revenues could have
a material adverse effect on our business, financial condition
and results of operation.
Government subsidies we receive could be
reduced or lost.
In general, telecommunications service in rural
areas is more costly to provide than service in urban areas. By
supporting the high cost of operations in our rural markets, the
federal and state subsidy payments our RLECs receive are
intended to promote widely available, quality telephone service
at affordable prices in rural areas. In 2003, CCI Illinois
received $6.0 million from the federal universal service
fund and CCI Texas received an aggregate of $41.4 million
from the federal universal service fund and the Texas universal
service fund. Of the $41.4 million received by
CCI Texas, $6.4 million represented the recovery of
additional subsidy payments from the federal universal service
fund for prior periods which was a larger out-of-period
adjustment than in prior years. In the aggregate, the
$47.4 million comprised 14.5% of our revenues in 2003,
after giving effect to the TXUCV acquisition. For the nine
months ended September 30, 2004, CCI Illinois received
$10.0 million from the federal universal service fund,
$2.7 million of which represented the recovery of
additional subsidy payments from the federal universal service
fund for prior periods and CCI Texas received an aggregate
$11.9 million from the federal universal service fund and
the Texas universal service fund, $2.7 million of which
represented the recovery of additional subsidy payments from the
federal universal service fund for prior periods. In the
aggregate, the $21.9 million comprised 8.9% of revenues for
the nine months ended September 30, 2004.
Under the Telecommunications Act, our competitors
can obtain the same level of federal universal service fund
subsidies as we do if the ICC or PUCT, as applicable, determines
that granting these subsidies to competitors would be in the
public interest and the competitors offer and advertise certain
telephone services as required by the Telecommunications Act and
the FCC. One such application by a potential competitor in
Illinois was recently dismissed by the ICC due to the
applicant's lack of appropriate ICC certifications and at
least two other such applications are presently pending before
the ICC. We are not aware of any having been filed in our Texas
service areas. Under current rules, any such payments to our
competitors would not affect the level of subsidies received by
our RLECs, but they would facilitate competitive entry into our
RLECs' service areas and our RLECs may not be able to
compete as effectively or otherwise continue to operate as
profitability. In addition, any changes in legislative and
regulatory provisions relating to federal universal service fund
subsidies could have an adverse effect on our business, revenues
or profitability.
During the last two years, the FCC has made
modifications to the federal universal service fund system that
changed the sources of support and the method for determining
the level of support recipients of federal universal service
fund subsidies receive. These changes, which, among other
things, removed certain implicit support from network access
charges and made it explicit support, have been, generally,
revenue neutral to our RLECs' operations in terms of
federal support. It is unclear whether the changes in
methodology will continue to accurately reflect the costs
incurred by our RLECs and whether we will continue to receive
the same amount of federal universal service fund support that
our RLECs have received in the past. In addition, several
parties have raised objections to the size of the federal
universal service fund and the types of services eligible for
support. A number of issues regarding the source and amount of
contributions to, and eligibility for payments from, the federal
universal service fund need to be resolved in the near future.
For example, the FCC is considering adopting a recommendation
from the Federal-State Joint Board on Universal Service, that,
if adopted in its current form, could make it harder for
competitors to qualify for federal universal service fund
subsidies, but could also reduce the amount of
32
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subsidies available to our RLECs if a competitor
does qualify. The Federal-State Joint Board on Universal Service
was established in March 1996 to make recommendations to
implement the universal service provisions of the
Telecommunications Act and is comprised of FCC Commissioners,
State Utility Commissioners and a consumer advocate
representative. Furthermore, the Texas universal service
fund's funding is subject to adjustment during the next
comprehensive review of the Texas state statutes governing the
regulation and obligations of telecommunications carriers which
is scheduled to occur during the first six months of 2005. The
outcome of any of these proceedings or other legislative or
regulatory changes will not be fully known until mid-2005, but
could affect the amount of federal universal service fund and
Texas universal service fund support received by our applicable
RLECs.
We cannot predict the outcome of any FCC, PUCT or
ICC rulemaking or similar proceedings. If our RLECs do not
continue to receive federal and state subsidies, or if these
subsidies are reduced, our RLECs may not be able to operate as
profitably as they have historically. In addition, if the number
of local access lines that our RLECs serve increases, under the
rules governing the federal universal service fund, the rate at
which we can recover certain federal universal service fund
payments may decrease. This may have an adverse effect on our
business, revenues and profitability.
Our business could be adversely affected as
a result of the high costs of regulatory
compliance.
Regulatory compliance results in significant
costs for us and diverts the time and effort of management and
our officers away from running our business. In addition,
because regulations differ from state to state, we could face
significant costs in obtaining information necessary to compete
effectively if we try to provide services, such as long distance
services, in markets in different states. These information
barriers could cause us to incur substantial costs and to
encounter significant obstacles and delays in entering these
markets. Compliance costs and information barriers could also
affect our ability to evaluate and compete for new opportunities
to acquire local access lines or businesses as they arise.
Our intrastate services are also generally
subject to certification, tariff filing and other ongoing state
regulatory requirements. Challenges to our tariffs by regulators
or third parties or delays in obtaining certifications and
regulatory approvals could cause us to incur substantial legal
and administrative expenses. If successful, these challenges
could adversely affect the rates that we are able to charge to
customers. Any changes in legislative and regulatory provisions
relating to these rates could have a material adverse effect on
our business, revenues and profitability.
Regulatory changes in the
telecommunications industry could adversely affect our business
by facilitating greater competition against us, reducing
potential revenues or raising our costs.
Legislative and regulatory changes in the
telecommunications industry could adversely affect our business
by facilitating greater competition against us, reducing our
revenues or raising our costs. For example, federal or state
legislatures or regulatory commissions could impose new
requirements relating to standards or quality of service, credit
and collection policies, or obligations to provide new or
enhanced services such as high-speed access to the Internet or
number portability, whereby consumers can keep their telephone
number when changing carriers. Any such requirements could
increase operating costs or capital requirements.
The Telecommunications Act provides for
significant changes and increased competition in the
telecommunications industry. This federal statute and the
related regulations remain subject to judicial review and
additional rulemakings of the FCC, as well as to implementing
actions by state commissions. As a result, we cannot predict
what effect the legislation and its implementation by regulators
and courts will have on the business and operations of our
RLECs. Several regulatory and judicial proceedings have recently
concluded, are underway or may soon be commenced, addressing
matters affecting the operations of our RLECs and those of our
competitors. We also believe that Congress may consider
potential amendments to the Telecommunications Act in its 2005
session. We cannot predict the outcome of these developments,
nor can we assure you that these changes will not have a
material adverse effect on us. In addition, the Illinois General
Assembly and the Texas Legislature have each made major
revisions and
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added significant new provisions to the portions
of their respective state statutes governing the regulation and
obligations of telecommunications carriers on a number of
occasions in recent years. The next comprehensive review of, and
potential revision to, the provisions of each of these state
statutes is scheduled to occur during the first six months of
2005. We cannot predict the nature or extent of the legislative
changes that may result from the 2005 review or the resulting
impact on the business and operations of our RLECs.
In addition, our Internet access offerings may
become subject to newly adopted laws and regulations. Currently,
there exists only a small body of law and regulation applicable
to access to, or commerce on, the Internet. As the significance
of the Internet expands, federal, state and local governments
may adopt new rules and regulations or apply existing laws and
regulations to the Internet. The FCC is currently reviewing the
appropriate regulatory framework governing high speed access to
the Internet through telephone and cable providers'
communications networks. We cannot predict the outcome of these
proceedings. They may affect our regulatory obligations and the
form of competition for these services which could have a
material adverse effect on our business, revenue and
profitability.
"Do not call" registries may
limit our ability to market our services.
Our Market Response business is subject to
various federal and state "do not call" list
requirements. Recently, the FCC and the Federal Trade
Commission, or FTC, amended their rules to provide for a
national "do not call" registry. Under these new
federal regulations, consumers may have their phone numbers
added to the national registry and telemarketing companies, such
as our Market Response business, are prohibited from calling
anyone on that registry other than for limited exceptions. In
September 2003, telemarketers were given access to the registry
and are now required to compare their call lists against the
national "do not call" registry at least once every
90 days. We are required to pay a fee to access the
registry on a quarterly basis. In addition, the rule provides
for fines of up to $11,000 per violation and other possible
penalties. This rule may restrict our ability to market our
services effectively to new customers. Furthermore, compliance
with this new rule may prove difficult, and we may incur
penalties for improperly conducting our marketing activities. A
recent decision by the court of appeals for the Tenth Circuit
rejected challenges to several aspects of the "do not
call" rules. In addition, under the Consolidated
Appropriations Act of 2004, the FTC voted to amend the rules,
effective January 1, 2005, to require that telemarketers
access the registry and purge numbers from their call lists
every 31 days. They may affect our regulatory obligations
and the form of competition for these services which could have
a material adverse effect on our business, revenue and
profitability.
We may face significant future liabilities
or compliance costs in connection with environmental and worker
health and safety matters.
Our operations and properties are subject to
federal, state and local laws and regulations relating to
protection of the environment, natural resources and worker
health and safety, including laws and regulations governing and
creating liability relating to, the management, storage and
disposal of hazardous materials, asbestos, petroleum products
and other regulated materials. We also are subject to
environmental laws and regulations governing air emissions from
our fleets of vehicles. As a result, we face several risks,
including the following:
•
Under certain environmental laws, we could be
    held liable, jointly and severally and without regard to fault,
    for the costs of investigating and remediating any actual or
    threatened environmental contamination at currently and formerly
    owned or operated properties, and those of our predecessors, and
    for contamination associated with disposal by us or our
    predecessors of hazardous materials at third party disposal
    sites. Hazardous materials may have been released at certain
    current or formerly owned properties as a result of historic
    operations.
•
The presence of contamination can adversely
    affect the value of our properties and our ability to sell any
    such affected property or to use it as collateral.
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•
We could be held responsible for third party
    property damage claims, personal injury claims or natural
    resource damage claims relating to any such contamination.
•
The cost of complying with existing environmental
    requirements could be significant.
•
Adoption of new environmental laws or regulations
    or changes in existing laws or regulations or their
    interpretations could result in significant compliance costs or
    as yet identified environmental liabilities.
•
Future acquisitions of businesses or properties
    subject to environmental requirements or affected by
    environmental contamination could require us to incur
    substantial costs relating to such matters.
•
In addition, environmental laws regulating
    wetlands, endangered species and other land use and natural
    resource issues may increase costs associated with future
    business or expansion opportunities, delay, alter or interfere
    with such plans, or otherwise adversely affect such plans.
As a result of the above, we may face significant
liabilities and compliance costs in the future.
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USE OF PROCEEDS
We estimate that we will receive net proceeds
from this offering of approximately
$           million,
after deducting underwriting discounts and commissions and other
offering-related expenses. We will use the net proceeds from
this offering, together with additional borrowings under the
amended and restated credit facilities and approximately
$47.7 million of cash on hand, to:
•
repay in full outstanding borrowings under our
    term loan A facility, together with accrued but unpaid
    interest through the closing date of this offering;
•
redeem 35.0% of the aggregate principal
    amount of our senior notes, which will include the payment of
    the associated redemption premium of 9.75% of the principal
    amount to be redeemed, together with accrued but unpaid interest
    through the date of redemption;
•
pre-fund expected integration and restructuring
    costs for 2005 relating to the TXUCV acquisition; and
•
pay fees and expenses associated with the
    repayment of the term loan A facility and entering into the
    amended and restated credit facilities.
At September 30, 2004, the term loan A
facility bore interest at a rate of 4.5% and had an outstanding
balance of $118.7 million. The term A loan facility is
scheduled to mature on April 14, 2010. Our senior notes
bear interest at a rate of 9 3/4% annually and are
scheduled to mature on April 1, 2012. The proceeds from our
borrowings under the term loan A facility and our issuance
of the senior notes were used, together with other sources of
funds, to pay a portion of the purchase price of the TXUCV
acquisition and to repay existing debt of CCI, among other uses
of funds. The closing of the offering is conditioned on the
closing of the reorganization, which requires the prior approval
of the ICC, and the entering into, and borrowing under, the
amended and restated credit facilities.
We will not receive any of the proceeds from the
selling stockholders' sale of shares of Class A common
stock in the offering.
The following table lists the estimated sources
and uses of funds from this offering and the related
transactions. The actual amounts on the date that this offering
and the related transactions close may vary.
Sources
Uses
(dollars in millions)
Cash(1)
$
47.7
Repayment of term loan A facility(2)(3)
$
118.7
Offering proceeds
90.0
Senior notes redemption(3)
70.0
Increase in term loan C facility(2)
75.7
Redemption premium
6.8
Fees and expenses(4)
10.4
Pre-funding integration and
restructuring costs
7.5
Total sources
$
213.4
$
213.4
(1)
Includes $7.5 million of cash that will be
    used to pre-fund expected integration and restructuring costs
    for 2005 relating to the TXUCV acquisition.
(2)
We expect that our existing credit facilities
    will be amended and restated to, among other things, repay the
    term loan A facility and to increase the amount of
    borrowings available under our existing term loan C
    facility, which is expected to mature on October 14, 2011.
    See "Description of Indebtedness — Amended and
    Restated Credit Facilities".
(3)
Excludes accrued but unpaid interest on the term
    loan A facility and the senior notes to be redeemed,
    respectively, through the closing date of this offering.
(4)
Transaction fees and expenses include estimated
    underwriting discounts and commissions, commitment and financing
    fees payable in connection with the amended and restated credit
    facilities, and legal, accounting, advisory and other costs
    payable in connection with this offering and the related
    transactions.
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DIVIDEND POLICY AND RESTRICTIONS
General
Our board of directors has adopted a dividend
policy, effective upon the closing of this offering, which
reflects an intention to distribute as regular quarterly
dividends to our stockholders a substantial portion of the cash
generated by our business in excess of our expected cash needs
and other possible uses. These expected cash needs include
interest and principal payments on our indebtedness, capital
expenditures, integration, restructuring and related costs of
the TXUCV acquisition in 2004 and 2005, incremental costs
associated with being a public company, taxes and certain other
costs. In accordance with our dividend policy, we currently
intend to pay an initial dividend of
$           per
share on or
about                     ,
2005 and to continue to pay quarterly dividends at an annual
rate of
$           per
share for the first full year following the closing of this
offering, subject to our board of director's decision to
declare these dividends and various restrictions on our ability
to do so. This policy reflects our judgment that our
stockholders would be better served if we distributed to them a
substantial portion of the cash generated by our business rather
than using the cash for other purposes.
In reviewing and adopting the dividend policy,
our board of directors reviewed: estimates of our EBITDA; EBITDA
excluding the effect of specified items as we expect to be
required by our amended and restated credit facilities, which we
view as the most significant legal restraint on our ability to
pay dividends; and cash available to pay dividends as we expect
it to be determined under our amended and restated credit
facilities. With respect to these estimates and the dividend
policy as a whole, our board of directors evaluated numerous
factors, made several assumptions and took other considerations
into account, which are summarized below under
"— Assumptions and Considerations". We
expect that our board of directors will review regularly the
dividend policy and these factors, assumptions and
considerations.
We are not required to pay dividends, and our
stockholders will not be guaranteed, or have contractual or
other rights, to receive dividends. Our board of directors may
decide, in its discretion, at any time, to decrease the amount
of dividends, otherwise modify or repeal the dividend policy or
discontinue entirely the payment of dividends. Our board could
depart from or change our dividend policy, for example, if it
were to determine that we had insufficient cash to take
advantage of other opportunities with attractive rates of
return. You should understand the various risks relating to our
dividend policy, which are summarized under "Risk
Factors — Risks Relating to Our Class A Common
Stock — You may not receive any dividends, and there
are several risks relating to our paying, and the restrictions
on our ability to pay, dividends" and "— Our
dividend policy may limit our ability to pursue growth
opportunities".
We have no history of paying dividends out of our
cash flow. Dividends on our common stock will not be cumulative.
Estimated Minimum Bank EBITDA and Cash
Available to Pay Dividends
We do not as a matter of course make public
projections as to future sales, earnings or other results of
operations and do not plan to do so in the future. However, our
management has prepared the estimated financial information set
forth below in order to provide an estimate of the amount of
cash that may be available to pay dividends, in the event that
our board of directors determines to do so and subject to the
limits on our ability to pay dividends. The estimated financial
information was not prepared with a view toward complying with
any SEC or American Institute of Certified Public Accountants
guidelines with respect to prospective financial information,
but, in the view of our management, was prepared on a reasonable
basis, reflects the best currently available estimates and
judgments and presents, to the best of management's current
belief, our expected future financial performance. Neither our
independent registered public accounting firm nor any other
independent registered public accounting firm has compiled,
examined, or performed any procedures with respect to the
estimated financial information contained herein, nor have they
expressed any opinion or any other form of assurance on such
information or its achievability, and assume no responsibility
for, and disclaim any association with, the estimated financial
information.
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The estimated financial information below is only
an estimate, is not a prediction of fact and should not be
relied upon as being necessarily indicative of future results.
You are cautioned not to place undue reliance on the estimated
financial information. The factors, assumptions and other
considerations relating to the estimated financial information
are inherently uncertain and, though considered reasonable by
our management as of the date of its preparation, are subject to
a wide variety of significant business, economic, competitive
and other risks and uncertainties, including those described
under "Risk Factors." There will be differences
between actual and projected results. Accordingly, we cannot
assure you that the estimated financial information is
indicative of our future performance or that the actual results
will not differ materially from the estimated financial
information presented below.
We believe that, in order to pay dividends on our
common stock in the year following this offering according to
our dividend policy solely from cash generated by our business,
to meet our expected cash needs and to comply with the covenants
in our indenture and expected to be in our amended and restated
credit facilities, we would need to have at least
$118.3 million in Bank EBITDA, which we refer to as
estimated minimum Bank EBITDA below. Bank EBITDA refers to the
defined term we expect will be contained in our amended and
restated credit facilities. The amount of dividends we are able
to pay in the future under the amended and restated credit
facilities will increase or decrease based upon, among other
things, our cumulative Bank EBITDA and our needs for Available
Cash, as each of these terms are defined under "Description
of Indebtedness — Amended and Restated Credit
Facilities." We are also restricted from paying dividends
under our indenture. However, the indenture restriction is
significantly less restrictive than the comparable restriction
we expect will be contained in our amended and restated credit
facilities. Based on numerous factors, assumptions and
considerations described under "— Assumptions and
Considerations" below, we believe that our estimated Bank
EBITDA for the year following the closing of this offering will
be at least this amount. Nothing in this prospectus should be
understood to be directly or indirectly an estimate for any
other period.
The following table sets forth our unaudited
calculation illustrating our belief that $118.3 million of
estimated minimum Bank EBITDA would be sufficient to fund our
expected cash needs, to comply with the restrictive covenants in
our amended and restated credit facilities and indenture and to
fund dividends according to our initial dividend policy for the
first full year following the closing of the offering.
Year Ending
December 31,
2005
(in thousands)
Estimated Cash Available to Pay Dividends
    Based on Estimated Minimum Bank EBITDA
Estimated Minimum Bank EBITDA
$
118,286
Less:
Estimated cash interest expense(1)
(33,054
)
Estimated principal payments(2)
(4,232
)
Estimated capital expenditures(3)
(33,500
)
Estimated cash taxes(4)
—
Estimated cash available to pay dividends on
    common stock
$
47,500
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The following table sets forth our unaudited
calculation of EBITDA, Bank EBITDA and estimated cash available
to pay dividends for the year ended December 31, 2003 and
for the twelve months ended September 30, 2004, assuming
that the offering had closed on the first day of the period
presented and the other assumptions described in the notes to
the table and summarized below under
"— Assumptions and Considerations".
To derive Bank EBITDA, we have given effect to
items we expect will be specified in our amended and restated
credit facilities. To derive estimated cash available to pay
dividends, we have deducted from Bank EBITDA our estimated cash
needs that are not already accounted for in EBITDA.
Year Ended
Twelve Months Ended
December 31, 2003
September 30, 2004
(in thousands)
Estimated Cash Available to Pay
    Dividends
Net Loss
$
(9,469
)
$
(7,090
)
Income taxes
9,408
13,766
Interest expense, net
35,374
37,143
Depreciation and Amortization
66,645
66,645
EBITDA(5)
$
101,958
$
110,464
Retention bonuses(6)
2,436
978
Severance costs(7)
4,391
5,881
TXUCV sales due diligence and transaction costs(8)
1,408
3,185
Integration costs(9)
—
2,261
Other, net(11)
(806
)
(3,854
)
Other non-cash losses (gains):
Goodwill impairment
13,200
13,200
Restructuring and asset impairment
248
248
Bank EBITDA
$
122,835
$
132,363
Cash interest expense on amended and restated
    credit facilities(1)
(33,054
)
(33,054
)
Principal payments on amended and restated credit
    facilities(2)
(4,232
)
(4,232
)
Capital expenditures(3)
(29,485
)
(31,023
)
Estimated public company expenses(10)
(1,000
)
(1,000
)
Cash income taxes(4)
—
—
Estimated cash available to pay dividends
$
55,064
$
63,054
(1)
Assumes (a) with respect to the amended and
    restated credit facilities, interest at a weighted average rate
    of 5.2% on an annual basis on $389.6 million outstanding
    borrowings under the new term facility, no borrowings under our
    new $30.0 million revolving credit facility and a 0.5%
    commitment fee on the unused balance under the new revolving
    credit facility; and (b) with respect to our senior notes,
    an interest rate of 9 3/4% on $130.0 million aggregate
    principal amount of senior notes outstanding after giving effect
    to the redemption of $70.0 million principal amount of
    senior notes in connection with this offering and the related
    transactions; and excludes non-cash amortization of deferred
    financing costs. For a discussion of deferred financing costs,
    see Note 10 to the unaudited pro forma condensed
    consolidated financial statements. At September 30, 2004,
    we had interest rate swap agreements covering
    $215.6 million of aggregate principal amount of our
    existing variable rate debt, which we expect to cover our new
    variable rate debt under the increased term loan
    C facility, at fixed LIBOR rates ranging from 2.99% to
    3.35%. If market interest rates were to average 1.0% higher than
    the average rates that prevailed from January 1, 2004
    through September 30, 2004, our interest payments would
    increase by approximately $1.3 million for the period.
(2)
For purposes of calculating estimated minimum
    Bank EBITDA, we have assumed that we will be required to make
    principal amortization payments on our increased term loan
    C facility proportionate to those required under our
    existing term facilities.
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(3)
For the twelve months ended September 30,
    2004, our capital expenditures were approximately
    $31.0 million. We expect capital expenditures for 2004 to
    be approximately $33.8 million and approximately
    $33.5 million for 2005. For a more detailed discussion of
    our capital expenditures, see "Management's Discussion
    and Analysis of Financial Condition and Results of
    Operations — CCI Holdings — Liquidity and
    Capital Resources — Capital Requirements".
(4)
As of September 30, 2004, we estimate that
    we would have had an aggregate of $26.6 million of net
    operating loss carry forwards, or NOLs, available to us, based
    on numerous assumptions. Assuming we have Bank EBITDA in 2005 in
    an amount that is equivalent to our estimated minimum Bank
    EBITDA, our remaining NOL as of December 31, 2005 would be
    approximately $13.0 million. We have estimated cash taxes
    assuming adjustments resulting from the offering and the related
    transactions based on an estimate of our NOLs (including an
    "ownership change" under Section 382 of the
    Internal Revenue Code limiting the usage of our NOLs), deduction
    of the redemption premium and interest and amortization of
    deferred financing fees based on our new capital structure. At
    such time as our NOLs have been fully used, our cash tax
    liability will increase and may impact our ability to pay
    dividends. Our tax liability may also be affected by limitations
    on the use of our NOLs under Section 382 of the Internal
    Revenue Code by reason of this offering and earlier ownership
    changes.
(5)
EBITDA is defined as net earnings (loss) before
    interest expense, income taxes, depreciation and amortization,
    as adjusted to give effect to the TXUCV acquisition and this
    offering and related transactions consistent with the unaudited
    pro forma condensed consolidated financial statements of CCI
    Holdings. We believe that net income is the most directly
    comparable financial measure to EBITDA under generally accepted
    accounting principles, or GAAP. We present EBITDA for several
    reasons. Management believes that EBITDA is useful as a means to
    evaluate our ability to pay our estimated cash needs and pay
    dividends. In addition, we have historically presented EBITDA to
    investors because it is frequently used by investors, securities
    analysts and other interested parties in the evaluation of
    companies in our industry, and we believe that presenting it
    here provides a measure of consistency in our financial
    reporting. EBITDA is also a component of restrictive covenants
    and financial ratios contained in the agreements governing our
    debt (and that we expect will be contained in our amended and
    restated credit facilities), which require us to maintain
    compliance with these covenants and which limit certain
    activities, such as our ability to incur debt and to pay
    dividends. The definitions in these covenants and ratios are
    based on EBITDA after giving effect to specified charges. As a
    result, we believe that the presentation of EBITDA as
    supplemented by these other items provides important additional
    information to investors. See "Management's Discussion
    and Analysis of Results of Operations and Financial
    Condition — CCI Holdings — Liquidity and
    Capital Resources — Debt and Capital
    Leases — Covenant Compliance". In addition,
    EBITDA provides our board of directors meaningful information to
    determine, with other data, assumptions and considerations, our
    dividend policy and our ability to pay dividends under the
    restrictive covenants in the agreements governing our debt.
EBITDA is a non-GAAP financial measure.
    Accordingly, it should not be construed as an alternative to net
    income (loss), cash flows from operations or net cash from
    operating or investing activities as defined by GAAP and is not
    on its own necessarily indicative of cash available to fund our
    cash needs as determined in accordance with GAAP. In addition,
    not all companies use identical calculations, and this
    presentation of EBITDA may not be comparable to other similarly
    titled measures of other companies.
(6)
During 2003, TXUCV paid retention bonuses to keep
    key employees to run its day-to-day business operations while it
    was being prepared for sale. Other than retention costs payable
    in connection with the TXUCV acquisition, we do not expect to
    incur such charges in the future.
(7)
As a result of employee terminations in 2003,
    TXUCV incurred $4.4 million in severance costs. For the
    twelve months ended September 30, 2004, $5.8 million
    in severance was incurred, primarily driven by employee
    terminations associated with the TXUCV acquisition. For a
    summary of future integration and restructuring costs, see
    note (9) below.
(8)
During 2003, TXUCV incurred $1.4 million in
    financial and legal costs in connection with TXU Corp. having
    prepared TXUCV for sale and the related sales process. We do not
    expect to incur such charges in the future. For the twelve
    months ended September 30, 2004, TXUCV incurred
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$2.6 million in costs associated with the
    sale of the company and CCI Holdings incurred
    $0.5 million associated with the sale of TXUCV.
(9)
We currently expect to incur approximately
    $14 million in operating expenses associated with the TXUCV
    integration and restructuring process in 2004 and 2005. Of the
    $14 million, approximately $11 million relates to
    integration and approximately $3 million relates to
    restructuring. As of September 30, 2004, we had spent
    $2.3 million on integration. In connection with this
    offering and the related transactions, we will pre-fund
    $7.5 million of expected integration and restructuring
    expenses for 2005 with cash from our balance sheet. We do not
    expect that the pre-funding of these estimated expenses will
    change any of our expected cash plans or otherwise effect our
    expected working capital requirements. These one-time
    integration and restructuring costs will be in addition to
    certain ongoing costs we expect to incur to expand certain
    administrative functions, such as those relating to SEC
    reporting and compliance, and do not take into account other
    potential cost savings and expenses of the TXUCV integration. We
    do not expect to incur any significant costs relating to the
    TXUCV acquisition after 2005.
(10)
Consists of our estimate of $1.0 million in
    incremental, ongoing expenses associated with being a public
    company, including compliance and related administrative
    expenses, accounting and legal fees, investor relations
    expenses, director's fees and director and officer
    liability insurance premiums, registrar and transfer agent fees,
    listing fees and other, miscellaneous expenses.
(11)
Other, net includes equity earnings from the
    cellular partnerships, dividend income and recognizing the
    minority interests of investors in East Texas Fiber, Inc.
Assumptions and Considerations
In reviewing and adopting the dividend policy,
our board of directors reviewed estimates of the cash available
to pay dividends based on the estimates in the tables above and,
with respect to these estimates and the dividend policy as a
whole, evaluated numerous factors, made several assumptions and
took other considerations into account.
Our board of directors reviewed and analyzed
several factors, including, but not limited to, the following:
•
our historical results of operations and
    financial condition, including that our Bank EBITDA was
    $122.8 million in 2003 and $132.4 million for the
    twelve months ended September 30, 2004;
•
our estimated minimum Bank EBITDA and our belief
    that our actual Bank EBITDA for the first year following the
    offering will be at least this amount;
•
the matters discussed in the notes to the tables
    above;
•
our various expected cash needs, including
    interest and principal payments on our debt, capital
    expenditures, integration and restructuring costs of the TXUCV
    acquisition in 2004 and 2005, incremental costs associated with
    being a public company, taxes and certain other costs;
•
an analysis of the impact of our intention to pay
    dividends at the level described above on our operations and
    performance based on prior years' results;
•
our belief that our new revolving credit facility
    would have had sufficient capacity to finance expected
    fluctuations in working capital and other cash needs, including
    the payment of dividends at the levels described above, although
    we currently do not intend to borrow under our new revolving
    credit facility to pay dividends;
•
other possible uses of cash with attractive rates
    of return;
•
potential sources of liquidity, including
    possible asset sales, and capital resources;
•
the state of our business, the environment in
    which we operate and the various risk we face, including
    competition, technological change, changes in our industry, and
    regulatory and other risks and that they will remain consistent
    with previous periods; and
•
our assumption regarding the absence of
    extraordinary business events and risks, such as new
    industry-altering technological developments or adverse
    regulatory developments, that may adversely affect our business,
    results of operations or anticipated cash needs.
41
Table of Contents
Our intended policy to distribute rather than
retain a significant portion of the cash generated by our
business as regular quarterly dividends is based upon the
current assessment by our board of directors of the factors and
assumptions listed above. If these factors and assumptions were
to change, we would need to reassess that policy. Over time, our
capital and other cash needs will be subject to increasing
uncertainties and are more difficult to predict, which could
affect whether we pay dividends and the level of any dividends
we may pay in the future.
Our dividend policy may limit our ability to
pursue growth opportunities, such as to fund a material
expansion of our business, including any significant
acquisitions or to pursue growth opportunities requiring capital
expenditures significantly beyond our current expectations.
However, we intend to retain sufficient cash after the payment
of dividends to permit the pursuit of growth opportunities that
do not require material capital investments. In the recent past,
such growth opportunities have included investments in new
services such as DSL Internet access and the introduction of
digital video service in selected Illinois markets. Currently,
we have no specific plans to make a significant acquisition or
to increase capital spending to expand our business materially.
However, we will evaluate potential growth opportunities and
capital expenditures as they arise and, if our board of
directors determines that it is in our best interest to use cash
that would otherwise be available for dividends to pursue an
acquisition opportunity, to materially increase capital spending
or for some other purpose, the board would be free to depart
from or change our dividend policy at any time.
There are several risks relating to our dividend
policy which are summarized under "Risk Factors —
Risks Relating to Our Class A Common Stock — You
may not receive dividends, and there are several risks relating
to our paying, and the restrictions on our ability to pay,
dividends" and "— Our dividend policy may
limit our ability to pursue growth opportunities". We
cannot assure you that we will pay dividends during or following
the year after this offering or thereafter at the level
estimated above or at all. Dividend payments are within the
absolute discretion of our board of directors and will be
dependent upon many factors and future developments that could
differ materially from our current expectations.
Restrictions on Payment of Dividends
Our ability to pay dividends will be restricted
by current and future agreements governing our debt, including
the amended and restated credit facilities and the indenture and
by Delaware law and may be restricted by state regulatory
authorities.
Amended and Restated Credit
    Facilities
Our existing credit facilities currently do not
permit us to pay the dividends contemplated in this prospectus.
As such, concurrently with the closing of this offering, we
intend to enter into the amended and restated credit facilities
to enable us to pay dividends, subject to the satisfaction of
certain financial covenants, conditions and other restrictions.
The specific terms of these covenants, conditions and other
restrictions, however, have not yet been agreed upon. Once
finalized, the specific terms of these covenants, conditions and
other restrictions will be contained in the amended and restated
credit agreement to be filed as an exhibit to the registration
statement of which this prospectus forms a part. For the twelve
months ended September 30, 2004, we expect we would have
generated cash available to pay dividends of $63.1 million
under the amended and restated credit facilities (based on our
expectation of the terms of these facilities). The amount of
dividends we are able to pay in the future under the amended and
restated credit facilities will increase or decrease based upon,
among other things, our cumulative Bank EBITDA and our needs for
Available Cash. For a more complete description of the expected
terms of the amended and restated credit facilities see
"Description of Indebtedness — Amended and
Restated Credit Facilities."
Senior Notes
The indenture also restricts the amount of
dividends, distributions and other restricted payments we may
pay. As of September 30, 2004, we would have been permitted
to pay dividends of $111.0 million under the general
formula under the restricted payments covenant of the indenture,
commonly referred to
42
Table of Contents
as the build up amount. In addition, for the
twelve months ended September 30, 2004, without giving
effect to an $81.5 million increase in the buildup amount
as a consequence of this offering, we would have generated
$72.6 million of capacity under the buildup amount
provision of the indenture. The build-up amount will increase or
decrease depending upon, among other things, our EBITDA, our
consolidated interest expense, the net proceeds of the sale of
capital stock and the amount of restricted payments we may make
from time to time, including, among other things, the payment of
cash dividends. Regardless of whether we could make any
restricted payments under the build-up amount referred to above,
we may, following the first public equity offering that results
in a public market (which includes this offering), pay dividends
on our capital stock of up to 6.0% per year of the cash proceeds
(net of underwriters' fees, discounts or commissions paid
by us) of such first public equity offering subject to specified
conditions, including that the amount of dividends are included
in the calculation of the amount of restricted payments we have
made under the build-up amount and (2) at the time of
payment of any such dividend, no default or event of default
shall have occurred and be continuing or would result therefrom.
Based on this provision and after giving effect to this offering
and the related transactions, we expect that we would be able to
pay approximately $5.0 million annually in dividends. For a
more complete description of the indenture, see
"Description of Indebtedness — Senior Notes".
Delaware Law
Under Delaware law, our board of directors may
not authorize payment of a dividend unless it is either paid out
of our surplus, as calculated in accordance with the DGCL, or if
we do not have a surplus, it is paid out of our net profits for
the fiscal year in which the dividend is declared and/or the
preceding fiscal year. Although we believe we will be permitted
to pay dividends at the anticipated levels during the first year
following this offering in compliance with Delaware law, our
board will periodically seek to assure itself that the statutory
requirements will be met before actually declaring dividends.
State Regulatory Requirements
The ICC and the PUCT could require our Illinois
and Texas RLECs to make minimum amounts of capital expenditures
and could limit the amount of cash available to transfer from
our RLECs to us. In connection with ICTC's guarantee of
CCI's CoBank credit facility in December 2002, the ICC
issued an order which imposed a minimum capital expenditure
requirement on our Illinois RLEC of $9.0 million per year
and $30.0 million for the three years ending
December 31, 2005 and restricted the amount of cash that
our Illinois RLEC could transfer to its parent company, CCI to
its free cash flow, as defined in the order. In 2003, both of
our Texas RLECs elected to be governed under an incentive
regulatory regime, which obligated each of them to make capital
expenditures for network infrastructure in exchange for immunity
from adjustment to many of their rates. The ICC's minimum
capital expenditure requirements and restrictions on cash
transfers terminated upon repayment and termination of the
CoBank credit facility in connection with the acquisition of
TXUCV, and we believe our Texas RLECs have met the current
requirements for capital expenditures on network infrastructure.
However, the ICC and the PUCT could impose additional or other
restrictions of this type in the future. In particular, the ICC,
but not the PUCT, will review, and we will be required to
receive the approval of the ICC to effect the reorganization. In
connection with the ICC's review of the reorganization, the
ICC could impose various conditions as a part of its approval of
the reorganization, including, restrictions on cash transfers
from our Illinois RLEC to us and other requirements (such as a
prohibition on distributions by ICTC for a reporting year to the
extent that ICTC fails to meet or exceed agreed benchmarks for a
majority of seven service quality metrics for the prior
reporting year). In addition, we expect that in our amended and
restated credit facilities we will agree to use our reasonable
efforts as promptly as reasonably practicable after the closing
of these facilities to obtain the consent of the ICC for ICTC to
guarantee $195.0 million of the obligations of the
borrowers under these facilities and grant a security interest
in its respective properties securing $195.0 million of
borrowings. If such an order is granted, it will also likely
require ICTC to make a minimum dollar amount of capital
expenditures and limit its ability to pay dividends to CCI based
on a dollar amount tied to free cash flow. As a result of the
above, any requirements or restrictions imposed by the ICC or
PUCT could limit the amount of cash that is available to be
transferred from our RLECs to us.
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Table of Contents
CAPITALIZATION
The following table sets forth as of
September 30, 2004, the cash and cash equivalents and
capitalization:
•
of Homebase on an actual basis without giving
    effect to the reorganization; and
•
of CCI Holdings, on an as adjusted basis to give
    effect to (a) the reorganization (b) this offering,
    (c) the amendment and restatement of our credit facilities
    and (d) our application of the estimated net proceeds as
    set forth in "Use of Proceeds", in each case, assuming
    these transactions occurred on September 30, 2004.
You should read this table in conjunction with
"Use of Proceeds", "Management's Discussion
and Analysis of Financial Condition and Results of
Operations — CCI Holdings" and
"— CCI Texas", the financial statements and
the related notes of each of CCI Holdings, TXUCV and its
subsidiaries and the unaudited pro forma condensed consolidated
financial statements of CCI Holdings included elsewhere in this
prospectus.
As of September 30, 2004
Actual(2)
As Adjusted
(in thousands)
Cash and cash
    equivalents
(1)
$
55,229
$
15,000
Long-term debt (including current
    portion):
Credit facilities:
Revolving credit facility(2)
—
—
Term loan facilities(3)
432,617
389,629
Total credit facilities
432,617
389,629
Capital lease obligations(4)
1,314
1,314
9 3/4 senior notes due 2012
200,000
130,000
Total long-term debt (including current portion)
633,931
520,943
Redeemable preferred shares:
Class A preferred shares, $1,000 per value,
    182,000 shares authorized, issued and outstanding
201,126
—
Members' deficit/stockholders' equity
Common shares, no par value, 10,000,000 shares
    authorized, issued and outstanding
—
—
Class A common stock, par value
    $0.01 per
    share,            shares
    authorized,
    and            shares
    issued and outstanding
—
Class B common stock, par value $0.01 per
    share,            shares
    authorized, issued and outstanding
—
Additional paid-in capital
58
Accumulated deficit
(8,482
)
(14,472
)
Accumulated other comprehensive loss
(714
)
(714
)
Members' deficit/stockholders' equity
(9,138
)
267,463
Total capitalization
$
825,919
$
788,406
(1)
Includes $7.5 million of cash that will be
    used to pre-fund expected integration and restructuring costs
    for 2005 relating to the TXUCV acquisition described under
    note 9 to the tables under "Dividend Policy and
    Restrictions".
44
Table of Contents
(2)
The existing credit facilities contain, and the
    amended and restated credit facilities are expected to contain,
    a $30.0 million revolving credit facility with a maturity
    of six years.
(3)
As of September 30, 2004, the existing
    credit facilities contained a $315.0 million term
    loan B facility with a maturity of seven years and six
    months. On October 22, 2004, we amended and restated these
    facilities to, among other things, convert all borrowings then
    outstanding under the term loan B facility into
    approximately $314.0 million of aggregate borrowings under
    a term loan C facility. We expect that the amended and
    restated credit facilities will increase the term loan C
    facility to $389.6 million.
(4)
The capital lease obligations represent the
    outstanding balance under the GECC capital leases. See
    "Description of Indebtedness — GECC Capital
    Leases".
45
Table of Contents
DILUTION
If you purchase Class A common stock in this
offering, your interest will be diluted to the extent of the
difference between the price per share paid by you in this
offering and the net tangible book deficiency per share of our
common stock after the offering. Net tangible book deficiency
per share of our common stock may be determined at any date by
subtracting our total liabilities from our total assets less our
intangible assets and dividing the difference by the number of
shares of common stock outstanding at that date.
Our net tangible book deficiency as of
September 30, 2004 was approximately $366.6 million,
or
$           per
share of common stock. After giving effect to this offering and
the application of the net proceeds in the manner described
under "Use of Proceeds", our as adjusted net tangible
book deficiency as of September 30, 2004 would have been
approximately
$           million,
or
$           per
share of common stock. This represents an immediate increase in
net tangible book value of
$           per
share of our common stock to our existing common stockholders
and an immediate dilution of
$           per
share of our Class A common stock to new investors
purchasing our Class A common stock in this offering.
The following table illustrates the dilution to
new investors:
Initial public offering price per share of
    Class A common stock
$
Net tangible book value (deficiency) per share as
    of September 30, 2004
Increase per share attributable to new investors
    in this offering
As adjusted net tangible book value (deficiency)
    giving effect to this offering
$
Dilution in net tangible book value (deficiency)
    per share to investors in this offering
$
The following table sets forth as of
September 30, 2004:
•
the total number of shares of our common stock
    owned by our existing common stockholders and to be owned by new
    investors purchasing shares of Class A common stock in this
    offering;
•
the total consideration paid by our existing
    common stockholders and to be paid by the new investors
    purchasing shares of Class A common stock in this
    offering; and
•
the average price per share of common stock paid
    by our existing common stockholders and to be paid by new
    investors purchasing shares of Class A common stock in this
    offering:
Shares Purchased
Total Consideration
Average Price
Number
Percent
Amount
Percent
Per Share
Existing common stockholders
%
$
%
$
New investors
Total
100.0
%
$
100.0
%
The foregoing discussion and tables exclude
shares sold by our existing equity investors. To the extent that
any options to purchase shares of our common stock are granted
in the future and these options are exercised, there may be
further dilution to new investors.
46
Table of Contents
SELECTED HISTORICAL AND OTHER FINANCIAL
DATA — CCI HOLDINGS
CCI Holdings is a holding company with no income
from operations or assets except for the capital stock of CCI
and Texas Holdings. CCI acquired ICTC and the related businesses
on December 31, 2002. We believe the operations of ICTC and
the related businesses prior to December 31, 2002 represent
the predecessor of CCI Holdings. Texas Holdings is a holding
company with no income from operations or assets except for the
capital stock of CCV (formerly TXUCV). Texas Holdings was formed
for the sole purpose of acquiring TXUCV, which was acquired on
April 14, 2004 and renamed CCV after the closing of the
acquisition. Results for the nine months ended
September 30, 2004 include the results of operations of CCV
since the date of the TXUCV acquisition.
The selected consolidated financial information
set forth below have been derived from the unaudited combined
financial statements of ICTC and related businesses as of and
for the years ended December 31, 1999 and 2000, the audited
combined financial statements of ICTC and related businesses as
of and for the years ended December 31, 2001 and 2002, the
audited consolidated financial statements of CCI Holdings as of
and for the year ended December 31, 2003 and the unaudited
consolidated financial statements of CCI Holdings as of and for
the nine months ended September 30, 2003 and 2004. The
unaudited combined financial statements of ICTC and related
businesses, the predecessor of CCI Holdings, as of and for the
years ended December 31, 1999 and 2000 and the unaudited
consolidated financial statements of CCI Holdings as of and for
the nine months ended September 30, 2003 and 2004 reflect
all adjustments which management believes to be of a normal and
recurring nature and necessary for a fair presentation of the
results for the referenced unaudited periods. Operating results
for the nine months ended September 30, 2003 and 2004 are
not necessarily indicative of the results for the full year.
The following selected historical consolidated
financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial
Condition — CCI Holdings", the consolidated
financial statements of CCI Holdings and the audited and
unaudited combined financial statements of ICTC and related
businesses and the related notes included elsewhere in this
prospectus.
Predecessor
CCI Holdings
Year Ended
Nine Months
December 31,
Ended September 30,
1999
2000
2001
2002
2003
2003
2004
(dollars in millions)
Consolidated Statement of Operations
    Data:
Total operating revenues
$
104.9
$
117.1
$
115.6
$
109.9
$
132.3
$
98.7
$
191.0
Cost of services and products
18.9
20.0
19.7
17.9
30.1
22.5
43.9
Selling, general and administrative
50.6
61.1
55.2
53.6
58.7
43.5
74.9
Depreciation and amortization(1)
30.3
33.6
31.8
24.5
22.5
17.2
37.5
Income from operations
5.1
2.4
8.9
13.9
21.0
15.5
34.7
Interest expense, net(2)
(1.8
)
(1.8
)
(1.8
)
(1.6
)
(11.9
)
(9.0
)
(28.1
)
Other, net(3)
0.5
0.5
5.8
0.4
0.1
0
2.2
Income before income taxes
3.8
1.1
12.9
12.7
9.2
6.5
8.8
Income tax expense
(2.7
)
(1.7
)
(6.3
)
(4.7
)
(3.7
)
(2.6
)
(3.7
)
Net income (loss)
$
1.1
$
(0.6
)
$
6.6
$
8.0
$
(5.5
)
$
(3.9
)
$
(5.1
)
Net loss per common share — basic and
    diluted
—
—
—
—
$
(0.33
)
$
(0.43
)
$
(0.61
)
Other Financial Data:
Telephone Operations revenues
$
72.5
$
82.0
$
79.8
$
76.7
$
90.3
$
67.5
$
161.2
Other Data (as of end of period):
Local access lines in service
Residential
62,884
63,064
62,249
60,533
58,461
59,494
170,933
Business
30,428
32,933
33,473
32,475
32,426
32,790
86,793
Total local access lines(3)
93,312
95,997
95,722
93,008
90,887
92,284
257,726
DSL subscribers
—
—
2,501
5,761
7,951
7,564
24,385
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Table of Contents
Predecessor
CCI Holdings
Year Ended
Nine Months
December 31,
Ended September 30,
1999
2000
2001
2002
2003
2003
2004
(dollars in millions)
Consolidated Cash Flow Data:
Cash flows from operating activities
$
29.5
$
36.1
$
34.3
$
28.5
$
28.9
$
18.4
$
65.6
Cash flows from investing activities
(14.9
)
(21.8
)
(13.1
)
(14.1
)
(296.1
)
(293.3
)
(547.6
)
Cash flows from financing activities
(10.5
)
(21.5
)
(18.9
)
(16.6
)
277.4
285.7
525.5
Capital expenditures
14.0
20.7
13.1
14.1
11.3
8.9
24.0
Predecessor
CCI Holdings
As of December 31
As of September 30,
1999
2000
2001
2002
2003
2003
2004
(dollars in millions)
Consolidated Balance Sheet Data:
Cash and cash equivalents
$
8.1
$
0.9
$
3.3
$
1.1
$
10.1
$
10.8
$
55.2
Total current assets
29.2
27.1
26.7
23.2
39.6
37.9
104.8
Net plant, property & equipment(4)
96.9
102.6
100.5
105.1
100.4
101.6
350.3
Total assets
284.0
270.0
248.9
236.4
317.6
319.0
1,051.7
Total long-term debt (including current
    portion)(5)
22.0
21.3
21.1
21.0
180.4
182.8
633.9
Redeemable preferred shares
—
—
—
—
101.5
99.4
201.1
Parent company investment/ Members' deficit
206.8
191.3
178.1
174.5
(3.5
)
(2.5
)
(9.1
)
(1)
On January 1, 2002, ICTC and related
    businesses adopted SFAS No. 142, Goodwill and Other
    Intangible Assets. Pursuant to SFAS No. 142, ICTC
    ceased amortizing goodwill on January 1, 2002 and instead
    tested for goodwill impairment annually. Amortization expense
    for goodwill and intangible assets was $17.6 million from
    1999 through 2001, $10.1 million in 2002 and
    $7.0 million in 2003. Depreciation and amortization
    excludes amortization of deferred financing costs.
(2)
Interest expense includes amortization of
    deferred financing costs totaling $0.5 million in 2003 and
    $4.8 million and $0.4 million as of September 30,
    2004 and 2003, respectively.
(3)
On September 30, 2001, ICTC sold two
    exchanges of approximately 2,750 access lines, received proceeds
    from the sale of $7.2 million and recorded a gain on the
    sale of assets of approximately $5.2 million.
(4)
Property, plant and equipment are recorded at
    cost. The cost of additions, replacements and major improvements
    is capitalized, while repairs and maintenance are charged to
    expenses. When property, plant and equipment are retired from
    ICTC, the original cost, net of salvage, is charged against
    accumulated depreciation, with no gain or loss recognized in
    accordance with composite group life remaining methodology used
    for regulated telephone plant assets.
(5)
In connection with the TXUCV acquisition on
    April 14, 2004, we issued $200.0 million in aggregate
    principal amount of senior notes and entered into the existing
    credit facilities, of which $432.6 million was outstanding
    as of September 30, 2004. As of September 30, 2004,
    $4.4 million of long-term debt had been paid.
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Table of Contents
SELECTED HISTORICAL AND OTHER FINANCIAL
DATA — CCI TEXAS
Texas Holdings is a holding company with no
income from operations or assets except for the capital stock of
CCV. Texas Holdings was formed for the sole purpose of acquiring
TXUCV, which was acquired on April 14, 2004 and renamed CCV
after the closing of the acquisition. As a result, we have not
provided separate financial results for Texas Holdings and
present only the financial results of CCV. We believe that the
operations of TXUCV prior to April 14, 2004 represent the
predecessor of CCV. In addition, TXU Corp. contributed the
parent company of Fort Bend Telephone Company on
August 11, 2000 to TXUCV. We believe the operations of
Fort Bend Telephone Company prior to August 11, 2000
represent the predecessor of TXUCV.
The selected consolidated financial information
set forth below have been derived from the audited consolidated
financial statements of Fort Bend Telephone Company, the
predecessor of TXUCV, as of and for the year ended
December 31, 1999 and as of and for the period ended
August 10, 2000, the audited consolidated financial
statements of TXUCV, the predecessor of CCV, as of and for the
years ended December 31, 2000, 2001, 2002 and 2003.
The following selected consolidated financial
information should be read in conjunction with
"Management's Discussion and Analysis of Financial
Condition — CCV" audited and unaudited
consolidated financial statements of TXUCV, the audited and
unaudited financial statements of CCV and the related notes
elsewhere in this prospectus.
Year Ended December 31,
Predecessor to TXUCV
Period from
Period from
1/1/00 to
8/11/00 to
1999
8/10/00
12/31/00
2001
2002
2003
(dollars in millions)
Consolidated Statement of Operations
    Data:
Total operating revenues
$
126.3
$
93.2
$
67.9
$
207.5
$
214.7
$
194.8
Network operating costs
48.7
38.7
29.9
95.6
76.9
58.4
Selling, general and administrative
35.9
31.8
32.1
88.7
109.4
75.4
Depreciation and amortization(1)
22.8
19.3
17.1
50.2
41.0
32.9
Restructuring, asset impairment and other
    charges(2)
—
—
—
—
101.4
0.2
Goodwill impairment charges
—
—
—
—
18.0
13.2
Income (loss) from operations
18.9
3.4
(11.2
)
(27.0
)
(132.0
)
14.7
Interest expense, net(3)
(1.8
)
(3.6
)
(4.9
)
(11.1
)
(7.5
)
(5.4
)
Other, net(4)
2.4
5.8
10.9
9.9
11.4
0.8
Income (loss) before income taxes
19.5
5.6
(5.2
)
(28.2
)
(128.1
)
10.1
Income taxes (expense) benefit
(9.3
)
(3.8
)
(0.3
)
6.3
38.3
(12.4
)
Net income (loss)
$
10.2
$
1.8
$
(5.5
)
$
(21.9
)
$
(89.8
)
$
(2.3
)
Other Data (as of end of period):
Local access lines in service
Residential
80,182
—
117,130
119,488
119,060
116,862
Business
36,394
—
49,292
50,406
53,023
54,780
Total local access lines
116,576
—
116,422
169,894
172,083
171,642
DSL subscribers
—
—
1,593
4,069
5,423
8,668
CLEC access lines
3,656
—
18,541
58,591
26,088
—
Consolidated Cash Flow Data:
Cash flows from (used in) operating activities
$
56.8
$
(16.5
)
$
37.4
$
6.8
$
34.7
$
75.1
Cash flows used in investing activities
(53.0
)
(27.3
)
(48.3
)
(59.9
)
(21.3
)
(14.3
)
Cash flows from (used in) financing activities
20.0
34.2
(3.8
)
46.3
(4.4
)
(61.8
)
Capital expenditures
54.9
36.0
59.2
67.0
27.4
18.2
49
Table of Contents
As of December 31,
Predecessor to TXUCV
1999
As of 8/10/00
2000
2001
2002
2003
Consolidated Balance Sheet Data:
Cash and cash equivalents
$
34.6
—
$
10.3
$
3.4
$
12.4
$
11.5
Total current assets
69.7
—
63.8
44.3
86.4
34.5
Net plant, property & equipment(5)
198.8
—
332.4
363.4
240.8
231.4
Total assets
555.5
—
787.0
800.4
700.1
647.9
Total long-term debt (including current
    portion)(6)
56.1
—
157.5
172.8
166.2
100.4
Stockholders' equity
354.3
—
490.5
496.6
407.6
410.9
(1)
On January 1, 2002, TXUCV adopted
    SFAS No. 142, Goodwill and Other Intangible Assets.
    Pursuant to SFAS No. 142, TXUCV ceased amortizing
    goodwill on January 1, 2002, and instead tests for goodwill
    impairment annually. Amortization expense for goodwill and
    intangible assets was $5.3 million in 1999,
    $8.7 million in 2000, and $13.7 million in 2001. In
    accordance with SFAS No. 142, TXUCV recognized
    goodwill impairments of $13.2 million and
    $18.0 million in 2003 and 2002, respectively.
(2)
During 2002, TXUCV recognized restructurings,
    asset impairment and other charges of $101.4 million due to
    write down of assets relating to TXUCV's CLEC and transport
    businesses.
(3)
Interest expense prior to the TXUCV acquisition
    was from the TXU revolving credit facility, GECC capital leases,
    mortgage notes and is reduced by allowance for funds used during
    construction.
(4)
Other, net includes equity earnings from the
    cellular partnerships, dividend income and recognizing the
    minority interests of investors in East Texas Fiber, Inc.
(5)
Property, plant and equipment items are recorded
    at cost. The cost of additions, replacements and major
    improvements is capitalized, while repairs and maintenance are
    charged to expense.
(6)
In connection with the TXUCV acquisition on
    April 14, 2004, CCI Texas and CCI Illinois
    incurred, severally and not jointly, an aggregate of
    $637.0 million of new long-term debt, of which
    CCI Texas is severally responsible for $125.0 million
    in senior notes and $267.0 million in term loans under the
    existing credit facilities.
50
Table of Contents
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CCI
HOLDINGS
We present below Management's Discussion
and Analysis of Financial Condition and Results of Operations of
CCI Holdings. The following discussion should be read in
conjunction with the historical consolidated financial
statements and related notes, unaudited pro forma financial
statements and other financial information related to CCI
Holdings appearing elsewhere in this prospectus.
The following discussion gives retroactive
effect to our reorganization as if it had occurred on
September 30, 2004. As a result, the discussion below
represents the financial results of CCI and Texas Holdings on a
consolidated basis. For all periods prior to April 14,
2004, the date of the TXUCV acquisition, our financial results
only include CCI and its consolidated subsidiaries. For all
periods subsequent to April 14, 2004, our financial results
include CCI and Texas Holdings on a consolidated
basis.
Overview
We are an established rural local exchange
company that provides communications services to residential and
business customers in Illinois through CCI Illinois and in Texas
through CCI Texas. As of September 30, 2004, we were the
16th largest local telephone company in the United States, based
on industry sources, with approximately 257,726 local access
lines and 24,385 DSL lines in service. Our main sources of
revenues are our local telephone businesses in Illinois and
Texas, which offer an array of services, including local dial
tone, custom calling features, private line services, long
distance, dial-up and high-speed Internet access, carrier access
and billing and collection services. We also operate a number of
complementary businesses. In Illinois, we provide additional
services such as telephone service to county jails and state
prisons, operator and national directory assistance and
telemarketing and order fulfillment services. In Texas, we
publish telephone directories and offer wholesale transport
services on a fiber optic network.
Segments
In accordance with the reporting requirement of
Statement of Financial Accounting Standards, or SFAS,
No. 131,
Disclosure about Segments of an Enterprise and
Related Information
, CCI Holdings has two reportable
business segments, Telephone Operations and Other Operations.
The results of operations discussed below reflect the
consolidated results of CCI Holdings.
Acquisitions
CCI Holdings began operations with the
acquisition from McLeodUSA of ICTC and several related
businesses on December 31, 2002. CCI Texas began operations
in its present form with our acquisition of all of the capital
stock of TXUCV on April 14, 2004 for $527.0 million in
cash, subject to adjustment. As a result of the foregoing,
period-to-period comparisons of our financial results to date
are not necessarily meaningful and should not be relied upon as
an indication of future performance due to the following factors:
•
Revenues and expenses in the first nine months of
    2004 and in 2003 for certain long distance services and data and
    Internet services include services that were not part of the
    financial results of our Telephone Operations segment when it
    was owned by McLeodUSA in 2002 and 2001. These services were
    provided, and revenues were recognized, by McLeodUSA as part of
    its CLEC operations. In order for McLeodUSA to provide these
    services to customers in our Illinois RLEC's service area,
    ICTC provided McLeodUSA's CLEC operations access to its
    network and billing and collection services for which it
    received network access charges and billing and collection fees.
    Following our acquisition of ICTC and the related businesses,
    Telephone Operations launched its own business providing similar
    long distance and data and Internet services to customers
    primarily located in our Illinois RLEC's service area. As a
    result, the results of operations of Telephone
51
Table of Contents
Operations in 2003 include operations that were
    not included in 2002 and 2001 when ICTC and the related
    operations were owned by McLeodUSA.
•
Revenues and expenses in the first nine months of
    2004 include the results of operations of CCI Texas from
    April 14, 2004, the date of its acquisition, through
    September 30, 2004. As a result, our financial results as
    of and for the nine month period ended for September 30,
    2004 include operations that were not included for the same
    period in 2003.
•
Expenses for the first nine months of 2004 and
    for the calendar year 2003 included $2.9 million and
    $2.0 million, respectively, in aggregate professional
    services fees paid to our existing equity investors pursuant to
    two professional services agreements. The fees due under these
    agreements total $5.0 million for each 12 month
    period. The rights of our existing equity investors to receive
    these professional service fees will terminate upon the closing
    of this offering. See "Certain Relationships and Related
    Party Transactions — Professional Services Fee
    Agreements".
•
In 2001 and 2002 McLeodUSA encountered financial
    difficulties and, as a result, initiated cost-cutting
    initiatives and reduced financial support for all operations
    other than ICTC. Although certain expenses were reduced as a
    result of these initiatives, revenues and income from operations
    also declined in these periods. In connection with its
    bankruptcy proceeding in 2002, McLeodUSA identified ICTC and the
    related businesses as assets held for sale and as discontinued
    operations.
Revenues
To date, our revenues have been derived primarily
from the sale of voice and data communications services to
residential and business customers in our RLECs' service
areas. For the nine months ended September 30, 2004,
approximately 84.4%, or $161.2 million, of our operating
revenues came from Telephone Operations and approximately 15.6%,
or $29.8 million, came from Other Operations. For the nine
months ended September 30, 2003, approximately 68.4%, or
$67.5 million, of our operating revenues came from
Telephone Operations and approximately 31.6%, or
$31.2 million, came from Other Operations. For the year
ended December 31, 2003, approximately 68.3%, or
$90.3 million, of our operating revenues came from
Telephone Operations and 31.7%, or $42.0 million, came from
Other Operations. For the year ended December 31, 2002,
approximately 69.8%, or $76.7 million, of our operating
revenues came from Telephone Operations and 30.2%, or
$33.2 million, from Other Operations.
We intend to focus on continuing to generate
increasing revenues in our Telephone Operations segment from our
local telephone, long distance, and data and Internet
businesses. We expect that the sale of DSL lines and the
bundling of local service, custom calling features, voicemail
and Internet access will continue to be our primary focus. We
anticipate that the sale of communications services to customers
in our RLECs' service areas in Illinois and Texas will
continue to provide the predominant share of our revenues for
the foreseeable future.
We are currently experiencing a decline in the
number of local access lines in service in our RLECs'
service areas. As of September 30, 2004, we had
approximately 257,726 local access lines in service, which is a
decrease of 6,541 local access lines from approximately
264,267 local access lines in service at September 30,
2003. We believe the principal reason we lost local access lines
in this period was due to the weak economy in our service areas.
In addition, we believe our RLECs lost local access lines due to
the disconnection of second telephone lines by our residential
customers in connection with their substituting DSL or cable
modem service for dial-up Internet access and wireless services
for wireline service.
The number of DSL subscribers we serve grew
substantially for the year ended 2003 and during the nine months
ended September 30, 2004, compared to the same periods in
2002 and 2003, respectively. This increase is primarily due to
our continued focus on selling DSL service and the success of
bundling DSL with combinations of local service, custom calling
features and voicemail. DSL lines in service increased 206.7% to
approximately 24,385 lines (or 27.1% when CCI Texas' 14,276
lines are excluded) as of September 30, 2004 from
approximately 7,951 lines as of December 31, 2003, which
was a 38.0%
52
Table of Contents
increase from approximately 5,761 lines as of
December 31, 2002. Our penetration rate for DSL lines in
service was approximately 9.5% and 9% of our RLECs' local
access lines at September 30, 2004 and December 31,
2003, respectively.
We have also been successful in growing our
revenues in Telephone Operations by bundling combinations of
local service, custom calling features, voicemail and Internet
access. The number of these bundles, which we refer to as
service bundles, increased 323.9% to over 28,400 service bundles
(or 22.4% when CCI Texas' 20,200 bundles are excluded) at
September 30, 2004 from approximately 6,700 service bundles
at December 31, 2003, which itself was a 43.0% increase
from approximately 4,700 service bundles at December 31,
2002.
Telephone Operations added revenues in 2003 and
in the nine months ended September 30, 2004, from long
distance provided primarily to our RLECs' customers that
had been provided previously by McLeodUSA and TXUCV. At
September 30, 2004, Telephone Operations had approximately
119,354 long distance customers, which represented approximately
a 46.3% penetration of local access lines (or 60.9% when CCI
Texas' 65,641 long distance customers are excluded). At
December 31, 2003, Telephone Operations had approximately
49,699 long distance customers, which represented approximately
a 54.7% penetration of local access lines. We do not anticipate
significant growth in revenues for Telephone Operations due to
its primarily rural service area, but expect to continue to have
consistently strong cash flows due to relatively consistent
customer demand as a result of a generally supportive regulatory
environment and limited competition.
We had success in growing Other Operations
revenues between 2002 and 2003 for several reasons. Due to its
financial difficulties and bankruptcy in 2002, McLeodUSA
initiated cost-cutting initiatives and reduced financial support
for all operations other than ICTC and, as a result, revenues
for Other Operations suffered. In 2003, following the
acquisition from McLeodUSA, management renewed its focus on
growing this segment. In addition, revenue growth was driven by
the award to Public Services by the State of Illinois of an
extension to the prison contract in December 2002 that nearly
doubled the number of prison sites served. In the near term, we
anticipate that Other Operations' revenues will continue to
grow as it builds on the successes from the renewed focus by
management in 2003.
Expenses
Our primary operating expenses consist of cost of
services, selling, general and administrative expenses and
depreciation and amortization.
Cost of Services and Products
Our cost of services includes the following:
•
operating expenses relating to plant costs,
    including those related to the network and general support
    costs, central office switching and transmission costs and cable
    and wire facilities;
•
general plant costs, such as testing,
    provisioning, network, administration, power and engineering;
•
the cost of transport and termination of long
    distance and private lines outside our RLECs' service area.
Telephone Operations has agreements with
McLeodUSA and other carriers to provide long distance transport
and termination services. These agreements contain various
commitments and expire at various times. Telephone Operations
believes it will meet all commitments in the agreements and
believes it will be able to procure services for future periods.
We are currently procuring services for future periods, and at
this time, the costs and related terms under which we will
purchase long distance transport and termination services have
not been determined. We, however, do not expect any material
adverse changes from any changes in any new service contract.
53
Table of Contents
Selling, General and Administrative
    Expenses
Selling, general and administrative expenses
include:
•
selling and marketing expenses;
•
expenses associated with customer care;
•
billing and other operating support
    systems; and
•
corporate expenses.
Telephone Operations incurs selling and marketing
and customer care expenses from its customer service centers and
commissioned sales people. Our customer service centers are the
primary sales channels for residential and business customers
with one or two phone lines, whereas commissioned sales
representatives provide customized proposals to larger business
customers. In addition, we use customer retail centers for
various communications needs, including new telephone, Internet
and paging service purchases.
Each of our Other Operations businesses primarily
use an independent sales and marketing team comprised of
dedicated field sales account managers, management teams and
service representatives to execute our sales and marketing
strategy.
We have operating support and other back office
systems that are used to enter, schedule, provision and track
customer orders, test services and interface with trouble
management, inventory, billing, collection and customer care
service systems for the local access lines in our operations. We
are in the process of migrating key business processes of CCI
Illinois and CCI Texas onto single, company-wide systems and
platforms. Our objective is to improve profitability by reducing
individual company costs through centralization, standardization
and sharing of best practices. We expect that our operating
support systems and customer care expenses will increase as we
integrate CCI Illinois' and CCI Texas' back office
systems. As of September 30, 2004, we had spent
$2.3 million on integration.
Depreciation and Amortization
    Expenses
We recognize depreciation expenses for our
regulated telephone plant using rates and lives approved by the
ICC in Illinois and the PUCT in Texas. The provision for
depreciation on nonregulated property and equipment is recorded
using the straight-line method based upon the following useful
lives:
Years
Buildings
5-35
Network and outside plant facilities
5-30
Furniture, fixtures, and equipment
3-17
Amortization expenses are recognized primarily
for our intangible assets considered to have finite useful lives
on a straight-line basis. In accordance to
SFAS No. 142,
Goodwill and Other Intangible
Assets
, goodwill and intangible assets that have indefinite
useful lives are not amortized but rather are tested annually
for impairment. Because trade names have been determined to have
indefinite lives, they are not amortized. Software and customer
relationships are amortized over their useful lives of five and
ten years, respectively.
54
Table of Contents
The following summarizes the revenues and
operating expenses from continuing operations for ICTC and
related business, the predecessor of CCI, for the years ended
December 31, 2001 and 2002, and for CCI Holdings on a
consolidated basis for the year ended December 31, 2003 and
for the nine months ended September 30, 2003 and 2004, from
these sources:
Predecessor
CCI Holdings
Year Ended December 31,
Nine Months Ended September 30,
2001
2002
2003
2003
2004
% of
% of
% of
% of
% of
$
Total
$
Total
$
Total
$
Total
$
Total
(millions)
Revenues
(millions)
Revenues
(millions)
Revenues
(millions)
Revenues
(millions)
Revenues
(unaudited)
Revenues:
Telephone Operations Local calling services
$
34.4
29.8
%
$
33.4
30.4
%
$
34.4
26.0
%
$
25.7
26.0
%
$
52.5
27.5
%
Network access services
33.8
29.2
29.0
26.4
26.8
20.3
19.1
19.4
35.1
18.4
Subsidies
0.9
0.8
4.1
3.7
6.0
4.5
4.9
5.0
30.9
16.2
Long distance services
2.1
1.8
1.4
1.3
10.3
7.8
8.2
8.3
13.2
6.9
Data and Internet services
4.0
3.5
4.3
3.9
8.7
6.6
6.6
6.7
13.7
7.2
Other services
4.6
4.0
4.5
4.1
4.1
3.1
3.0
3.0
15.8
8.3
Total Telephone Operations
79.8
69.0
76.7
69.8
90.3
68.3
67.5
68.4
161.2
84.4
Other Operations
35.8
31.0
33.2
30.2
42.0
31.7
31.2
31.6
29.8
15.6
Total operating revenues
$
115.6
100.0
%
$
109.9
100.0
%
$
132.3
100.0
%
$
98.7
100.0
%
$
191.0
100.0
%
Expenses:
Operating expenses(1)
Telephone Operations
$
47.8
41.4
%
$
46.9
42.7
%
$
54.7
41.3
%
$
41.8
42.4
%
$
92.6
48.5
%
Other Operations
27.1
23.4
24.6
22.4
34.1
25.8
24.2
24.5
26.2
13.7
Depreciation and amortization
31.8
27.5
24.5
22.3
22.5
17.0
17.2
17.4
37.5
19.6
Total operating expenses
106.7
92.3
96.0
87.4
111.3
84.1
83.2
84.3
156.3
81.8
Income from operations
8.9
7.7
13.9
12.6
21.0
15.9
15.5
15.7
34.7
18.2
Interest expense
1.8
1.6
1.6
1.5
11.9
9.0
9.1
9.2
28.5
14.9
Other income, net
5.8
5.0
0.4
0.4
0.1
0.1
0.1
0.1
2.6
1.4
Income taxes expense
6.3
5.4
4.7
4.3
3.7
2.8
2.6
2.6
3.7
1.9
Net income
$
6.6
5.7
%
$
8.0
7.3
%
$
5.5
4.2
%
$
3.9
3.8
%
$
5.1
2.7
%
(1)
This category reflects costs of services and
    products and selling, general and administrative expenses line
    items set forth in the consolidated financial statement of
    income of CCI Holdings and the audited combined statements of
    income for ICTC and related business.
Results of Operations
Nine Months Ended September 30, 2004
    compared to September 30, 2003
Revenues
CCI Holdings revenues increased by 93.5%, or
$92.3 million, to $191.0 million in 2004 from
$98.7 million in 2003. Approximately $89.2 million of
the increase resulted from the inclusion of the results of
operations for CCI Texas since the April 14, 2004
acquisition date. The remainder of the increase was primarily
due to increased subsidy payments in 2004.
55
Table of Contents
Telephone Operations Revenues
Local calling services
revenues increased $26.8 million,
to $52.5 million in 2004 from $25.7 million in 2003.
The increase resulted entirely from the inclusion of the results
of operations for CCI Texas since the April 14, 2004
acquisition date. Excluding the impact of the TXUCV acquisition,
local calling services revenues declined $0.1 million.
Network access services
revenues increased $16.0 million,
to $35.1 million in 2004 from $19.1 million in 2003.
Excluding the impact of the TXUCV acquisition, network access
services revenues decreased 7.3%, or $1.4 million, to
$17.7 million in 2004 from $19.1 million in 2003.
During the last two years, the FCC instituted modifications to
our Illinois RLEC's cost recovery mechanisms, decreasing
implicit support, which allowed rural carriers to set interstate
network access charges higher than the actual cost of
originating and terminating calls, and increasing explicit
support through subsidy payments from the federal universal
service fund. The ICC similarly decreased intrastate network
access charges but did not offset these reductions with state
universal service fund subsidies.
Subsidies
revenues
increased $26.0 million, to $30.9 million in 2004 from
$4.9 million in 2003. Excluding the impact of the TXUCV
acquisition, subsidies revenues increased 104.1%, or
$5.1 million, to $10.0 million in 2004 from
$4.9 million in 2003. The increase was primarily a result
of an increase in universal service fund support due in part to
normal subsidy settlement processes and in part due to the FCC
modifications to our Illinois RLEC's cost recovery
mechanisms described above in network access services revenues.
The subsidy settlement process relates to the process of
separately identifying regulated assets that are used to provide
interstate services, and therefore fall under the regulatory
regime of the FCC, from regulated assets used to provide local
and intrastate services, which fall under the regulatory regime
of the ICC. Since our Illinois RLEC is regulated under a rate of
return system for interstate revenues, the value of all assets
in the interstate rate base is critical to calculating this rate
of return and, therefore, the subsidies our Illinois RLEC will
receive. In 2004, our Illinois RLEC analyzed its regulated
assets and associated expenses and reclassified some of these
for purposes of regulatory filings. The net effect of this
reclassification was that our Illinois RLEC was able to recover
additional subsidy payments for prior years and for 2004.
Long distance services
revenues increased $5.0 million,
to $13.2 million in 2004 from $8.2 million in 2003.
Excluding the impact of the TXUCV acquisition, long distance
services revenues increased $0.1 million.
Data and Internet
revenues increased $7.1 million,
to $13.7 million in 2004 from $6.6 million in 2003.
Excluding the impact of the TXUCV acquisition, services revenues
increased 7.6%, or $0.5 million, to $7.1 million in
2004 from $6.6 million in 2003. The increase was due
primarily to an increase in the number of DSL subscribers.
Other services
revenues increased $12.8 million,
to $15.8 million in 2004 from $3.0 million in 2003.
Excluding the impact of the TXUCV acquisition, other services
revenues increased 6.7%, or $0.2 million, to
$3.2 million in 2004 from $3.0 million in 2003. The
increase was due primarily to an increase in directory
advertising revenues at CCI Texas.
Other Operations Revenues
Other Operations revenues decreased 4.5%, or
$1.4 million, to $29.8 million in 2004 from
$31.2 million in 2003. The decrease was due primarily to
the loss of a major telemarketing customer in 2004, a decline in
telecommunications business system sales and a slowdown in
operator services traffic.
Public Services
revenues increased 4.6%, or
$0.6 million, to $13.6 million in 2004 from
$13.0 million in 2003. The increase was primarily due to an
extension of the prison contract awarded by the State of
Illinois Department of Corrections in December 2002 period
pursuant to which the number of prisons serviced by Public
Services nearly doubled. The new prison sites were implemented
during the first half of 2003. As a result, we did not receive
the revenue from these additional prison sites for the entire
nine months ended September 30, 2003.
56
Table of Contents
Operator Services
revenues decreased 16.7%, or
$1.2 million to $6.0 million in 2004 from
$7.2 million in 2003. The decrease was primarily due to a
general decline in demand for these services.
Market Response
revenues increased 3.8%, or
$0.2 million, to $5.3 million in 2004 from
$5.1 million in 2003. The increase was primarily due to new
client growth and volume increases from existing telemarketing
and fulfillment programs.
Business Systems
revenues decreased 8.7%, or
$0.4 million, to $4.2 million in 2004 from
$4.6 million in 2003. The decrease was primarily due to the
weakened economy and general indecision or delay in equipment
purchases.
Mobile Services
revenues decreased 18.2%, or
$0.2 million, to $0.9 million in 2004 from
$1.1 million in 2003. This decrease was primarily due to a
continuing erosion of the customer base for one-way paging
products as competitive alternatives are increasing in
popularity.
CCI Holdings Operating Expenses
CCI Holdings operating expenses, increased
$52.8 million, to $118.8 million in 2004 from
$66.0 million in 2003. Approximately $49.6 million of
the increase resulted from the inclusion of the results of
operations for CCI Texas since the April 14, 2004
acquisition date. The remainder of the increase was partially
due to expenses incurred in connection with our integration
activities. In the first nine months of 2004, integration costs
incurred by CCI Holdings were $2.3 million. Similarly,
accounting, legal and other professional service fees have
increased by $1.3 million.
Telephone Operations Operating
    Expenses
Operating expenses for Telephone Operations
increased $50.8 million, to $92.6 million in 2004 from
$41.8 million in 2003. Excluding the impact of the TXUCV
acquisition, operating expenses for Telephone Operations
increased 2.9%, or $1.2 million, to $43.0 million in
2004 from $41.8 million in 2003. Integration costs incurred
by CCI Illinois of $0.9 million and increased professional
service fees of $0.5 million more than account for the
increase in operating expenses.
Other Operations Operating Expenses
Operating expenses for Other Operations increased
8.3%, or $2.0 million, to $26.2 million in 2004 from
$24.2 million in 2003. Costs of providing telemarketing and
fulfillment services increased by $0.5 million. In
addition, commission expense on sales to prison systems
increased by $0.4 million largely because this business
segment was in the start-up phase in the first part of 2003. An
increase in bad debt experience for prison system customers
contributed an additional $0.3 million of expenses in the
first nine months of 2004. Corporate allocations, legal and
other fees have increased by $0.6 million with the
increased size of the company.
Depreciation and Amortization
Depreciation and amortization increased
$20.3 million, to $37.5 million in 2004 from
$17.2 million in 2003. Excluding the impact of the TXUCV
acquisition, depreciation and amortization remained constant at
$17.2 million in 2004 compared to 2003.
Income from Operations
Income from operations increased
$19.2 million to $34.7 million in 2004 compared to
$15.5 million in 2003. Excluding the impact of the TXUCV
acquisition, income from operations decreased 0.6% or
$0.1 million to $15.4 million in 2004 compared to
$15.5 million in 2003 as increased operating expenses
offset the revenue increases.
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Interest Expense
Interest expense increased $19.4 million, to
$28.5 million in 2004 from $9.1 million in 2003. In
connection with the TXUCV acquisition, CCI Holdings refinanced
its CoBank credit facility resulting in a charge of
$4.2 million to write-off unamortized deferred financing
costs. The remaining increase is primarily due to an increase in
long-term debt to help fund the TXUCV acquisition and an
increase in interest rates.
Other Income (Expense)
Other income increased $2.5 million, to
$2.6 million in 2004 from $0.1 million in 2003 due
primarily to $2.0 million of partnership income received
from minority interests in two cellular partnerships acquired in
the TXUCV acquisition.
Income Taxes
Provision for income taxes increased
$1.1 million, to $3.7 million in 2004 from
$2.6 million in 2003. The effective income tax rate was
41.6% and 40.6% for the nine months ended September 30,
2004 and 2003, respectively. A change in the earnings mix as a
result of the TXUCV acquisition contributed to a higher overall
effective rate.
Net Income
Net income increased $1.2 million, to
$5.1 million in 2004 from $3.9 million in 2003. The
increase is primarily attributable to inclusion of the results
of operations of CCI Texas since the April 14, 2004
acquisition date, offset by a lower net income of CCI Illinois
primarily due to increased interest expense from increased
borrowings.
Year Ended December 31, 2003 compared
    to December 31, 2002
Revenues
Our revenues increased by 20.4%, or
$22.4 million, to $132.3 million in 2003 from
$109.9 million in 2002.
Telephone Operations' revenues increased
17.7%, or $13.6 million, to $90.3 million in 2003 from
$76.7 million in 2002. The increase was due primarily to
the inclusion of long distance and data and Internet revenues
previously recognized by McLeodUSA.
Other Operations' revenues increased 26.5%,
or $8.8 million, to $42.0 million in 2003 from
$33.2 million in 2002. The increase was due primarily to a
significant growth in Public Services revenues as a result of
the inclusion of additional prisons when the applicable contract
to provide telecommunications services to the State of Illinois
Department of Corrections was renewed.
Telephone Operations Revenues
Local calling services
revenues increased 3.0%, or
$1.0 million, to $34.4 million in 2003 from
$33.4 million in 2002. The increase was due to an increase
in fees paid to our Illinois RLEC by wireless carriers for local
access. In addition, revenues from custom calling features and
voicemail increased $0.3 million due primarily to the
success of selling service bundles. These increases were
partially offset by the impact of a reduction in local access
lines of 2,121 lines.
Network access services
revenues decreased 7.6%, or
$2.2 million, to $26.8 million in 2003 from
$29.0 million in 2002. During the last two years, the FCC
instituted modifications to our Illinois RLEC's cost
recovery mechanisms, decreasing implicit support, which allowed
rural carriers to set interstate network access charges higher
than the actual cost of originating and terminating calls, and
increasing explicit support through subsidy payments from the
federal universal service fund. The ICC similarly
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decreased intrastate network access charges but
did not offset these reductions with state universal service
fund subsidies.
Subsidies
revenues
increased 46.3%, or $1.9 million, to $6.0 million in
2003 from $4.1 million in 2002. The increase was a result
of an increase in federal universal service fund support due in
part to normal subsidy settlement processes and in part due to
the FCC modifications to our Illinois RLEC's cost recovery
mechanisms described above in network access services revenues.
The subsidy settlement process relates to the process of
separately identifying regulated assets that are used to provide
interstate services, and therefore fall under the regulatory
regime of the FCC, from regulated assets used to provide local
and intrastate services, which fall under the ICC for regulatory
purposes. Since our Illinois RLEC is regulated under a rate of
return system for interstate revenues, the value of all assets
in the interstate rate base is critical to calculating this rate
of return, and thus the extent to which our Illinois RLEC will
receive subsidy payments. In 2003, our Illinois RLEC analyzed
its regulated assets and reclassified some of these assets for
purposes of regulatory filings. The net effect of this
reclassification was that our Illinois RLEC was able to recover
additional subsidy payments for prior years and for 2003.
Long distance services
revenues increased 635.7%, or
$8.9 million, to $10.3 million in 2003 from
$1.4 million in 2002. Telephone Operations did not provide
interLATA long distance service in 2002, and instead this
service was offered by other divisions of McLeodUSA. The only
long distance service revenues included in 2002 was for
intraLATA long distance services offered by our Illinois RLEC.
At December 31, 2003 Telephone Operations' long
distance penetration was approximately 54.6%. LATAs are the 161
local access transport areas created to define the service areas
of the RBOCs by the judgment breaking up AT&T. References to
interLATA long distance service mean long distance service
provided between LATAs and intraLATA refers to service within
the applicable LATA.
Data and Internet
services revenues increased 102.3%, or
$4.4 million, to $8.7 million in 2003 from
$4.3 million in 2002. As with long distance services, while
certain portions of revenues for DSL and non-local private lines
was attributed to our Telephone Operations, the remainder of
revenues from data and Internet services was included in other
McLeodUSA divisions for 2002. Revenues from DSL service
increased 70.0%, or $0.7 million, in 2003. Total DSL lines
in service increased 38.7% to approximately 7,951 lines as of
December 31, 2003 from approximately 5,761 lines as of
December 31, 2002.
Other services
revenues decreased 8.9%, or
$0.4 million, to $4.1 million in 2003 from
$4.5 million in 2002. The decrease was due primarily to a
reduction in billing and collection revenues.
Other Operations Revenues
Other Operations revenues increased 26.5%, or
$8.8 million, to $42.0 million in 2003 from
$33.2 million in 2002. The increase was primarily due to
the extension of the prison contract awarded by the State of
Illinois Department of Corrections in December 2002 pursuant to
which the number of prisons serviced by Public Services nearly
doubled and, secondarily, a more concerted commitment from
management in 2003 to developing these services.
Public Services
revenues increased 78.8%, or
$7.8 million, to $17.7 million in 2003 from
$9.9 million in 2002. The increase was due to the extension
of the prison contract awarded by the State of Illinois
Department of Corrections in December 2002 pursuant to which the
number of prisons serviced by Public Services nearly doubled.
Operator Services
revenues decreased 20.4%, or
$2.3 million to $9.0 million in 2003 from
$11.3 million in 2002. The decrease was due primarily to
decreases in revenues from general declines in demand.
Market Response
revenues increased 62.2%, or
$2.8 million, to $7.3 million in 2003 from
$4.5 million in 2002. The increase was due to a renewed
commitment from management to serving third party customers and
a $500,000 investment in technology that allowed a larger sales
team to be more competitive in pursuing additional business
opportunities.
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Business Systems
revenues increased 13.6%, or
$0.8 million, to $6.7 million in 2003 from
$5.8 million in 2002. The increase was due in part to the
ability to secure performance bonds necessary to bid on certain
structured wiring business opportunities which we were
previously unable to secure due to McLeodUSA's financial
difficulties. The increase was also due to a general improvement
in the demand for telecom equipment spending in our markets.
Mobile Services
revenues decreased 6.6%, or
$0.1 million, to $1.4 million in 2003 from
$1.5 million in 2002. This decrease was due to a continuing
shift in demand from residential customers for one-way paging
services to business customers who generate lower average
revenues per customer.
Operating Expenses
Our operating expenses increased 24.2%, or
$17.3 million, to $88.8 million in 2003 from
$71.5 million in 2002. The increase was due primarily to
expenses incurred to generate new services. In addition,
expenses increased compared to 2002 due to the growth in its
continuing operations, expenses related to the acquisition of
ICTC and the related businesses, including the re-establishment
of the CCI brand, systems and other related separation expenses,
the hiring and retention of the management team and
$2.0 million in professional services fees paid to our
existing equity investors.
Telephone Operations Operating
    Expenses
Operating expenses for Telephone Operations for
2003 increased 16.6%, or $7.8 million, to
$54.7 million in 2003 from $46.9 million in 2002.
Expenses associated with the initiation of our Telephone
Operations' long distance services accounted for the
majority of the variance resulting in $6.5 million of
direct costs associated with long distance services revenues and
data and Internet services revenues that were not included in
2002. Information technology and systems expenses increased
$1.3 million in 2003 from $4.3 million in 2002, as
ICTC and the related businesses were separated from McLeodUSA
and Telephone Operations invested in new systems and software.
Executive compensation increased $0.9 million primarily due
to the hiring and retention of the management team. In addition,
2003 results include professional services fees paid to our
existing equity investors. Other expenses, primarily equipment
maintenance and office equipment rents, decreased from prior
year results slightly offsetting the increases described above.
Other Operations Operating Expenses
Operating expenses for Other Operations increased
38.6%, or $9.5 million, to $34.1 million in 2003 from
$24.6 million in 2002. The increase was due principally to
increased direct cost of sales associated with a higher revenues
and an increase in expenses due to management's efforts to
grow these other operations. Total commissions paid to the State
of Illinois Department of Corrections in connection with the
renewed prison contract increased $4.7 million in 2003. In
addition, due to the credit characteristics of the prison
population served pursuant to the prison contracts, the increase
in the number of prisons served under the contract also had a
corresponding impact on bad debt expenses, which increased
proportionately, $1.3 million from 2002. In addition,
expenses relating to the telemarketing and order fulfillment
business increased by $2.3 million to $6.1 million in
2003 from $3.8 million in 2002 as a result of
management's effort to grow this business.
Depreciation and Amortization
Depreciation and amortization decreased 8.2%, or
$2.0 million, to $22.5 million in 2003 from
$24.5 million in 2002. The majority of the decrease was due
to the sale and leaseback of five buildings on December 31,
2002, as further described in "Certain Relationships and
Related Party Transactions — LATEL Sale/
Leaseback". McLeodUSA's decision not to invest in the
Other Operations resulted in a reduction in capital expenditure
in 2001 and 2002 which decreased depreciation expenses
proportionately in 2003.
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Income from Operations
Income from operations increased 51.1%, or
$7.1 million, to $21.0 million in 2003 from
$13.9 million in 2002. The increase was due to the addition
of long distance and data and Internet services of the type
which had previously been attributable to other McLeodUSA
divisions, resulting in $8.5 million of incremental income
from operations for Telephone Operations in 2003. The increase
was offset by the expenses related to the acquisition of ICTC
and the related businesses, as well as the $2.0 million of
professional services fees paid to our existing equity
investors, increased costs associated with the hiring and
retention of the management team and additional information
technology expenses of $1.3 million relating to the
investment in information technology infrastructure necessary to
transition from McLeodUSA to CCI Holdings.
Interest Expense
Interest expense increased 644.0%, or
$10.3 million, to $11.9 million in 2003 from
$1.6 million in 2002. The increase was due to the increased
interest incurred from borrowing under the CoBank credit
facility to fund, in part, the acquisition of ICTC and the
related businesses from McLeodUSA on December 31, 2002.
Other Income (Expense)
Other income decreased 75.0%, or
$0.3 million, to $0.1 million in 2003 from
$0.4 million in 2002 due to a general reduction in, and
intercompany elimination of, intrastate billing and collection
fees revenues.
Income Taxes
Provision for income taxes decreased
$1.0 million, to $3.7 million, in 2003 from
$4.7 million in 2002. The effective income tax rate for CCI
increased to 40.3% in 2003 from 36.8% in 2002. The effective
income tax rate for 2003 approximated the combined federal and
state rate of approximately 40%. In conjunction with the
acquisition on December 31, 2002, we made an election under
the Internal Revenue Code that resulted in approximately
$167.4 million of goodwill and other intangibles, which are
deductible ratably over a 15-year period.
Net Income
Net income decreased 31.2%, or $2.5 million,
to $5.5 million in 2003 from $8.0 million in 2002. The
decrease is primarily attributable to increased interest expense
due to the borrowings incurred in connection with the
acquisition of the predecessor of CCI, offset by revenues growth
and additional income from operations.
Year Ended December 31, 2002 compared
    to December 31, 2001
Revenues
Our total revenues decreased 4.9%, or
$5.7 million, to $109.9 million in 2002 from
$115.6 million in 2001. The decrease was due to the
following three principal factors:
•
decreased implicit support from network access
    revenues to explicit subsidies which negatively impacted
    intrastate revenues;
•
the sale by ICTC of two non-contiguous and
    non-strategic exchanges with approximately 2,750 local access
    lines in the third quarter of 2001; and
•
a decrease in the revenues of Other Operations
    resulting from the effects of cost cutting initiatives by
    McLeodUSA due to its bankruptcy and financial difficulties and a
    corresponding reduction in its operations.
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Telephone Operations' revenues decreased
3.9%, or $3.1 million, to $76.7 million in 2002 from
$79.8 million in 2001. The decrease was due primarily to a
decline in network access revenues of $4.8 million during
2002, which was partially offset by increased federal universal
service fund subsidies of $3.2 million. In addition, as a
result of the sale of the two exchanges, the full year impact in
2002 decreased revenues by approximately $1.0 million.
Other Operations' revenues decreased 7.3%,
or $2.6 million, to $33.2 million in 2002 from
$35.8 million in 2001. The decrease was due to McLeodUSA
significantly reducing spending and staffing in Other Operations
during the bankruptcy and sale process described above, which
directly impacted revenues throughout 2002.
Telephone Operations Revenues
Local calling services
revenues decreased 2.9%, or
$1.0 million, to $33.4 million from $34.4 million
in 2001. The decrease was due to the local access line loss
caused by the sale on September 30, 2001 of the two
exchanges, which had a full year impact of approximately
$1.0 million, which was partially offset by an increase in
sale of custom calling features and voicemail that increased
revenues by $0.2 million.
Network access services
revenues decreased 14.2%, or
$4.8 million, to $29.0 million in 2002 from
$33.8 million in 2001. During the last two years, the FCC
instituted modifications to our Illinois RLEC's cost
recovery mechanisms, decreasing implicit support, which allowed
rural carriers to set interstate network access charges higher
than the actual cost of originating and terminating calls, and
increasing explicit support through subsidy payments from the
federal universal service fund. The ICC similarly decreased
intrastate network access charges, but did not offset these
reductions with state universal service fund subsidies.
Subsidies
revenues
increased 355.6%, or $3.2 million, to $4.1 million in
2002 from $0.9 million in 2001. The increase was due
primarily to ICTC qualifying for additional federal universal
service fund support of $1.6 million in 2002 that it did
not qualify for in 2001. The remaining increase was due, in
part, to normal subsidy settlement processes and, in part, due
to the FCC modifications to our Illinois RLEC's cost
recovery mechanisms described above in network access services
revenues.
Long distance services
revenues decreased 33.3%, or
$0.7 million, to $1.4 million in 2002 from
$2.1 million in 2001. The decrease was due primarily to a
reduction in rates resulting from competitive pricing pressure
and a decline in long distance minutes of use associated with
the sale of the two exchanges. The only long distance service
revenues included in 2002 and 2001 was for intraLATA long
distance services offered by our Illinois RLEC.
Data and Internet services
revenues increased 7.5%, or
$0.3 million, to $4.3 million in 2002 from
$4.0 million in 2001. The increase was due to success in
selling new DSL services. The only revenues included in 2002 and
2001 for data and Internet services were revenues for DSL
non-local private lines offered by our Illinois RLEC. Total DSL
lines in service increased by 130.3% to approximately
5,761 lines at December 31, 2002 from approximately
2,501 lines at December 31, 2001.
Other services
revenues were essentially unchanged in
2002 compared to 2001.
Other Operations Revenues
Other Operations
revenues decreased 7.3%, or
$2.6 million, to $33.2 million in 2002 from
$35.8 million in 2001. The decrease was due to McLeodUSA
reducing its spending and staffing in these operations during
2002 due to its bankruptcy and the preparation of ICTC and the
related businesses for sale.
Public Services
revenues decreased 12.4%, or
$1.4 million, to $9.9 million in 2002 from
$11.3 million in 2001. The decrease was due primarily to
the removal of approximately 700 unprofitable public
payphones from service. Although revenues decreased as a result,
gross margins improved to 36.0% in 2002 from 32.3% in 2001.
Operator Services
revenues increased 23.1%, or
$2.1 million, to $11.3 million in 2002 from
$9.2 million in 2001. The increase was primarily due to
increased demand generated by McLeodUSA and by other customers.
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Market Response
revenues decreased 19.7%, or
$1.1 million, to $4.5 million in 2002 from
$5.6 million in 2001. The decrease was due to McLeodUSA
shifting its efforts to maintaining existing contracts rather
than growing the business as evidenced by significant headcount
reductions, including the removal of the sales staff.
Business Systems
revenues decreased 25.3%, or
$2.0 million, to $5.8 million in 2002 from
$7.8 million in 2001. The decrease was due to the general
business decline, cost reduction efforts relating to the closure
in 2002 of two sales offices in markets outside our Illinois
RLEC's service area and the inability to bid on certain
structured wiring business due to the failure to secure
performance bonds as a result of the bankruptcy and financial
difficulties of McLeodUSA.
Mobile Services
revenues decreased 16.7%, or
$0.3 million, to $1.5 million in 2002 from
$1.8 million in 2001. This decrease was due to a continuing
shift in demand from residential customers for one way paging
services to business customers who generally generate lower
average revenues per customer.
Operating Expenses
Our operating expenses decreased 4.5%, or
$3.4 million, to $71.5 million in 2002 from
$74.9 million in 2001. The decrease was a direct result of
the cost-cutting initiatives in 2002 by McLeodUSA due to its
bankruptcy and financial difficulties.
Telephone Operations Operating
    Expense
Operating expenses for Telephone Operations
decreased 1.9%, or $0.9 million, to $46.9 million in
2002 from $47.8 million in 2001. While McLeodUSA was
committed to maintain certain levels of investment in ICTC, as a
direct result of their cost cutting initiatives corporate
services provided to ICTC were reduced.
Other Operations Operating Expenses
Operating expenses for Other Operations decreased
9.2%, or $2.5 million, to $24.6 million in 2002 from
$27.1 million in 2001. The decrease was a direct result of
the cost-cutting initiatives in 2002 by McLeodUSA due to its
bankruptcy and financial difficulties. Market Response closed
one of its two call centers in the second half of 2001 which had
a full year effect in 2002, and made staff reductions. Business
Systems closed two sales offices during 2002 and reduced
headcount by approximately 32%, or 11 people, in the first
quarter of 2002.
Depreciation and Amortization
Depreciation and amortization decreased 23.0%, or
$7.3 million, to $24.5 million in 2002 from
$31.8 million in 2001. The majority of the decrease related
to the amortization of intangible assets resulting from the
adoption of SFAS No. 142, at which time goodwill
amortization ceased. Depreciation on tangible assets was not
impacted because the consolidated base of depreciable assets had
remained fairly consistent over the previous years.
Income from Operations
Income from operations increased 56.2%, or
$5.0 million, to $13.9 million in 2002 from
$8.9 million in 2001. The increase was primarily due to the
elimination of goodwill amortization.
Other Income (Expense)
Other income decreased 93.1%, or
$5.4 million, to $0.4 million in 2002 from
$5.8 million in 2001. In 2001, our Illinois Telephone
Operations recognized a $5.2 million pre tax gain on the
sale of the two exchanges.
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Income Taxes
Provision for income taxes decreased
$1.6 million to $4.7 million in 2002 from
$6.3 million in 2001. The effective income tax rate was
36.8% in 2002 compared to 49.0% in 2001. The decrease in the
effective income tax rate was primarily the result of a
corresponding decrease in non-deductible goodwill amortization
of prior acquisitions.
Net Income
Net income increased 21.2%, or $1.4 million,
to $8.0 million in 2002 from $6.6 million in 2001.
This increase is a result of the factors discussed above.
Critical Accounting Policies
Regulatory Accounting
ICTC, Consolidated Communications of Texas
Company and Consolidated Communications of Fort Bend
Company as ILECs, follow the accounting for regulated
enterprises prescribed by Statement of Financial Accounting
Standards No. 71,
Accounting for the Effects of Certain
Types of Regulation,
or SFAS No. 71, which permits
rates (or tariffs) to be set at levels intended to recover
estimated costs of providing regulated services or products,
including capital costs. SFAS No. 71 requires our
RLECs to depreciate wireline plant over the useful lives
approved by the regulators, which could be different than the
useful lives that would otherwise be determined by management.
SFAS No. 71 also requires deferral of certain costs
and obligations based upon approvals received from regulators to
permit recovery of such amounts in future years. Criteria that
would give rise to the discontinuance of SFAS No. 71
include (1) increasing competition restricting the wireline
business' ability to establish prices to recover specific
costs and (2) significant changes in the manner in which
rates are set by regulators from cost-based regulation to
another form of regulation. We believe that management is
consistent in its application of these provisions and does not
foresee regulatory, economic, or competitive changes in the near
future that would necessitate a change in its method of
accounting. In analyzing the effects of discontinuing the
application of SFAS No. 71, management has determined
that the useful lives of plant assets used for regulatory and
financial reporting purposes are consistent with accounting
principles generally accepted in the United States and,
therefore, any adjustments to the telecommunications plant would
be immaterial, as would be the write-off of regulatory assets
and liabilities.
Revenue Recognition
Revenues are recognized when the corresponding
services are provided regardless of the period in which they are
billed. Recurring local service revenues are billed in advance
and recognition is deferred until the service has been provided.
Nonrecurring revenues, such as long distance toll charges and
other usage based billings, are billed in arrears and are
recognized when earned.
Revenues from billing and collection services
provided to long distance and other carriers, and commissions
from advertising sold in yellow and white pages directories are
recorded as miscellaneous revenues. These revenues are
recognized when the service has been provided or over the life
of the contract, as appropriate.
Long distance and data services, Internet access
provider charges, telemarketing and order fulfillment, operator
services and paging services are recognized monthly as services
are provided. Revenues from the sale and maintenance of customer
premise equipment are recognized when the service is provided or
over the life of the contract, as appropriate.
In accordance with SEC Staff Accounting Bulletin
No. 104,
Revenue Recognition in Financial
Statements,
nonrecurring installation revenues are deferred
upon service activation and recognized over the expected life of
the customer relationship.
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Allowance for Uncollectible
    Accounts
We evaluate the collectibility of our accounts
receivable based on a combination of factors. When we are aware
of a specific customer's inability to meet its financial
obligations, such as a bankruptcy filing or substantial
down-grading of credit scores, we record a specific allowance
against amounts due to set the net receivable to an amount we
believe reasonable to be collected. For all other customers, we
reserve a percentage of the remaining outstanding accounts
receivable balance as a general allowance based on a review of
specific customer balances, our trends and experience with prior
receivables, the current economic environment and the length of
time the receivables are past due. If circumstances change, we
will review the adequacy of the allowance and its estimates of
the recoverability of amounts due which could be reduced by a
material amount.
Goodwill and Intangible
    Assets
During 2001, the Financial Accounting Standards
Board, or FASB, issued Statement of Financial Accounting
Standards No. 142,
Goodwill and Other Intangible
Assets,
or SFAS No. 142, which requires that
effective January 1, 2002, goodwill recorded in business
combinations cease amortizing. SFAS No. 142 requires
that goodwill be reviewed for impairment using fair value
measurement techniques. Specifically, goodwill impairment is
determined using a two-step process. The first step of the
goodwill impairment test is to identify potential impairment by
comparing the fair value of the reporting unit to its carrying
value, including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is
not considered impaired and the second step of the impairment
test is unnecessary. If the fair value of the reporting unit is
less than the carrying value, the second step of the goodwill
impairment test calculation is performed to measure the amount
of the impairment charge. This step compares the implied fair
value of the reporting unit's goodwill with its carrying
value. The implied fair value of goodwill is determined in the
same manner as the amount of goodwill recognized in a business
combination. That is, the fair value of the reporting unit is
allocated to all of the assets and liabilities of that unit,
including any unrecognized intangible assets, as if the
reporting unit had been acquired in a business combination and
the fair value of the reporting unit was the purchase price paid
to acquire the reporting unit. If the implied fair value of
goodwill is less than its carrying value, goodwill must be
written down to its implied fair value.
Determining the fair value of a reporting unit
under the first step of the goodwill impairment test and
determining the fair value of individual assets and liabilities
of a reporting unit, including unrecognized intangible assets,
under the second step of the goodwill impairment test is
judgmental in nature and often involves the use of significant
estimates and assumptions. These estimates and assumptions could
have a significant impact on whether or not an impairment charge
is recognized and also the magnitude of any such charge. We
perform internal valuation analyses and consider other market
information that is publicly available. Estimates of fair value
are primarily determined using discounted cash flows. This
approach uses significant estimates and assumptions including
projected future cash flows, including timing, and the selection
of a discount rate that reflects the risk inherent in future
cash flows.
If our review indicates that an impairment of
goodwill exists, as determined based on a comparison of the
implied fair value of goodwill to its carrying value, we will
reduce the carrying value by the difference.
Useful Life of Property, Plant and
    Equipment
We estimate the useful lives of property, plant
and equipment in order to determine the amount of depreciation
expense to be recorded during any reporting period. The majority
of our telecommunications plant, property and equipment is
depreciated using the group method, which develops a
depreciation rate based on the average useful life of a specific
group of assets, rather than the individual asset as would be
utilized under the unit method. The estimated life of the group
is based on historical experience with similar assets as well as
taking into account anticipated technological or other changes.
If technological changes were to occur more rapidly than
anticipated or in a different form than anticipated, the useful
lives assigned to these assets may need to be shortened,
resulting in the recognition of increased
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depreciation expense in future periods. Likewise,
if the anticipated technological or other changes occur more
slowly than anticipated, the life of the group could be extended
based on the life assigned to new assets added to the group.
This could result in a reduction of depreciation expense in
future periods. We review these types of assets for impairment
when events or circumstances indicate that the carrying amount
may not be recoverable over the remaining lives of the assets.
In assessing impairment, we follow the provisions of Statement
of Financial Accounting Standards No. 144,
Accounting
for the Impairment or Disposal of Long-Lived Assets,
or
SFAS No. 144, utilizing cash flows that take into
account management's estimates of future operations.
Liquidity and Capital Resources
General
Historically, our operating requirements have
been funded from cash flow generated from our business and
borrowings under credit facilities. As of and for the nine
months ended September 30, 2004, we had $633.9 million
of debt, exclusive of unused commitments.
Operating, Investing and Financing
    Activities
Operating Activities
For the nine months ended September 30, 2004
and 2003, CCI Holdings generated new cash from operating
activities of $60.3 million and $18.4 million,
respectively, an increase of $41.9 million. Excluding the
impact of the TXUCV acquisition, CCI Holdings generated new cash
from operating activities of $19.5 million and
$18.4 million for the nine months ended September 30,
2004 and 2003, respectively.
For the years ended December 31, 2003, 2002
and 2001, we generated net cash from operating activities of
$28.9 million, $28.5 million and $34.3 million,
respectively. Comparing 2003 to 2002, the change in net cash
flows from operating activities increased $0.4 million. For
2003, our net income before non-cash charges for depreciation
and amortization and other long-term deferred credits reflect
net cash provided of $2.4 million, a $4.6 million
decrease from $7.0 million provided in 2002. In 2003, we
made estimated income tax payments of $2.0 million for
which no comparable payments were made in 2002 and 2001. Net
cash flows from operating activities decreased $5.8 million
when comparing 2002 to 2001. Net income before non-cash charges
for depreciation and amortization and other long-term deferred
credits in 2002 decreased $0.8 million to $7.0 million
from the $7.8 million comparable in 2001. The primary
difference in 2002 net cash from operating activities
compared to 2001 is the change in accounts receivable. In 2001,
that decrease in accounts receivable generated cash of
$4.2 million whereas the change in accounts receivable in
2002 resulted in a net use of cash of $0.7 million.
Investing Activities
For the nine months ended September 30, 2004
and September 30, 2003, net cash used in investing
activities was $541.3 million and $293.3 million,
respectively. Cash used for acquisitions totaled
$523.9 million and $284.8 million for the nine months
ended September 30, 2004 and 2003, respectively. Capital
expenditures accounted for $17.3 million and
$8.9 million for the nine months ended September 30,
2004 and 2003, respectively. The increase in capital spending
during 2004 is primarily due to the increased size of our
operations.
For the year ended December 31, 2003, net
cash used in investing activities was $296.1 million,
primarily due to the acquisition from McLeodUSA. For the year
ended December 31, 2003, capital expenditures accounted for
$11.3 million in cash used by investing activities. For the
year ended December 31, 2002, we used $14.1 million in
cash for investing activities, all of which was due to capital
expenditures. Over the three years ended December 31, 2003,
we used $38.5 million in cash for capital investments. Of
that total, 73.2%, or $28.2 million, was for the expansion
or upgrade of outside plant facilities and switching assets.
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Financing Activities
For the nine months ended September 30,
2004, net cash provided by financing activities was
$526.1 million compared to $285.7 million of net cash
provided by financing activities for the nine months ended
September 30, 2003. In connection with the TXUCV
acquisition in April 2004, we incurred $637.0 of new long-term
debt, repaid $186.3 million of debt and received
$89.0 million in net capital contributions from our
existing equity investors. To fund the ICTC acquisition in 2003,
we received $283 million from equity and debt issuances and
approximately $9.2 million in proceeds from the sale of the
building subject to the LATEL sale/leaseback described under
"Certain Relationships and Related Party
Transactions — LATEL Sale/ Leaseback". Long-term
debt of $7.2 million was also repaid in the first nine
months of 2003.
For the year ended December 31, 2003, net
cash provided by financing activities was $277.4 million.
The majority was from financing obtained to fund the ICTC
acquisition during the nine months ended September 30, 2003
described above. After settling the purchase consideration,
funds from financing activities were also used to repay
$10.2 million of outstanding borrowings under the CoBank
credit facility in 2003. For the years ended December 31,
2002, and December 31, 2001, net cash used in financing
activities was $16.6 and $18.9 million, respectively. 2002
and 2001 financing activities were primarily attributable to
funds required to settle intercompany net receivables with
McLeodUSA.
Debt and
Capital Leases
On the closing of the TXUCV acquisition, CCI
terminated its CoBank credit facility, Texas Holdings and CCI
severally entered into, and borrowed under, the existing credit
facilities, we issued the senior notes and CCV assumed the
former TXUCV capital leases. In connection with this offering,
we expect to amend and restate the existing credit facilities
and redeem 35.0% of the outstanding principal amount of our
senior notes pursuant to an optional redemption provision in the
indenture.
Existing Credit Facilities and Amended and
    Restated Credit Facilities
On April 14, 2004, CCI and Texas Holdings
entered into the existing credit facilities pursuant to which
CCI borrowed an aggregate of $170.0 million,
$50.0 million under the term loan A facility and
$120.0 million under the term loan B facility, and
Texas Holdings borrowed an aggregate of $267.0 million,
$72.0 million under the term loan A facility and
$195.0 million under the term loan B facility. In
addition, the existing credit facilities also provided for a
$30.0 million revolving credit facility, that was available
to both CCI and Texas Holdings in the same proportion as
borrowings under the term loan facilities, none of which had
been drawn as of September 30, 2004. Borrowings under the
existing credit facilities were secured by substantially all of
the assets of CCI (except ICTC, which is contingent upon
obtaining the consent of the ICC for ICTC to guarantee
$195.0 million of the borrowings) and Texas Holdings.
On October 22, 2004, we entered into an
amended and restated credit agreement that, among other things,
converted all borrowings then outstanding under the term
loan B facility into approximately $314.0 million of
aggregate borrowings under a new term loan C facility. The
term loan C facility is substantially identical to the term
loan B facility, except that the applicable margin for
borrowings through April 1, 2005 is 1.5% with respect to
base rate loans and 2.5% with respect to London Inter-Bank Offer
Rate, or LIBOR, loans. Thereafter, provided certain credit
ratings are maintained, the applicable margin will be 1.25% for
base rate loans and 2.25% for LIBOR loans.
The borrowings under the existing credit
facilities bore interest at a rate equal to an applicable margin
plus, at the borrowers' election, either a "base
rate" or LIBOR. The applicable margin was based upon the
borrowers' total leverage ratio. As of September 30,
2004, the applicable margin for interest rates on LIBOR based
loans was 2.5% on the term loan A facility and 2.75% on the
term loan B facility. The applicable margin for the
alternative base rate loans was 1.5% per year for the
revolving loan facility and term loan A facility and 1.75%
for the term loan B facility. At September 30, 2004,
the weighted average interest rate, including swaps, on our term
debt was 5.2% per annum. At October 22, 2004, the date
on
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which our existing credit facilities were amended
and restated to, among other things, convert all borrowings
under the term loan B facility into borrowings under a term
loan C facility, the weighted average interest rate of our
borrowings under the term loan C facility was 4.36%.
Concurrently with the closing of this offering,
we expect to amend and restate our existing credit facilities
with a group of lenders, including Credit Suisse First Boston,
acting through its Cayman Islands branch, an affiliate of Credit
Suisse First Boston LLC, an underwriter in this offering,
providing for a total of up to $419.6 million in new term
and revolving credit facilities, which we refer to as the
amended and restated credit facilities.
We currently expect the amended and restated
credit facilities will provide financing of $419.6 million,
consisting of:
•
an increased $389.6 million term loan C
    facility maturing on October 14, 2011; and
•
a $30.0 million new revolving credit
    facility maturing on April 14, 2010.
The terms of the amended and restated credit
facilities have not yet been agreed upon, and the descriptions
set forth in this prospectus represent our current expectations
regarding the terms of these facilities. The definitive terms of
the amended and restated credit facilities could differ from
those described in this prospectus, and those differences could
be material. For a more complete description of the expected
terms of the amended and restated credit facilities, see
"Description of Indebtedness — Amended and
Restated Credit Facilities".
We intend to repay in full the
$118.7 million of debt under our term loan A facility
(plus any revolving debt, which we anticipate will be zero) upon
the consummation of the amendment and restatement. Upon the
closing of the amended and restated credit facilities and such
repayment, we expect to have a total of $389.6 million
outstanding under the term loan C facility and no debt
outstanding under the revolving credit facility.
Senior Notes
In connection with the TXUCV acquisition, we and
Consolidated Communications Texas Holdings, Inc. issued
$200.0 million in aggregate principal amount of senior
notes. The senior notes are our senior unsecured obligations.
Following the reorganization, CCI Holdings will succeed to the
obligations of Consolidated Communications Texas Holdings, Inc.
under the indenture and Homebase under its non-recourse
guarantee. In addition, we expect that the lenders under the
amended and restated credit facilities will release us, as
successor to Homebase, from that guarantee.
The indenture contains customary covenants that
restrict our, and our restricted subsidiaries' ability to,
incur debt and issue preferred stock, make restricted payments
(including paying dividends on, redeeming, repurchasing or
retiring our capital stock), enter into agreements restricting
our subsidiaries' ability to pay dividends, make loans or
transfer assets to us, create liens, sell or otherwise dispose
of assets, including capital stock of subsidiaries, engage in
transactions with affiliates, engage in sale and leaseback
transactions, engage in business other than telecommunications
businesses and consolidate or merge. For a more complete
description of the indenture, see "Description of
Indebtedness — Senior Notes".
Covenant Compliance
We believe that our new amended and restated
credit agreement will be and the indenture governing our senior
notes are material agreements, that the covenants contained in
these agreements are material terms of these agreements and that
the information presented below about these covenants is
material to investors' understanding of our financial
condition and liquidity. In addition, the breach of covenants in
our amended and restated credit facilities, which will be based
on ratios that include EBITDA as a component, could result in a
default under these facilities, allowing the lenders to elect to
declare all amounts borrowed due and payable, and, as a result,
and possibly resulting in a default under our indenture.
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We expect that our amended and restated credit
facilities will restrict our ability to pay dividends directly
in proportion to the amount of Bank EBITDA that we generate and
our compliance with a total net leverage ratio, among other
things. We are also restricted from paying dividends under the
indenture governing our senior notes. However, the indenture
restriction is significantly less restrictive than the
restriction we expect will be contained in our amended and
restated credit facilities. Under the amended and restated
credit facilities, we expect the total net leverage ratio
(defined as total debt minus the lesser of (x) our
consolidated cash in excess of $5 million and
(y) $25 million) to Bank EBITDA will be tested
quarterly. If the total net leverage ratio is greater
than      :1.0, we will be required to
suspend dividends on our common stock unless otherwise
permitted, among other things. As a result of the above, the
presentation of Bank EBITDA and the total net leverage ratio is
appropriate to provide additional information to investors to
demonstrate compliance with, and our ability to pay dividends
under, the applicable covenants.
Twelve Months
Year Ended
Ended
December 31,
September 30,
2003
2004
(unaudited)
Bank EBITDA
$122.8
$132.4
Total net leverage ratio
4.2:1.0
3.9:1.0
For a more complete description of Bank EBITDA,
the total net leverage ratio and related provisions, see
"Description of Indebtedness — Amended and
Restated Credit Facilities." In addition, the amended and
restated credit agreement is an exhibit to the registration
statement of which this prospectus forms a part.
Bank EBITDA is different than EBITDA that is
derived solely from GAAP components. Bank EBITDA should not be
construed as alternatives to net income (loss), cash flows from
operations or net cash from operating or investing activities as
defined by GAAP, and it is not necessarily indicative of cash
available to fund our cash needs as determined in accordance
with GAAP. In addition, not all companies use identical
calculations, and this presentation may not be comparable to
other similarly titled measures of other companies.
GECC Capital Leases
CCI Texas is a party to a Master Lease Agreement
with GECC, as further described in "Description of
Indebtedness — GECC Capital Leases" elsewhere in
this prospectus.
Capital Requirements
In 2004, we currently expect that our primary
uses of cash and capital will consist of the following:
•
capital expenditures for CCI Holdings of
    approximately $33.8 million for network, central offices
    and other facilities and information technology for operating
    support and other systems;
•
approximately $14.0 million in aggregate to
    integrate and restructure the operations of CCI Illinois and CCI
    Texas following the TXUCV acquisition, of which we had spent
    $2.3 million on integration as of September 30, 2004;
    and
•
scheduled principal and interest payments on our
    long-term debt.
The expected one-time integration and
restructuring costs of approximately $14.0 million in
aggregate for 2004 and 2005 will be in addition to certain
additional ongoing costs we will incur to expand certain
administrative functions, such as those relating to SEC
reporting and compliance, and do not take into account other
potential cost savings of and expenses of the TXUCV acquisition.
We do not expect to incur costs relating to the TXUCV
integration after 2005.
Beyond 2004 and 2005, we will require significant
cash to service and repay debt and make capital expenditures. In
the future, we will assess the need to expand our network and
facilities based on several
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criteria, including the expected demand for
access lines and communications services, the cost and expected
return on investing to develop new services and technologies and
competitive and regulatory factors. In the future, we also
expect to assess the cost and benefit of selected acquisitions,
joint ventures and strategic alliances as market conditions and
other factors warrant. Absent major changes in the technology
that we employ, we believe that our current network is capable
of providing the next generation of broadband service with
minimum capital investment.
The ICC and the PUCT could require our Illinois
and Texas RLECs to make minimum amounts of capital expenditures
and could limit the amount of cash available to transfer from
our RLECs to us. In connection with ICTC's guarantee of
CCI's CoBank credit facility in December 2002, the ICC
issued an order which imposed a minimum capital expenditure
requirement on our Illinois RLEC of $9.0 million per year
and $30.0 million for the three years ending
December 31, 2005 and restricted the amount of cash that
our Illinois RLEC could transfer to its parent company, CCI to
its free cash flow, as defined in the order. In 2003, both of
our Texas RLECs elected to be governed under an incentive
regulatory regime, which obligated each of them to make capital
expenditures for network infrastructure in exchange for immunity
from adjustment to many of their rates. The ICC's minimum
capital expenditure requirements and restrictions on cash
transfers terminated upon repayment and termination of the
CoBank credit facility in connection with the acquisition of
TXUCV, and we believe our Texas RLECs have met the current
requirements for capital expenditures on network infrastructure.
However, the ICC and the PUCT could impose additional or other
restrictions of this type in the future. In particular, the ICC,
but not the PUCT, will review, and we will be required to
receive the approval of the ICC to effect the reorganization. In
connection with the ICC's review of the reorganization, the
ICC could impose various conditions as part of its approval of
the reorganization, including restrictions on cash transfers
from our Illinois RLEC to us and other requirements (such as a
prohibition on distributions by ICTC for a reporting year to the
extent that ICTC fails to meet or exceed agreed benchmarks for a
majority of seven service quality metrics for the prior
reporting year). In addition, we expect that in our amended and
restated credit facilities we will agree to use our reasonable
efforts as promptly as reasonably practicable after the closing
of these facilities to obtain the consent of the ICC for ICTC to
guarantee $195.0 million of the obligations of the
borrowers under these facilities and grant a security interest
in its respective properties securing $195.0 million of
borrowings. If such an order is granted, it will also likely
require ICTC to make a minimum dollar amount of capital
expenditures and limit its ability to pay dividends to CCI based
on a dollar amount tied to free cash flow. As a result of the
above, any requirements or restrictions imposed by the ICC or
PUCT could limit the amount of cash that is available to be
transferred from our RLECs to us.
In addition, our existing credit facilities
restrict all payments to us during the continuance of a payment
default and also restrict payments to us for a period of up to
180 days during the continuance of a non-payment default.
The existing credit facilities also limit the amounts we may
spend on capital expenditures between 2004 and 2011. We are
limited to aggregate capital expenditures of $40.0 million
in 2004 and $45.0 million in each following year. In the
event the full amount allotted to capital expenditures is not
spent during a fiscal year, the remaining balance may be carried
forward to the following year only. However, the carried forward
balance may not be utilized until such time as the amount
originally established as the capital expenditure limit for such
year has been fully utilized. Our amended and restated credit
facilities are currently expected to include similar
restrictions.
We believe that cash flow from operating
activities, together with our existing cash and borrowings
available under the amended and restated credit facilities, will
be sufficient for approximately the next twelve months to fund
our currently anticipated requirements for dividends, debt
service and repayments, capital expenditures and the costs of
integrating TXUCV into our business. After 2005, our ability to
fund these requirements 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
do so will be subject to prevailing economic conditions and to
financial, business, regulatory, legislative and other factors,
many of which are beyond our control.
We may be unable to access the cash flow of our
subsidiaries since certain of our subsidiaries are parties to
credit or other borrowing agreements that restrict the payment
of dividends or making
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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.
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. We cannot
assure you that we will generate sufficient cash flow from
operations in the future, that anticipated revenue growth will
be realized or that future borrowings or equity contributions
will be available in amounts sufficient to provide adequate
working capital, service our indebtedness or make anticipated
capital expenditures. 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 projected financial condition and
results of operations.
Surety Bonds
In the ordinary course of business, we enter into
surety, performance and similar bonds. As of September 30,
2004, we had approximately $2.7 million of these types of
bonds outstanding.
Table of Contractual Obligations &
    Commitments
As of September 30, 2004, our material
contractual cash obligations and commitments would have been:
Payments Due by Period
Total
2004
2005
2006
2007
2008
Thereafter
(in thousands)
Long-term debt(a)
$
519,629
$
973
$
3,893
$
3,893
$
3,893
$
3,893
$
503,083
Operating leases
19,192
1,031
4,736
3,781
3,072
2,837
3,735
Capital leases(b)
1,314
127
527
563
97
—
—
Minimum purchase contract(c)
1,254
99
396
396
363
—
—
Pension and other post-retirement obligations(d)
24,718
1,116
6,079
3,902
3,103
3,161
7,357
Total contractual cash obligations and commitments
$
566,167
$
3,346
$
15,631
$
12,535
$
10,528
$
9,891
$
514,175
(a)
This item consists of loans expected to be
    outstanding under the amended and restated credit facilities and
    our senior notes. The amended and restated credit facilities
    consist of a $389.6 million term loan C facility
    maturing on October 14, 2011, which will be drawn in full
    on the closing of this offering, and a $30.0 million
    revolving credit facility maturing on April 14, 2010, which
    is expected to be fully available but undrawn immediately
    following the closing of this offering. See "Description of
    Indebtedness — Amended and Restated Credit
    Facilities".
(b)
This item consists of $1.3 million of
    capital leases entered into by CCI Texas with GECC. The cash
    purchase price was reduced by the outstanding principal amount
    of these capital leases. See "Description of
    Indebtedness  — GECC Capital Leases".
(c)
As of September 30, 2004, the minimum
    purchase contract was a 60-month High-Capacity Term Payment Plan
    agreement with Southwestern Bell, dated November 25, 2002.
    The agreement requires CCI Texas to make monthly purchases of at
    least $33,000 from Southwestern Bell on a take-or-pay basis. The
    agreement also provides for an early termination charge of 45.0%
    of the monthly minimum commitment multiplied by the number of
    months remaining through the expiration date of
    November 25, 2007. As of September 30, 2004, the
    potential early termination charge was approximately
    $0.6 million.
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(d)
Pension funding is an estimate of our minimum
    funding requirements through 2004 to provide pension benefits
    for employees based on service through 2003. Obligations
    relating to other post retirement benefits are based on
    estimated future benefit payments. Our estimates are based on
    forecasts of future benefit payments which may change over time
    due to a number of factors, including life expectancy, medical
    costs and trends and on the actual rate of return on the plan
    assets, discount rates, discretionary pension contributions and
    regulatory rules. See Note E (Post Retirement Benefit
    Plans) to the consolidated financial statements of TXUCV and
    Note 8 (Pension Costs and Other Post Retirement Benefits)
    of CCI Holdings consolidated financial statements.
Impact of Inflation
The effect of inflation on our financial results
has not been significant in the periods presented.
Recent Accounting Pronouncements
In January 2003, the FASB issued FIN 46,
Consolidation of Variable Interest Entities
, the primary
objective of which is to provide guidance on the identification
of entities for which control is achieved through means other
than voting rights, defined as variable interest entities, and
to determine when and which business enterprise should
consolidate the variable interest entity as the "primary
beneficiary". This new model applies when either
(1) the existing equity investors, if any, do not have a
controlling financial interest or (2) the equity investment
at risk is insufficient to finance that entity's activities
without additional financial support. In addition, FIN 46
requires additional disclosures. CCI Illinois does not expect
FIN 46 to have a material impact on its investment in
unconsolidated subsidiaries.
In December 2003, the U.S. Congress enacted
the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 that will provide a prescription drug subsidy
beginning in 2006 to companies that sponsor post-retirement
health care plans that provide drug benefits. Additional
legislation is anticipated that will clarify whether a company
is eligible for the subsidy, the amount of the subsidy available
and the procedures to be followed in obtaining the subsidy. In
May 2004, the FASB issued Staff Position 106-2
"Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of
2003", which provides guidance on the accounting and
disclosure for the effects of this Act. We have determined that
our post-retirement prescription drug plan is actuarially
equivalent and intend to reflect the impact beginning on
July 1, 2004.
Quantitative and Qualitative Disclosures About
Market Risk
We are exposed to market risk from changes in
interest rates on our long-term debt obligations. We estimate
our market risk using sensitivity analysis. Market risk is
defined as the potential change in the fair value of a
fixed-rate debt obligation due to hypothetical adverse change in
interest rates and the potential change in interest expense on
variable rate long-term debt obligations due to a change in
market interest rates. The fair value on long-term debt
obligations is determined based on discounted cash flow
analysis, using the rates and the maturities of these
obligations compared to terms and rates currently available in
long-term debt markets. The potential change in interest expense
is determined by calculating the effect of the hypothetical rate
increase on the portion of variable rate debt that is not hedged
through the interest swap agreements described below and does
not assume changes in our capital structure. As of
September 30, 2004, 66.5% of our long-term debt obligations
would have been fixed rate and approximately 33.5% would have
been variable rate obligations not subject to interest rate swap
agreements.
As of September 30, 2004, we would have had
$389.6 million, including $174.0 million of current
maturities, of variable rate debt outstanding under the amended
and restated credit facilities. Our exposure to fluctuations in
interest rates would have been limited by interest rate swap
agreements that would effectively convert a portion of the
variable rate debt to a fixed-rate basis, thus reducing the
impact of interest rate changes on future interest expenses. As
of September 30, 2004, we would have had interest rate swap
agreements covering $215.6 million of aggregate principal
amount of our variable rate debt at
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fixed LIBOR rates ranging from 2.99% to 3.35% and
expiring on December 31, 2006, May 19, 2007 and
December 31, 2007. As of September 30, 2004, the fair
value of the interest rate swaps would have amounted to a
liability of $0.7 million, net of taxes.
As of September 30, 2004, we would have had
$130.0 million of aggregate principal amount of fixed rate
long-term debt obligations with an estimated fair market value
of $133.3 million based on the overall weighted average
interest rate of our fixed rate long-term debt obligations of
9.75% and an overall weighted maturity of 7.5 years,
compared to rates and maturities currently available in
long-term debt markets. Market risk is estimated as the
potential loss in fair value of our fixed rate long-term debt
resulting from a hypothetical increase of 10.0% in interest
rates. Such an increase in interest rates would have resulted in
an approximately $3.1 million decrease in the fair value of
our fixed rate long-term debt. As of September 30, 2004, we
would have had $174.0 million of variable rate debt not
covered by the interest rate swap agreements. If market interest
rates averaged 1.0% higher than the average rates that
prevailed from January 1, 2004 through September 30,
2004, interest expense would have increased by approximately
$1.3 million for the period.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CCI
TEXAS
We present below Management's Discussion
and Analysis of Financial Condition and Results of Operations of
CCI Texas. The following discussion should be read in
conjunction with the historical consolidated financial
statements and notes and other financial information related to
CCV (formerly TXUCV) appearing elsewhere in this
prospectus.
Overview
CCI Texas' Business
CCI Texas is an established rural local exchange
company that provides communications services to residential and
business customers in Texas. As of September 30, 2004,
CCI Texas would have been the 18th largest local telephone
company in the United States had it been a separate company,
based on industry sources, with approximately 169,472 local
access lines and approximately 14,276 DSL lines in service.
CCI Texas' main source of revenues is its local telephone
businesses in Texas, which offers an array of services,
including local dial tone, custom calling features, private line
services, long distance, dial-up and high-speed Internet access,
carrier access and billing and collection services.
CCI Texas also operates complementary businesses, including
publishing telephone directories and offering wholesale
transport services on a fiber optic network.
Beginning in 1999, CCI Texas began operating
a CLEC business in a number of local markets in Texas. The CLEC
business grew to more than 58,000 lines in service by the
end of 2001, at which time CCI Texas reevaluated its
strategic direction and decided to refocus on its RLEC business.
During the subsequent 18 months, CCI Texas
systematically exited certain of its less profitable CLEC
markets, ceased service to residential customers and
concentrated on making the CLEC profitable by focusing solely on
business customers within a limited number of geographic
markets. In late 2002, CCI Texas decided to exit the CLEC
business entirely, placed its CLEC assets and customer base for
sale and classified all CLEC assets and liabilities as held for
sale. In 2003, CCI Texas continued to rationalize its
business plan and, in March 2003, CCI Texas sold the
majority of its remaining CLEC customer base and assets to
Grande Communications. By the end of March 2003, with the
exception of a small number of remaining CLEC customers who were
in the process of transitioning to other carriers,
CCI Texas had effectively exited the CLEC business. As a
result of the foregoing, our financial results as of and for the
year ended December 31, 2003 are not directly comparable to
prior periods.
CLEC revenues, reflected in Exited Operations,
represent primarily local access revenues and features
attributable to CLEC customers. In addition, some CLEC customers
also subscribed to other CCI Texas services including long
distance and dial-up Internet. For the relevant periods, the
revenues from CLEC customers associated with these products are
included in the relevant product categories listed above.
In 2002, as a part of CCI Texas'
refocus on its Texas RLECs, CCI Texas initiated a process
to sell its transport business. The transport assets were
consequently classified as held for sale at the end of 2002. In
early 2003, it became apparent that a sale of the entire company
was likely and the decision was made to cease efforts to sell
the transport network as a separate entity. Consequently, in
June 2003, the transport assets were reclassified as held and
used.
TXUCV Acquisition
Prior to April 14, 2004, TXUCV had been a
direct, wholly owned subsidiary of Pinnacle One, which is owned
by TXU Corp. When the acquisition was consummated on
April 14, 2004, Homebase, through its indirect, wholly
owned subsidiary Texas Holdings, acquired all of the capital
stock of TXUCV. Texas Holdings was formed solely for the purpose
of acquiring TXUCV. TXUCV was subsequently renamed CCV.
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Revenues
For the year ended December 31, 2003, 85.1%
of CCI Texas' $194.8 million of revenues were
derived from local and long distance voice and data services and
associated carrier access fees and subsidies associated with
customers within CCI Texas' Texas RLECs' service
areas. Of the remaining 14.9% of revenues, $10.4 million,
or 5.3%, was derived from directory advertising and publishing,
$12.8 million, or 6.6%, was derived from transport
services, primarily to other carriers, and $5.9 million, or
3.0%, was associated with products or services that
CCI Texas no longer offers.
In 2003, CCI Texas experienced a slight
decline in its number of local access lines of 0.3%, or 441 from
approximately 172,083 local access lines to approximately
171,642 local access lines. This decline was comprised of a 1.8%
decline in residential access lines to approximately 116,862
access lines partially offset by business line growth of 3.3% to
approximately 54,780 business access lines at the end of the
year. We believe that the principal reason our Texas RLEC lost
local access lines in this period was due to the weak economy in
Texas. In addition, we believe we lost local access lines due to
the disconnection of second telephone lines by our residential
customers in connection with their substituting DSL or cable
modem service for dial-up Internet access and wireless service
for wireline service. Furthermore, CCI Texas implemented a more
stringent disconnect policy for non-paying customers in July
2003 following the consolidation of CCI Texas' two local
billing systems. Partially offsetting some of this residential
decline was an increase in housing starts in the suburban parts
of our Texas RLECs' service areas.
CCI Texas' number of DSL subscribers grew
substantially in 2003, compared to 2002. We believe this growth
was due to CCI Texas' strong focus on selling DSL
service, including the deployment of a customer
self-installation kit. DSL lines in service increased 59.8% to
approximately 8,668 lines as of December 31, 2003 from
approximately 5,423 lines as of December 31, 2002. CCI
Texas' penetration rate for DSL lines in service was 5.1%
of our Texas RLECs' local access lines December 31,
2003.
In October 2003, CCI Texas initiated a new
campaign to market service bundles. While CCI Texas offered
limited service bundles prior to 2003, this initiative was
subsequently marketed more aggressively and took advantage of
increased pricing flexibility associated with the change from a
Chapter 59 to Chapter 58 state regulatory
election. See "Regulation — State Regulation of
CCI Texas". Between the introduction of five service
bundles in October 2003 and December 31, 2003, CCI Texas
sold over 7,500 service bundles.
In 2002, CCI Texas began to sell and publish
its yellow and white pages directories in-house. Until then,
CCI Texas had contracted with a third party provider to
sell, publish and distribute its directories. As compensation
for selling and publishing the directories, CCI Texas had
previously paid this contractor a portion of the directory
revenues on a revenue share basis of between 32.5% and 35.5%.
The first directory that CCI Texas produced in-house was the
Lufkin directory published in August 2002, which was followed by
the Conroe directory in February 2003 and the Katy directory in
April 2003.
CCI Texas' transport business has remained
relatively stable despite the general pricing pressure in the
wholesale transport business nationwide. This stability is
partly due to the relative lack of competition on some of
CCI Texas' routes and CCI Texas having built fiber
routes directly to some significant carrier customers. In 2002,
CCI Texas began to investigate selling the transport
network and, consequently did not focus on aggressively growing
this part of its business. In light of TXU Corp.'s decision
to sell the entire company in 2003, CCI Texas continued to
manage the transport network in a maintenance mode and did not
make any significant investments in the network. We intend to
continue to evaluate the opportunities for growing the transport
business going forward.
We intend to focus on continuing to increase the
revenues per access line in our Texas RLECs' service areas
primarily generated from local dial tone, long distance, custom
calling features and data and Internet services. Our primary
focus will be to increase our DSL penetration and the bundling
of local access, custom calling features, long distance,
voicemail and DSL. We expect that the sale of communications
services to customers in our Texas RLECs' service areas
will continue to provide the predominant share of
CCI Texas' revenues.
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Table of Contents
Expenses
Operating expenses include network operating cost
and selling, general and administrative expenses. They have
fluctuated over the past three years because
CCI Texas' business strategy has undergone several
significant changes. The exit from the CLEC line of business
contributed to a significant reduction in the size of the
company and led to expense reductions primarily in employee
expenses and network circuit and operating costs. Several
significant systems projects contributed to higher costs
historically than we anticipate will be the case in the future.
These projects included a financial system restructuring and
conversion, the integration of the Consolidated Communications
of Fort Bend Company billing and operations systems and projects
designed to automate procedures and processes. The establishment
of a more significant headquarters presence in Irving, Texas and
the relocation of many functions from the field to Irving also
generated incremental cost.
Network Operating Costs
CCI Texas' cost of services includes:
•
expenses related to plant costs, including those
    related to network and general support costs, central office
    switching and transmission costs, and cable and wire facilities;
•
general plant costs, such as testing,
    provisioning, network, administration, power and
    engineering; and
•
the cost of transport and termination of long
    distance and private lines outside our Texas RLECs' service
    areas.
CCI Texas operates a dedicated long distance
switch in Dallas and transports the majority of its long
distance traffic to this switch over its transport network.
Historically, CCI Texas was a party to several long distance
contracts for the purchase of wholesale long distance minutes
that involved minimum volume commitments and that, at times,
resulted in above market rate average costs per minute for long
distance services. CCI Texas has since terminated all such
contracts requiring minimum volume commitments and now has
considerably greater flexibility in its ability to select long
distance carriers for its traffic and to manage a variety of
carriers in order to minimize its cost of long distance minutes.
CCI Texas' cost of providing long distance service is
currently significantly lower than the average in 2003, and CCI
Texas believes that it will be able to continue providing long
distance services to its subscribers more profitably than it has
been able to do historically.
Selling, General and Administrative
    Expenses
Selling, general and administrative expenses
include:
•
selling and marketing expenses;
•
expenses associated with customer care;
•
billing and other operating support
    systems; and
•
corporate expenses.
CCI Texas markets to residential customers and
small business customers primarily through its customer service
centers and to larger business customers through a dedicated,
commissioned sales force. The transport and directory divisions
use dedicated sales forces.
CCI Texas has operating support and other back
office systems that are used to enter, schedule, provision and
track customer orders, test services and interface with trouble
management, inventory, billing, collection and customer care
service systems for the local access lines in our Texas
RLECs' operations. We maintain an information technology
staff based in Irving, Conroe and Lufkin who maintain and update
our various systems.
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Table of Contents
We are in the process of migrating key business
processes of CCI Illinois and CCI Texas onto single,
company-wide systems and platforms. Our objective is to improve
profitability by reducing individual company costs through
centralization, standardization and sharing of best practices.
We expect that our operating support systems costs will increase
temporarily as we integrate CCI Illinois' and CCI
Texas' back office systems. As of September 30, 2004,
$1.4 million and $0.9 million has been spent on
integration in Texas and Illinois, respectively.
Depreciation and amortization
    expenses
CCI Texas recognizes depreciation expenses for
our regulated telephone plant and equipment and nonregulated
property and equipment using the straight-line method. The
depreciation rates and depreciable lives for regulated telephone
plant and equipment are approved by the PUCT. CCI Texas'
depreciable assets have the following useful lives:
Years
Buildings
15-35
Network and outside plant facilities
5-30
Furniture, fixtures, and equipment
3-17
Amortization expenses were recognized on goodwill
over its useful life, normally 15 to 40 years prior to
January 1, 2002. Beginning January 1, 2002, CCI Texas
implemented SFAS No. 142,
Goodwill and Other
Intangible Assets.
SFAS No. 142 requires that
goodwill and intangible assets that have indefinite useful lives
not be amortized, but rather be tested annually for impairment.
CCI Texas conducted impairment tests and recorded impairment
losses of $13.2 million and $18.0 million respectively
for 2003 and 2002.
The following summarizes revenues and operating
expenses from continuing operations for TXUCV, the predecessor
of CCV, for the years ended December 31, 2001, 2002 and
2003. The results of operations presented herein for all periods
prior to the acquisition are sometimes referred to as the
results of operations of the predecessor.
Year Ended December 31,
2001
2002
2003
$
% of Total
$
% of Total
$
% of Total
(millions)
Revenues
(millions)
Revenues
(millions)
Revenues
Revenues(1)
Local calling services
$
52.5
25.3
%
$
54.3
25.3
%
$
56.2
28.9
%
Network access services
37.0
17.8
36.2
16.9
35.2
18.1
Subsidies
28.6
13.8
31.8
14.8
41.4
21.2
Long distance services
23.4
11.3
20.1
9.4
13.4
6.9
Data and Internet services
14.9
7.2
14.1
6.6
14.7
7.5
Directory publishing
8.3
4.0
9.6
4.4
10.4
5.3
Transport services
10.3
5.0
12.6
5.8
12.8
6.6
Other services
8.4
4.0
6.0
2.8
4.8
2.5
Exited services
24.1
11.6
30.0
14.0
5.9
3.0
Operating Revenues
$
207.5
100.0
%
$
214.7
100.0
%
$
194.8
100.0
%
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Year Ended December 31,
2001
2002
2003
$
% of Total
$
% of Total
$
% of Total
(millions)
Revenues
(millions)
Revenues
(millions)
Revenues
Expenses
Operating expenses(2)
$
184.3
88.8
%
$
186.3
86.8
%
$
133.8
68.7
%
Depreciation and amortization
50.2
24.2
41.0
19.1
32.9
16.9
Other charges(3)
—
—
119.4
55.6
13.4
6.9
Total operating expenses
234.5
113.0
346.7
161.5
180.1
92.5
Operating (loss) income
(27.0
)
(13.0
)
(132.0
)
(61.5
)
14.7
7.5
Total other (expense) income, net
(1.2
)
(0.6
)
3.9
1.8
(4.6
)
(2.4
)
(Loss) income before income taxes
(28.2
)
(13.6
)
(128.1
)
(59.7
)
10.1
5.1
Income tax (benefit) expense
(6.3
)
(3.0
)
(38.3
)
(17.9
)
12.4
6.4
Net (loss) income
$
(21.9
)
(10.6
)%
$
(89.8
)
(41.8
)%
$
(2.3
)
(1.3
)%
(1)
This category corresponds to the line items
    presented under "Business — CCI Texas" and
    provides more detail than that presented in the consolidated
    statement of operations and comprehensive loss of TXUCV. See the
    consolidated financial statements of TXUCV.
(2)
This line item includes network operating costs
    and selling, general and administrative expenses.
(3)
This line item includes restructuring, asset
    impairment and other charges and goodwill impairment charges.
Results of Operations
Year ended December 31, 2003 compared
    to December 31, 2002
Revenues
CCI Texas' total revenues decreased by 9.3%,
or $19.9 million, to $194.8 million in 2003 from
$214.7 million in 2002. The decrease was primarily due to
CCI Texas' exit from the CLEC business.
Local services revenues
increased 3.5%, or $1.9 million,
to $56.2 million in 2003 from $54.3 million in 2002.
The increase was primarily due to the success of targeted
promotions of custom calling features.
Network access revenues
decreased 2.8%, or $1.0 million,
to $35.2 million in 2003 from $36.2 million in 2002.
During the last two years, the FCC instituted certain
modifications to our Texas RLECs' cost recovery mechanisms,
decreasing implicit support, which allowed rural carriers to set
interstate network access charges higher than the actual cost of
originating and terminating calls, and increasing explicit
support through subsidy payments from the federal universal
service fund.
Subsidies
revenues
increased 30.2%, or $9.6 million, to $41.4 million in
2003 from $31.8 million in 2002. The increase was due in
part to the subsidy settlement processes resulting in the
recovery of additional subsidy payments associated with prior
years and 2003. Since our Texas RLECs are regulated under a rate
of return mechanism for interstate revenues, the value of assets
in the interstate rate base is critical to calculating this rate
of return and therefore, the subsidies our Texas RLECs will
receive. During 2003, the Texas RLECs recognized revenues of
$6.4 million of receipts from the federal universal service
fund that were attributable to 2002 and 2001, which was a larger
out-of-period adjustment than in prior years. The receipts were
the result of filings CCI Texas made in 2003 that updated prior
year cost studies and reclassified certain asset and expense
categories for regulatory purposes. The increase was also due to
the FCC modifications to our Texas RLECs cost recovery
mechanisms described above in network access service revenues.
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Table of Contents
Long distance services
revenues decreased by 33.3%, or
$6.7 million, to $13.4 million in 2003 from
$20.1 million in 2002 due to decreased minutes of use and a
change in the average rate per minute due to customers selecting
lower rate plans.
Data and Internet services
revenues increased by 4.3%, or
$0.6 million, to $14.7 million in 2003 from
$14.1 million in 2002. The increase was primarily due to
increased sales of DSL service. Growth in sales of DSL lines of
59.8% in 2003 contributed to a penetration of 5.1%, or
approximately 8,668 DSL lines in service, as of
December 31, 2003. The increase was offset by a decrease in
dial-up Internet service driven by the substitution by customers
of high speed Internet access and a decrease in dial-up and DSL
customers as a result of CCI Texas exiting the CLEC business.
Directory Publishing
revenues increased by 8.3%, or
$0.8 million, to $10.4 million in 2003 from
$9.6 million in 2002. The increase was in part due to the
transition from a third party sales force to an internal sales
force for the sale of advertising for yellow and white pages
directories, beginning with the publication of the Lufkin
directory in August 2002 and followed by Conroe in February 2003
and Katy in April 2003. This transition resulted in increased
sales productivity and higher revenues due to the termination of
revenue sharing with the previous publisher of between 32.5% and
35.5%. Since CCI Texas recognizes the revenues from each
directory over the 12-month life of the directory, 2003 revenues
still reflect a combination of outsourced and in-house directory
operations.
Transport services
revenues remained flat in 2003 with no
significant customer gains or losses.
Other services
revenues decreased by 20.0%, or
$1.2 million, to $4.8 million in 2003 from
$6.0 million in 2002. The decrease was due to a reduction
in equipment sales to our CLEC customers and the termination of
the pager product line.
Exited services
revenues decreased 80.3%, or
$24.1 million, to $5.9 million in 2003 from
$30.0 million in 2002. The decrease was due to decreases in
revenues from the exit of the CLEC business and from lower
revenues from wholesale long distance service. Of this amount,
$19.6 million was related to the local service revenues
from the CLEC business and $4.5 million was related to the
wholesale long distance service resulting from the exit from
these businesses.
Operating Expenses
Operating expenses decreased by 28.2%, or
$52.5 million, to $133.8 million in 2003 from
$186.3 million in 2002. The decrease was due principally to
the following factors.
•
Network costs decreased primarily as a result of
    CCI Texas having substantially exited the CLEC business by the
    end of March 2003, which led to the removal of leased circuit
    costs from SBC and other carriers.
•
Related to the exit from the CLEC business, total
    headcount decreased by 161 to 644 as of December 31, 2003.
    CCI Texas estimates that the actual expense of salaries and
    benefits for these employees was approximately $4.4 million
    in addition to the $4.4 million in severance costs CCI
    Texas incurred in connection with these terminations.
•
Bad debt expense decreased by $11.0 million
    from $10.2 million in 2002 to a $0.8 million benefit
    in 2003. This was primarily due to (1) a re-evaluation of
    the bad debt reserve from $5.0 million at year-end 2002,
    which included a $2.7 million reserve for MCI accounts
    receivable due to the bankruptcy of MCI's parent, Worldcom,
    Inc., to $1.5 million at year-end 2003 and (2) a
    decrease in bad debt write-offs to $2.3 million in 2003,
    which decrease primarily related to the exit from the CLEC
    business.
•
Non-CLEC network costs decreased due to process
    improvements and network optimization projects. Process
    improvements were related to implementation of an automated
    system for tracking circuit costs payable to other carriers,
    including a monthly feed to the general ledger. Network
    optimization projects included renegotiation of contracts with
    long distance and other carriers,
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Table of Contents
which eliminated monthly minimum usage fees. In
    addition, network costs decreased due to the removal of circuits
    in connection with the exit from the wholesale long distance
    business.
•
Operating expenses decreased due to one-time
    system consolidation projects in 2002 that were not experienced
    in 2003. This decrease, however, was partially offset by
    expenses associated with a one-time software development project
    to enhance CCI Texas' customer billing system in connection
    with the sale process.
•
The incurrence of $1.4 million of one-time
    transaction costs, including financial and legal expenses
    associated with preparing TXUCV for sale.
•
In addition, $2.4 million in retention
    bonuses that were paid to key employees to facilitate the sales
    transaction process while running the day to day operations of
    the business.
Depreciation and Amortization
Depreciation and amortization expense decreased
19.8%, or $8.1 million, to $32.9 million in 2003 from
$41.0 million in 2002 primarily due to the decrease in
depreciable asset base resulting from the impairment write-down
of the transport and CLEC assets. In connection with the
impairment, TXUCV recorded a $90.3 million write-down of
the net book value of its transport and CLEC depreciable assets
from $98.3 million to $8.0 million.
Other Charges
Other charges decreased 88.8%, or
$106.0 million, to $13.4 million in 2003 from
$119.4 million in 2002. This decrease is primarily due to
asset impairment and restructuring charges for the CLEC and
transport business of $0.2 million in 2003 compared to
$101.4 million in 2002. In accordance with
SFAS No. 142, CCI Texas conducted impairment tests on
October 1, 2003 and October 1, 2002 and, as a result
of TXU's decision in 2003 to sell TXUCV for a known price
and CCI Texas' decision to exit the CLEC and transport
businesses, recognized on its consolidated financial statements,
goodwill impairment losses of $13.2 million and
$18.0 million, respectively for the years ended
December 31, 2003 and 2002.
Other Income (Expense)
Other income (expense) decreased 217.9%, or
$8.5 million, to $(4.6) million from
$3.9 million. The decrease was primarily due to a decrease
in interest expense of $2.1 million (net of allowance for
funds used during construction), a decrease in minority interest
of $8.9 million which resulted from the large transport
impairment charges recorded in 2002, which was offset by an
increase in partnership income of $0.4 million. Partnership
income is primarily derived from a minority interest in two
cellular partnerships as further described in
"Business — CCI Texas — Cellular
Partnerships".
Income Tax Expense (Benefit)
Income tax expense increased by 132.4%, or
$50.7 million, to $12.4 million in 2003 from
$(38.3) million in 2002. Of this increase,
$48.3 million was due to the federal income tax effect of
the increase in income before income taxes of
$138.2 million primarily due to the significant one-time
charges in 2002 discussed above. Related to this increase was
the increase in state franchise tax of $4.8 million and the
tax effect on minority interest of $3.1 million. The
remaining $(5.5) million of the change was primarily due to
permanent differences and a change in the valuation reserve. See
Note D (Income Taxes) to the audited consolidated financial
statements of TXU Communications Ventures Company and
Subsidiaries.
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Table of Contents
Year Ended December 31, 2002 Compared
    to December 31, 2001
Revenues
CCI Texas' total operating revenues
increased by 3.5%, or $7.2 million, to $214.7 million
in 2002 from $207.5 million in 2001. The increase was
primarily due to an increase in average CLEC access lines from
40,930 to 43,023. As described above, all CLEC operations were
substantially sold or exited by the end of March 2003.
Local calling services
revenues increased 3.4%, or
$1.8 million, to $54.3 million in 2002, from
$52.5 million in 2001. The increase was due to an increase
in sales of custom calling features and a 1.3% increase in total
local access lines to 172,083 lines for the year ended
December 31, 2002 from 169,894 lines for the year ended
December 31, 2001.
Network access services
revenues decreased by 2.2%, or
$0.8 million, to $36.2 million in 2002 from
$37.0 million in 2001. The decrease was the result of a
decrease in minutes of use, which was partially offset by an
increase in end user subscriber line charges. In addition,
during 2001 and 2002, the FCC instituted certain modifications
to our Texas RLECs' cost recovery mechanisms, decreasing
implicit support, which allowed rural carriers to set interstate
network access charges higher than the actual cost of
originating and terminating calls, and providing explicit
support through subsidy payments from the federal universal
service fund.
Subsidies
increased
by 11.2%, or $3.2 million, to $31.8 million in 2002
from $28.6 million in 2001. The increase was due in part to
the FCC modifications to our Texas RLECs' cost recovery
mechanisms described above in network access services revenues
and due to an increase in federal universal service fund
payments due to higher operating expenses and plant investment
in 2002 compared with the national average.
Long distance services
revenues decreased by 14.1%, or
$3.3 million, to $20.1 million in 2002 from
$23.4 million in 2001. The decrease was due to a decrease
in minutes of use.
Data and Internet services
revenues decreased by 5.4%, or
$0.8 million, to $14.1 million in 2002 from
$14.9 million in 2001 due to a change in sales focus to
higher margin products which was partially offset by an increase
in DSL sales and a modest increase in dial-up Internet service.
Directory Publishing
revenues increased 15.7%, or
$1.3 million, to $9.6 million in 2002 from
$8.3 million in 2001. The increase was due to increased
advertising sales. The improvement was partially attributable to
bringing the sales and production functions in-house during 2002
as described above, resulting in a partial year recognition of
higher revenues on the Lufkin directory from its publication in
August 2002 through the end of the year.
Transport services
revenues increased by 22.3%, or
$2.3 million, to $12.6 million in 2002 from
$10.3 million in 2001. The increase was primarily due to an
increase in one-time revenues associated with new service orders
by existing customers and some incremental recurring revenues
from existing and new customers.
Other services
revenues decreased by 28.6%, or
$2.4 million, to $6.0 million in 2002 from
$8.4 million in 2001. The decrease was primarily due to
non-recurring equipment sales in 2001.
Exited services
revenues increased by 24.5%, or
$5.9 million, to $30.0 million in 2002 from
$24.1 million in 2001. The increase was due to increased
CLEC sales.
Operating Expenses
Total operating expenses increased by 1.1%, or
$2.0 million, to $186.3 million in 2002 from
$184.3 million in 2001. The increase was due to the
following factors: selling, general and administrative expenses
increased due to increased expenditures made in anticipation of
future RLEC acquisitions and expenses related to the relocation
of the TXUCV corporate headquarters, including costs for
employee severance and relocation expenses. Informational
technology costs increased due to systems consolidation
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Table of Contents
projects, including the consolidation of select
billing systems. Bad debt expense increased as the result of a
$2.7 million reserve for MCI receivables and a more
stringent policy for calculating reserves. Offsetting the above
were large cost reductions during 2002 related to CLEC
activities due to exiting non-profitable markets and holding the
CLEC operations for sale. As a result of these activities, net
headcount dropped by 397, to 823 employees at December 31,
2002 from 1,220 employees at December 31, 2001.
Depreciation and Amortization
Depreciation and amortization expense decreased
by 18.3%, or $9.2 million, to $41.0 million in 2002
from $50.2 million in 2001. The decrease was primarily due
to the elimination of goodwill amortization of
$13.7 million recorded in 2001. SFAS No. 142 was
adopted by CCI Texas on January 1, 2002 requiring the
discontinuation of goodwill amortization.
Other Income (Expense)
Other income (expense) decreased 425.0%, or
$5.1 million, to $3.9 million of income in 2002 from
$(1.2) million of expense in 2001. The decrease was
primarily due to a decrease in interest expense of
$3.6 million (net of an allowance for funds used during
construction), an increase in minority interest of
$7.5 million which resulted from the transport impairment
charges recorded in 2002 and a decrease in partnership income of
$0.8 million. These were offset by a decrease in the gain
on sale of property and investments of $5.6 million
primarily related to the sale of an 18.0% interest in a cellular
partnership other than CCI Texas' continuing investment in
GTE Mobilnet of South Texas, L.P. and GTE Mobilnet of Texas
RSA #17, L.P. in December 2001. See Note H
(Investments in Nonaffiliated Companies) to the audited
Consolidated Financial Statements of TXU Communications Ventures
Company and Subsidiaries. Partnership income is primarily
derived from a minority interest in the two continuing cellular
partnerships.
Income Tax Expense (Benefit)
Income tax benefit increased 507.9%, or
$32.0 million, to $(38.3) million in 2002 from
$(6.3) million in 2001. Of this increase,
$34.7 million was associated with the federal income tax
effect of the decrease in income before taxes of
$99.9 million. Related to this was the decrease in state
franchise tax of $3.5 million and the tax effect on
minority interest of $2.6 million. The remaining
$(8.8) million of the increase was primarily due to
permanent differences and a decrease in the valuation reserve.
Critical Accounting Policies and Use of
Estimates
Regulatory Accounting
Consolidated Communications of Texas Company and
Consolidated Communications of Fort Bend Company, as ILECs,
follow the accounting for regulated enterprises prescribed by
SFAS No. 71, Accounting for the Effects of Certain
Types of Regulation, which permits rates (or tariffs) to be set
to levels intended to recover estimated costs of providing
regulated services or products, including capital costs.
SFAS No. 71 requires our Texas RLECs to depreciate
wireline plant over the useful lives approved by the regulators,
which could be different than the useful lives that would
otherwise be determined by management. SFAS No. 71
also requires deferral of certain costs and obligations based
upon approvals received from regulators to permit recovery of
such amounts in future years. Criteria that would give rise to
the discontinuance of SFAS No. 71 include
(1) increasing competition restricting the wireline
business' ability to establish prices to recover specific
costs and (2) significant changes in the manner in which
rates are set by regulators from cost-based regulation to
another form of regulation. Management believes the company is
consistent in the application of these provisions and does not
foresee regulatory, economic, or competitive changes in the near
future that would necessitate a change in its method of
accounting. In analyzing the effects of discontinuing the
application of SFAS No. 71, management has determined
that the useful lives of plant assets used for regulatory and
financial reporting purposes are consistent with accounting
principles generally accepted in the United States and,
therefore, any adjustments to
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telecommunications plant would be immaterial, as
would be the write-off of regulatory assets and liabilities.
Revenue Recognition
Revenues are recognized when the corresponding
services are provided regardless of the period in which they are
billed. Recurring local service revenues are billed in advance,
and recognition is deferred until the service has been provided.
Nonrecurring revenues, such as long distance toll charges and
other usage based billings, is billed in arrears and is
recognized when earned.
Revenues from billing and collection services
provided to long distance and other carriers, and advertising
sold in telephone directories is recorded as miscellaneous
revenues. These revenues are recognized when the service has
been provided or over the life of the contract, as appropriate.
Long distance and data and Internet services are
recognized monthly as services are provided. Revenues from the
sale and maintenance of customer premise equipment is recognized
when the service is provided or over the life of the contract as
appropriate.
Allowance for Uncollectible
    Accounts
We evaluate the collectibility of CCI Texas'
accounts receivable based on a combination of factors. When we
are aware of a specific customer's inability to meet its
financial obligations, such as a bankruptcy filing or
substantial down-grading of credit scores, CCI Texas'
records a specific allowance against amounts due to set the net
receivable to an amount it believes reasonable to be collected.
For all other customers, CCI Texas reserves a percentage of the
remaining outstanding accounts receivable balance as a general
allowance based on a review of specific customer balances,
company trends and experience with prior receivables, the
current economic environment and the length of time the
receivables are past due. If circumstances change, CCI Texas
will review the adequacy of the allowance, and its estimates of
the recoverability of amounts due it could be reduced by a
material amount.
Goodwill and Intangible
    Assets
During 2001 FASB issued Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible
Assets, or SFAS No. 142, which requires that effective
January 1, 2002, goodwill recorded in business combinations
cease amortizing. SFAS No. 142 requires that goodwill
be reviewed for impairment using fair value measurement
techniques. Specifically, goodwill impairment is determined
using a two-step process. The first step of the goodwill
impairment test is used to identify potential impairment by
comparing the fair value of the reporting unit to its carrying
value, including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired and the second step of the impairment
test is unnecessary. If the fair value of the reporting unit is
less than the carrying value, the second step of the goodwill
impairment test calculation is performed to measure the amount
of the impairment charge. The second step of the goodwill
impairment test compares the implied fair value of the reporting
unit's goodwill with its carrying value. The implied fair
value of goodwill is determined in the same manner as the amount
of goodwill recognized in a business combination. That is, the
fair value of the reporting unit is allocated to all of the
assets and liabilities of that unit (including any unrecognized
intangible assets) as if the reporting unit had been acquired in
a business combination and the fair value of the reporting unit
was the purchase price paid to acquire the reporting unit. If
the implied fair value of goodwill is less than its carrying
value, goodwill must be written down to its implied fair value.
Determining the fair value of a reporting unit
under the first step of the goodwill impairment test and
determining the fair value of individual assets and liabilities
of a reporting unit (including unrecognized intangible assets)
under the second step of the goodwill impairment test is
judgmental in nature and often involves the use of significant
estimates and assumptions. These estimates and assumptions could
have a significant impact on whether or not an impairment charge
is recognized and also the magnitude of any such charge. We
perform internal valuation analyses and consider other market
information that is publicly
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available. Estimates of fair value are primarily
determined using discounted cash flows. This approach uses
significant estimates and assumptions including projected future
cash flows (including timing) and the selection of a discount
rate that reflects the risk inherent in future cash flows.
Upon completion of our initial assessment in
January 2002, we determined that no write-down in the carrying
value of goodwill was required. CCI Texas conducted
impairment tests on October 1, 2003 and October 1,
2002 and, as a result of TXU Corp.'s decision in 2003 to
sell TXUCV for a known price and CCI Texas' decision
to exit the CLEC and transport businesses recognized on its
consolidated financial statements, impairment losses of
$13.2 million and $18.0 million, respectively, for the
years ended December 31, 2003 and 2002.
Pension and Postretirement
    Benefits
The amounts recognized in the financial
statements related to pension and postretirement benefits are
determined on an actuarial basis utilizing several critical
assumptions.
A significant assumption used in determining our
pension and postretirement benefit expense is the expected
long-term rate of return on plan assets. In 2003, we used an
expected long-term rate of return of 8.5%. We continue to
believe that 8.5% is an appropriate rate of return for our plan
assets given our investment strategy and will continue to use
this assumption for 2004. The projected portfolio mix of the
plan assets is developed in consideration of the expected
duration of related plan obligations and as such is balanced
between equity investments and fixed income securities. Our
investment policy is to invest approximately 50% of the pension
assets in equity funds with the remainder being invested in
fixed income funds and cash equivalents. The expected return on
plan assets is determined by applying the expected long-term
rate of return to the market-related value of plan assets. The
actual return on our equity portfolio has been significantly
below expected return levels due to overall equity market
conditions in 2001 and 2002.
Another significant estimate is the discount rate
used in the annual actuarial valuation of pension and
postretirement benefit plan obligations. In determining the
appropriate discount rate at year-end, we considered the current
yields on high quality corporate fixed-income investments with
maturities corresponding to the expected duration of the benefit
obligations. As of December 31, 2003, the discount rate
utilized was 6.25%.
In connection with the acquisition of TXUCV, TXU
Corp. contributed $2.9 million to TXUCV's pension
plan. We expect to contribute $3.2 million to the pension
plan and $1.0 million to our other post-retirement benefits
plan in 2005.
Useful Life of Property, Plant and
    Equipment
We estimate the useful lives of property, plant
and equipment in order to determine the amount of depreciation
expense to be recorded during any reporting period. The majority
of our telecommunications plant, property and equipment is
depreciated using the group method, which develops a
depreciation rate based on the average useful life of a specific
group of assets, rather than the individual asset as would be
utilized under the unit method. The estimated life of the group
is based on historical experience with similar assets as well as
taking into account anticipated technological or other changes.
If technological changes were to occur more rapidly than
anticipated or in a different form than anticipated, the useful
lives assigned to these assets may need to be shortened,
resulting in the recognition of increased depreciation expense
in future periods. Likewise, if the anticipated technological or
other changes occur more slowly than anticipated, the life of
the group could be extended based on the life assigned to new
assets added to the group. This could result in a reduction of
depreciation expense in future periods. We review these types of
assets for impairment when events or circumstances indicate that
the carrying amount may not be recoverable over the remaining
lives of the assets. In assessing impairment, we follow the
provisions of Statement of Financial Accounting Standards
No. 144,
Accounting for the Impairment or Disposal of
Long-Lived Assets
, or SFAS No. 144, utilizing cash
flows which take into account management's estimates of
future operations.
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BUSINESS
Overview
We are an established rural local exchange
company that provides communications services to residential and
business customers in Illinois and in Texas. As of
September 30, 2004, we were the 16th largest local
telephone company in the United States, based on industry
sources, with approximately 257,726 local access lines and
approximately 24,385 DSL lines in service. Our main sources of
revenues are our local telephone businesses in Illinois and
Texas, which offer an array of services, including local dial
tone, custom calling features, private line services, long
distance, dial-up and high-speed Internet access, carrier access
and billing and collection services. We also operate a number of
complementary businesses. In Illinois, we provide additional
services such as telephone services to county jails and state
prisons, operator and national directory assistance and
telemarketing and order fulfillment services. In Texas, we
publish telephone directories and offer wholesale transport
services on a fiber optic network.
Each of the subsidiaries through which we operate
our local telephone businesses is classified as an RLEC under
the Telecommunications Act. Our RLECs are ICTC, Consolidated
Communications of Fort Bend Company and Consolidated
Communications of Texas Company. RLECs are typically
characterized by stable operating results and consistently
strong cash flows and operate in generally supportive regulatory
environments. In addition, because our RLECs primarily provide
service in rural areas, competition for local telephone service
has been limited due to the generally unfavorable economics of
constructing and operating competitive systems in these areas.
We had $327.1 and $244.9 million of revenues
for the year ended December 31, 2003 and for the nine
months ended September 30, 2004, respectively. We had a
$9.5 million net loss for the year ended December 31,
2003 and $8.5 million of net income for the nine months
ended September 30, 2004, respectively.
Our Strengths
Consistently Strong Cash
    Flows
Our RLEC's have generated consistently
strong cash flows from operating activities due to relatively
consistent customer demand for our services. Historically,
demand for telephone services from residential and small
business customers in rural parts of the United States has been
stable. The stability of demand, combined with a generally
supportive regulatory environment and limited competition, has
allowed our RLECs to generate predictably strong cash flows from
operating activities. We believe these conditions will continue
to exist.
Favorable Regulatory
    Environment
Each of the subsidiaries through which we operate
our local telephone businesses is classified as an RLEC under
the Telecommunications Act. As a result, we are exempt from some
of the more burdensome interconnection and unbundling
requirements that have affected larger ILECs. Also, we benefit
from federal and Texas state subsidies designed to promote
widely available, quality telephone service at affordable prices
in rural areas, which are also referred to as universal service.
In 2003, CCI Illinois received $6.0 million from the
federal universal service fund and CCI Texas received an
aggregate $41.4 million from the federal universal service
fund and the Texas universal service fund. Of the
$41.4 million received by CCI Texas, $6.4 million
represented the recovery of additional subsidy payments from the
universal service fund for prior periods, which was a larger
out-of-period adjustment than in prior years. In the aggregate,
the $47.4 million comprised 14.5% of our revenues in 2003,
after the effect of TXUCV acquisition. For the nine months ended
September 30, 2004, CCI Illinois received
$10.0 million from the federal universal service fund,
$2.7 million of which represented the recovery of
additional subsidy payments from the federal universal service
fund for prior periods and CCI Texas received an aggregate
$11.9 million from the federal universal service fund and
the Texas universal service fund, $2.7 million of which
represented the recovery of additional subsidy payments from the
federal universal
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service fund for prior periods. In the aggregate,
the $21.9 million comprised 8.9% of revenues for the nine
months ended September 30, 2004.
Attractive Markets and Limited
    Competition
The geographic areas in which our RLECs operate
are characterized by a balanced mix of stable, insular
territories in which we have limited competition and growing
suburban areas where we expect our business to grow in tandem.
Currently, we have limited competition for voice services from
wireless carriers and cable providers.
Our Lufkin, Texas and central Illinois markets
have experienced nominal population growth over the past decade.
As of September 30, 2004, 136,289 or approximately 53% of
our 257,726 local telephone access lines were located in these
markets. We have experienced limited competition in these
markets because the low customer density and high residential
component discourage the significant capital investment required
to offer service over a competing network.
Our Conroe, Texas and Katy, Texas markets are
suburban areas located on the outskirts of the Houston
metropolitan area that have experienced above-average population
and business employment growth over the past decade as compared
to Texas and the United States as a whole. According to the most
recent census, the median household income in the primary county
in our Conroe market was over $50,000 per year and in our
Katy market was over $60,000 per year, both significantly
higher than the median household income in Texas of
$39,927 per year. As of September 30, 2004, 121,437 or
approximately 47% of our 257,726 local access lines, were
located in these markets.
Technologically Advanced
    Network
We have invested significantly in the last
several years to build a technologically advanced network
capable of delivering a broad array of reliable, high quality
voice and data and Internet services to our customers on a
cost-effective basis. For example, as of September 30,
2004, approximately 90% of our total local access lines in both
Illinois and Texas are DSL-capable (excluding access lines
already served by other high speed connections). The service
options we are able to provide over our existing network allow
us to generate additional revenues per customer. We believe our
current network in Illinois is capable of supporting video with
limited additional capital investment.
Broad Service Offerings and Bundling of
    Services
We offer our customers a single point of contact
for access to a broad array of voice and data and Internet
services. For example, we offer all of our customers custom
calling features, such as caller name and number identification,
call forwarding and call waiting. In addition, we offer
value-added services such as teleconferencing and voicemail.
These service options allow us to generate additional revenues
per customer.
We also generate additional revenues per customer
by bundling services. Bundling enables us to provide a more
complete package of services to our customers at a relatively
small incremental cost to us. We believe the bundling of
services results in increased customer loyalty and higher
customer retention. As of September 30, 2004, our Illinois
Telephone Operations had over 6,300 customers who subscribed to
service bundles that included local service, custom calling
features and voicemail and approximately 1,900 additional
customers who subscribed to service bundles that included local
service, custom calling features, voicemail and Internet access.
This represents an increase of approximately 21% over the number
of Illinois customers who subscribed to service bundles as of
December 31, 2003. Our Texas Telephone Operations
introduced a new campaign to market service bundles and sold
over 7,500 new service bundles between their introduction in
October 2003 and December 2003 and over 7,900 for the nine
months ended September 30, 2004.
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Experienced Management Team with Proven
    Track Record
With an average of approximately 20 years of
experience in both regulated and non-regulated
telecommunications businesses, our management team has
demonstrated the ability to deliver profitable growth while
providing high levels of customer satisfaction. Specifically,
our management team has:
•
particular expertise in providing superior
    quality services to rural customers in a regulated environment;
•
a proven track record of successful business
    integrations, including the integration of ICTC and several
    related businesses, including long distance and private line
    services, into McLeodUSA in 1998; and
•
a proven track record of launching and growing of
    new, regulated services, such as long distance and DSL services,
    and complementary services, such as operator and telemarketing
    and order fulfillment services.
Business Strategy
Improve Operating Efficiency and Maintain
    Capital Expenditure Discipline
Since acquiring ICTC and the related businesses
in December 2002, we have made significant operating and
management improvements. We have centralized many of our
business and back office functions for our Illinois Telephone
Operations. By providing these centrally managed resources to
our Illinois operating companies, we have allowed our management
and customer service functions to focus on their business and to
better serve our customers in a cost-effective manner. We intend
to continue to seek and implement more cost efficient methods of
managing our business, including sharing best practices across
our operations.
We believe we have successfully managed the
capital expenditures for our Illinois Telephone Operations in
order to optimize our returns, while appropriately allocating
resources to allow us to maintain and upgrade our network. We
intend to maintain our capital expenditure discipline across our
company.
Increase Revenues Per
    Customer
We will continue to focus on increasing our
revenues per customer, primarily by seeking to increase our DSL
service's market penetration, increasing the sale of other
value-added services and encouraging customers to subscribe for
service bundles. We believe that this strategy enables us to
provide a more complete package of services to our customers and
increase our revenues per customer at a relatively small
incremental cost to us.
As of September 30, 2004, our Illinois RLEC
had over 6,300 customers who subscribed to service bundles that
included local service, custom calling features and voicemail
and approximately 1,900 additional customers who subscribed to
service bundles that included these services and Internet
access. This represents an increase of approximately 21% over
the number of Illinois customers who subscribed to service
bundles as of December 31, 2003. Our Texas Telephone
Operations introduced a new campaign to market service bundles
and sold over 7,500 new service bundles between their
introduction in October 2003 and December 2003 and over 7,900
for the nine months ended September 30, 2004. As of
September 30, 2004, approximately 20,200 customers in Texas
have subscribed to our service bundles.
We are expanding our service bundle in Illinois
with the introduction of an all-digital video service. Having
made the necessary upgrades to our network and purchased
programming content, we intend to launch digital video service
in the first quarter of 2005 in our key Illinois exchanges:
Mattoon; Charleston; and Effingham. Initial customer feedback
has been positive, and management believes that video will
enhance the competitive appeal of our service bundle and
increase revenue per customer.
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We plan to use innovative marketing strategies
for enhanced, ancillary services and to continue to offer new
applications and technologies. By building on our long-standing
relationships with our customers while continuing to offer new
services, we believe we can continue to generate strong revenues
and cash flow.
Build on our Reputation for High Quality
Service
We will seek to continue to build on our strong
reputation, which dates to 1894 in Illinois and 1898 in Texas.
We plan to do this by continuing to offer a broad array of high
quality telecommunications services and consistent, high quality
customer service. We have consistently exceeded all ICC and PUCT
quality of service requirements, and we believe we can continue
this standard of excellence throughout the company. We will
continue to focus on building long-term relationships with our
customers by having an active local presence. We believe these
strategies will lead to high levels of customer loyalty and
increased demand for our services in Illinois and Texas.
Selective
Acquisitions
We intend to pursue a disciplined process of
selective acquisitions of access lines from Regional Bell
Operating Companies and other rural local exchange carriers, as
well as acquiring providers of businesses complementary to ours,
such as dial-up and DSL Internet access services. Over the past
five years, Regional Bell Operating Companies have divested a
significant number of access lines nationwide and are expected
to continue these divestitures in order to focus on larger
markets. We also believe there may be attractive opportunities
to acquire rural local exchange carriers. For example, in
Illinois and Texas, there are approximately 90 rural local
exchange carriers serving a fragmented market representing
approximately 1.5 million total access lines. Our
acquisition criteria include:
•
attractiveness of the markets;
•
quality of the network;
•
our ability to integrate the acquired company
    efficiently;
•
potential operating synergies; and
•
the potential of any proposed transaction to
    permit increased dividends on our common stock.
History of the Company
Founded in 1894 as the Mattoon Telephone Company
by the great-grandfather of our Chairman, Mr. Lumpkin, CCI
Illinois began as one of the nation's first independent
telephone companies. After several subsequent acquisitions, the
Mattoon Telephone Company was incorporated as the Illinois
Consolidated Telephone Company, or ICTC, on April 10, 1924.
On September 24, 1997, McLeodUSA acquired the predecessor
of CCI.
The Lumpkin family has been continuously involved
in managing CCI Illinois since inception, including the period
during which it was owned by McLeodUSA, when Mr. Lumpkin
served as Vice Chairman of McLeodUSA and Chairman of ICTC. In
December 2002, Mr. Lumpkin, through his affiliated entity
Central Illinois Telephone, together with Providence Equity and
Spectrum Equity, purchased the capital stock and assets of ICTC
and several related businesses from McLeodUSA for
$271.2 million and assumed specified liabilities. CCI
Holdings was formed on March 22, 2002 as an acquisition
vehicle for the purpose of acquiring ICTC and several related
businesses from McLeodUSA.
TXUCV began operations in November 1997 with the
acquisition by TXU Corp. of Lufkin-Conroe Communications, a
fourth-generation family-owned business founded in 1898. The
RLEC subsidiary of Lufkin-Conroe Communications was renamed TXU
Communications Telephone Company. In August 2000, TXU Corp.
contributed the parent company of Fort Bend Telephone
Company, a family-owned business based in Katy, Texas which
began operations in 1914, to TXUCV. Beginning in 1999, TXUCV
began operating a CLEC in a number of local markets within
Texas. In late 2001, TXUCV decided to
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refocus its business strategy on its Texas RLECs.
TXUCV systematically exited its CLEC markets, culminating in the
sale of some of its CLEC operations to Texas-based Grande
Communications in March 2003 and the termination of the
remainder of its CLEC operations by June 2003.
On April 14, 2004, we acquired TXUCV, an
indirect, wholly owned subsidiary of TXU Corp., for a cash
purchase price of $527.0 million, subject to adjustment.
Texas Holdings, a Delaware corporation, was formed on
October 8, 2003 for the sole purpose of acquiring TXUCV
from TXU Corp. TXUCV was subsequently renamed to CCV.
CCI Holdings is a holding company with no income
from operations or assets except for the capital stock of CCI
and Texas Holdings. Instead, all of our operations are conducted
through CCI and its consolidated subsidiaries, referred to as
CCI Illinois, and Texas Holdings and its consolidated
subsidiaries, referred to as CCI Texas.
Telephone Operations
Illinois
Our Illinois Telephone Operations consist of
local telephone, long distance and data and Internet services
and serves residential and business customers in central
Illinois. As of September 30, 2004, our Illinois Telephone
Operations had approximately:
•
88,254 local access lines in service, of which
    approximately 64% served residential customers and 36% served
    business customers;
•
61% long distance penetration of its local access
    lines;
•
8,038 dial-up Internet customers; and
•
10,109 DSL lines, which represented an
    approximately 11.5% penetration of total local access lines.
    Approximately 90% of our total local access lines in Illinois,
    excluding local access lines already served by other high speed
    connections, are DSL-capable.
In 2003, our Illinois Telephone Operations
generated $90.3 million of revenues and $28.2 million
from cash flows from operating activities. For the nine months
ended September 30, 2004, our Illinois Telephone Operations
generated $71.9 million of revenues and $17.6 million
of cash flows from operating activities. As of
September 30, 2004, our Illinois Telephone Operations had
total assets of $245.5 million.
The following chart summarizes the primary
sources of revenues for Illinois Telephone Operations for the
nine months ended September 30, 2004.
% of Net
Revenue of Illinois
Revenue Source
Telephone Operations
Description
Local Calling Services
35.6%
Offers the local customer the ability to
    originate and receive an unlimited number of calls within a
    defined local calling area. The customer is charged a flat
    monthly fee for basic service, including local calls, and
    service charges for custom calling features, value added
    services and local private line services.
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% of Net
Revenue of Illinois
Revenue Source
Telephone Operations
Description
Network Access Services
24.6%
Offers long distance and other carriers the
    opportunity to use our Illinois network to originate or
    terminate long distance calls in our Illinois service area.
    Network access charges are paid by the long distance or other
    carriers to our Illinois Telephone Operations and are regulated
    by the FCC and the ICC. These revenues also include special
    access and certain regulated, end-user charges.
Subsidies
13.9%
Our Illinois Telephone Operations receive federal
    subsidy payments designed to promote widely available, quality
    telephone service at affordable prices in rural areas.
Long Distance Services
11.6%
Offers intrastate and interstate long distance
    services provided to local customers in Illinois who subscribe
    to our Telephone Operations' long distance services.
Data and Internet Services
9.9%
Offers DSL, non-local private line service,
    dial-up Internet access and frame relay networks and related
    enhanced Internet services.
Other Services
4.4%
Offers other services, including billing and
    collection services and commissions from the sale of advertising
    for yellow and white pages directories.
The percentages of revenues listed above have
been adjusted to eliminate intra-company revenues and provide
more detail than that presented in the consolidated statement of
income of CCI. See consolidated financial statements of CCI and
audited combined financial statements of ICTC and the related
businesses.
Local calling services
include dial tone and local calling
services. Our Illinois Telephone Operations generally charge
residential and business customers a fixed monthly rate for
access to the network and for originating and receiving
telephone calls within their local calling area, which is the
geographic area established for administration and pricing of
telecommunications services. Custom calling features consist of
caller name and number identification, call forwarding and call
waiting. Value added services consist of teleconferencing and
voicemail. For custom calling features and value added services,
our Illinois Telephone Operations usually charge a flat monthly
fee, which varies depending on the type of service. In addition,
our Illinois Telephone Operations offer local private lines
providing direct connections between two or more local locations
primarily to business customers at flat monthly rates.
Network access services
allow the origination or termination
of calls in our Illinois service area for which our Telephone
Operations charge long distance or other carriers network access
charges, which are regulated. Network access fees also apply to
private lines provisioned between a customer in our Illinois
service area and a location outside of our Illinois service
area. For long distance calls, our Illinois Telephone Operations
bill the long distance or other carrier on a per minute or per
minute, per mile usage basis. For private lines, our Illinois
Telephone Operations bill the long distance or other carrier at
a flat monthly rate. Included in this category are subscriber
line charges paid by the end user.
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Our Illinois Telephone Operations record the
details of the long distance and private line calls through its
carrier access billing system and bills the applicable carrier
on a monthly basis. The network access charge rates for
intrastate long distance calls and private lines within Illinois
are regulated and approved by the ICC, whereas the access charge
rates for interstate long distance calls and private lines are
regulated and approved by the FCC.
Subsidies consist of federal subsidies designed
to promote widely available, quality telephone service at
affordable prices in rural areas. The subsidies are allocated
and distributed to our Illinois Telephone Operations from funds
to which telecommunications providers, including local, long
distance and wireless carriers, must contribute on a monthly
basis. Funds are distributed to our Illinois Telephone
Operations on a monthly basis based upon our costs for providing
local service in Illinois. Unlike our Texas Telephone
Operations, our Illinois Telephone Operations receive federal
but not state subsidies.
Long distance services in Illinois include
services provided to subscribers to long distance plans to
originate calls that terminate outside the caller's local
calling area. For this service, our Illinois Telephone
Operations charges its subscribers a combination of subscription
and usage fees.
Data and Internet services include revenues from
non-local private lines and the provision of access to the
Internet by DSL, T-1 lines and dial-up access. Our Illinois
Telephone Operations also offer a variety of data connectivity
services, including frame relay networks. Frame relay networks
are public data networks commonly used for local area network to
local area network communications as an alternative to private
line data communications. In addition, our Illinois Telephone
Operations offer enhanced Internet services, which include basic
web site design and hosting, content feeds, domain name
services, e-mail services and obtaining Internet protocol
addresses.
Other services includes revenues from billing and
collection services. Our Illinois Telephone Operations also
receive what is referred to as revenue retention payments. These
payments are essentially a commission on advertising revenues
paid to ICTC by The Yell Group, which publishes yellow and white
pages directories for our Illinois service area.
Texas
Our Texas Telephone Operations serve residential
and business customers in east Texas and rural and suburban
areas surrounding Houston. As of September 30, 2004, our
Texas Telephone Operations had approximately:
•
169,472 local access lines in service, of which
    approximately 67% served residential customers and 33% served
    business customers;
•
39% long distance penetration of its local access
    lines in Texas;
•
14,971 dial-up Internet customers; and
•
14,276 DSL lines, which represented an
    approximately 8.4% penetration of total local access lines.
    Approximately 90% of our total local access lines, excluding
    local access lines already served by other high speed
    connections, are DSL-capable.
Our Texas Telephone Operations also include the
following complementary businesses:
Directory Publishing
sells directory advertising and publishes yellow and white pages
directories in and around our Texas RLECs' service areas.
The directories are each published once per year and have a
combined circulation in excess of 400,000.
Transport Services
provides connectivity to customers within Texas over a fiber
optic transport network consisting of approximately 2,500
route-miles of fiber. This transport network supports our long
distance, Internet access and data services in Texas and
provides bandwidth on a wholesale basis to third party
customers, including national long distance and wireless
carriers. The transport network includes fiber owned by
Consolidated Communications Transport Company, a wholly owned
subsidiary of CCV and East Texas Fiber Line Incorporated, a
corporation in which our Texas Telephone Operations own a 63.0%
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equity interest. In addition, Consolidated
Communications Transport Company owns a 39.1% equity interest
in, and is the managing partner of, Fort Bend Fibernet, a
partnership.
Cellular
Partnerships.
Our Texas Telephone
Operations hold equity interests in the following two cellular
partnerships:
•
GTE Mobilnet of South Texas, which serves the
    greater Houston metropolitan area. Our Texas Telephone
    Operations own 2.3% of the equity of this partnership. In 2003
    and for the nine months ended September 30, 2004, our Texas
    Telephone Operations recognized income of $1.8 million and
    $1.8 million, respectively, and received cash distributions
    totaling $0.7 million and $3.2 million, respectively,
    from this partnership.
•
GTE Mobilnet of Texas RSA #17, which serves
    rural areas in and around Conroe, Texas. Our Texas Telephone
    Operations own 17.0% of the equity of this partnership. In 2003
    and for the nine months ended September 30, 2004, our Texas
    Telephone Operations recognized income of $1.4 million and
    $1.3 million, respectively, and received cash distributions
    totaling $1.2 million and $0.5 million, respectively,
    from this partnership.
San Antonio MTA, L.P., a wholly owned
partnership of Cellco Partnership (doing business as Verizon
Wireless), is the general partner for both partnerships.
In 2003, our Texas Telephone Operations generated
$194.8 million of revenues and $75.1 million from cash
flows from operating activities on a historical basis. For the
nine months ended September 30, 2004, our Texas Telephone
Operations generated $143.1 million of revenues and
$46.1 million of cash flows from operating activities. As
of September 30, 2004, our Texas Telephone Operations had
total assets of $734.6 million on an historical basis.
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The following chart summarizes the primary
sources of revenues for our Texas Telephone Operations for the
nine months ended September 30, 2004.
% of Net
Revenue of Our
Revenue Source
Texas Telephone Operations
Description
Local Calling Services
30.6
%
Offers the local customer in Texas the ability to
    originate and receive an unlimited number of calls within a
    defined local calling area. The customer is charged a flat
    monthly fee for basic service, including local calls, and
    service charges for custom calling features, voicemail and local
    private line services.
Network Access Services
19.5
%
Offers long distance and other carriers the
    opportunity to use our Texas network to originate or terminate
    long distance calls in our Texas service areas. Network access
    charges are paid by the long distance or other carriers to our
    Texas Telephone Operations and are regulated by the FCC and
    PUCT. These revenues also include special access and certain
    regulated, end user charges.
Subsidies
22.3
%
Our Telephone Operations in Texas receive federal
    and state subsidy payments designed to promote widely available,
    quality telephone service at affordable prices in rural areas.
Long Distance Services
5.8
%
Offers intrastate and interstate long distance
    services provided to local customers who subscribe to our long
    distance services in Texas.
Data and Internet Services
7.3
%
Offers DSL, non-local private line service,
    dial-up Internet access, Asynchronous Transfer Mode, or ATM,
    based services and frame relay networks and related enhanced
    Internet services.
Directory Publishing
5.8
%
Offers the sale of directory advertising and
    publishes yellow and white pages directories in and around our
    Texas service areas.
Transport Services
5.7
%
Offers connectivity to customers within Texas
    over a fiber-optic transport network.
Other Services
3.0
%
Offers other services, including equipment sales
    and billing and collection services.
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The percentages of revenues listed above have
been adjusted to eliminate intra-company revenues and provides
more detail than that presented in the consolidated statement of
operations and comprehensive loss of CCV. See the Consolidated
Financials Statements of CCV and its predecessor, TXUCV.
Local call services include dial tone and local
calling services. Our Texas Telephone Operations generally
charge residential and business customers a fixed monthly rate
for access to the network and for originating and receiving
telephone calls within their local calling areas. Custom calling
and other features include caller name and number
identification, call forwarding, call waiting and voicemail. For
custom calling features, our Texas Telephone Operations usually
charge a flat monthly fee, which varies depending on the type of
service. In addition, our Texas Telephone Operations offer local
private lines providing direct connections between two or more
local locations primarily to business customers at flat monthly
rates.
Network access services allow the origination or
termination of calls in our Texas service areas for which our
Texas Telephone Operations charge long distance or other
carriers network access charges. The network access fees also
apply to private lines provisioned between a customer in one of
our Texas service areas and a location outside of such service
area. For long distance calls, our Texas Telephone Operations
bill the long distance or other carrier on a per minute or per
minute per mile usage basis. For private lines, our Texas
Telephone Operations bill the long distance or other carrier at
a flat monthly rate. Included in this category are subscriber
line charges paid by the end user.
Our Texas Telephone Operations record the details
of the long distance and private line calls through its carrier
access billing system and bills the applicable carrier on a
monthly basis. The network access charge rates for intrastate
long distance calls and private lines within Texas are regulated
and approved by the PUCT, whereas the access charge rates for
interstate long distance calls and private lines are regulated
and approved by the FCC.
Subsidies
consist of
federal and state subsidies designed to promote widely
available, quality telephone service at affordable prices in
rural areas. The federal and state subsidies are allocated and
distributed to our Texas Telephone Operations from funds to
which telecommunications providers, including local, long
distance and wireless carriers, must contribute on a monthly
basis. Funds are distributed to our Texas Telephone Operations
on a monthly basis based upon our costs for providing local
service.
Long distance services
include services provided to Texas
subscribers to our long distance plans to originate calls that
terminate outside the caller's local calling area. For this
service, our Texas Telephone Operations charge their subscribers
a combination of subscription and usage fees.
Data and Internet services
includes revenues from non-local
private lines and the provision of access to the Internet by
DSL, T-1 lines and dial-up access. Our Texas Telephone
Operations also offer a variety of data connectivity services,
including ATM services and frame relay networks. ATM is a
high-speed switching technique used to transmit voice, data and
video. In addition, our Texas Telephone Operations offer
enhanced Internet services, which include domain name services,
obtaining Internet protocol addresses, e-mail services and web
site and hosting services.
Directory Publishing
includes revenues from the sale of
directory advertising and the publication of yellow and white
pages directories in and around our Texas service areas.
Transport services
includes revenues from the sale of
transmission services for high-capacity data circuits over a
fiber-optic transport network within Texas.
Other services
includes revenues from equipment sales
and billing and collection services.
Exited services
are
services that are no longer offered by our Texas Telephone
Operations, including the CLEC operations and wholesale long
distance services.
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Other Operations
Our Other Operations consist of the following
complementary businesses:
•
Public Services
provides local and long distance service and automated collect
    calling from county jails and state prisons in Illinois under
    multi-year contracts as described under
    "— Customers and Markets". These services
    include fraud control, customer service, call management and
    technical field support. The range of customized applications
    include institution-specific branding, call time and dollar
    limits, 3-way call detection, Personal Identification Number
    System, call blocking and screening, public defender access,
    call restriction application, on-site training, fully automated
    collect calls, touch tone and rotary dial acceptable, inmate
    tested equipment and monitors and recorders. Public Services
    also provides payphone services to approximately 356 payphones
    in our Illinois service area.
•
Operator Services
offers both live and automated local and long distance operator
    assistance in Texas and national directory assistance on a
    wholesale and retail basis to ILECs, CLECs, long distance
    companies and payphone providers. Operator Services also
    provides specialized message center services and corporate and
    governmental attendant services and private corporate directory
    assistance and messaging services to corporations and government
    agencies.
•
Market Response
provides telemarketing and order fulfillment services to
    customers nationwide. Our order fulfillment services provide our
    clients with the ability to quickly and cost-effectively meet
    their customers' requests for shipment of information and
    products. Typically, these customers are responding to a
    direct-response advertising campaign by the Internet, mail or
    telephone.
•
Business Systems
sells, installs and maintains telecommunications equipment and
    wiring to residential and business customers in our Illinois
    service area and in nearby, larger markets including Champaign,
    Decatur and Springfield, Illinois. This operation allows us to
    cross-sell our services to many of our business customers in
    Illinois, such as colleges, hospitals and secondary schools.
•
Mobile Services
provides one-way messaging service to residential and business
    customers. The basic paging capability has been supplemented
    with other complimentary mobile information services, including
    Internet, 800 service, info-text and voicemail.
In 2003, our Other Operations in Illinois
generated $42.0 million of revenues and $0.7 million
from cash flows from operating activities. For the nine months
ended September 30, 2004, our Other Telephone Operations in
Illinois generated $29.9 million of revenues and
$1.9 million of cash flows from operating activities. As of
September 30, 2004, our Other Operations in Illinois had
total assets of $71.6 million.
Customers and Markets
Illinois
Our local telephone markets consist of
35 geographically contiguous exchanges serving
predominantly small towns and rural areas in an approximately
2,681 square mile area in central Illinois. An exchange is
a geographic area established for administration and pricing of
telecommunications services. Our Illinois Telephone Operations
is the incumbent provider of basic telephone services within
these exchanges, with approximately 88,254 local access
lines, or approximately 33 lines per square mile, as of
September 30, 2004. Approximately 64% of our local access
lines serve residential customers and the remainder serve
business customers. Our business customers, 75.8% of which have
one to three lines, are predominantly in the light manufacturing
and services industries or are universities and hospitals.
AT&T and McLeodUSA accounted for approximately 14.0% and
12.5%, of the revenues of our Illinois Telephone Operations in
2003 and for the nine months ended September 30, 2004,
respectively.
The local telephone markets served by our
Illinois Telephone Operations include all or a substantial
percentage of five counties: Coles, Christian, Montgomery,
Effingham and Shelby. According to the
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U.S. Census 2000, the population in these
counties has grown slightly in the last ten years, which is
consistent with our belief that these markets are mature and
stable.
Key Illinois Market Data
We list below selected data from the
U.S. Census 2000, together with our number of local access
lines in Illinois as of September 30, 2004.
Coles
Christian
Montgomery
Effingham
Shelby
Other
Totals
2000 Census Data
County Population (2000)
53,196
35,372
30,652
34,264
22,893
n/a
176,377
County Population CAGR 1990-2000
0.30
%
0.27
%
(0.03
)%
0.78
%
0.28
%
n/a
n/a
County Median Household Income
$
32,286
$
36,561
$
33,123
$
39,379
$
37,313
n/a
n/a
Market Territory (sq. miles)
531
662
585
26
520
357
2,681
Local Access Lines
Residence
19,576
12,512
9,731
4,476
6,172
4,174
56,641
Business
13,066
4,694
4,285
5,616
1,999
1,953
31,613
Total
32,642
17,206
14,016
10,092
8,171
6,127
88,254
Number of Exchanges
5
9
7
1
8
5
35
Each of the counties in which our Illinois
Telephone Operations operate consists of predominantly small
towns and agricultural areas with a mix of small businesses. Our
two largest exchanges in Illinois are Mattoon and Charleston,
which are in Coles County. Effingham County's largest town
is Effingham, which is our Illinois Telephone Operations'
third largest exchange, tied for seventh place in Site Selection
Magazine's March 2003 ranking of the best U.S. small
town for corporate facilities.
Our Illinois Telephone Operations' largest
network access customers include AT&T, McLeodUSA and MCI,
collectively representing 14.9% and 13.8% of our Illinois
Telephone Operations' revenues for 2003 and the nine months
ended September 30, 2004, respectively.
Texas
Our 21 exchanges in Texas serve three
principal geographic markets, Conroe, Lufkin and Katy, Texas in
an approximately 2,054 square mile area. Lufkin is located
in east Texas and Katy and Conroe are located in the suburbs of
Houston and adjacent rural areas. Our Texas Telephone Operations
is the incumbent provider of basic telephone services within
these exchanges, with approximately 169,472 local access lines,
or approximately 83 lines per square mile, as of
September 30, 2004. As of September 30, 2004,
approximately 67% of our Texas local access lines served
residential customers and the remainder served business
customers. Our Texas business customers, approximately 82% of
which have one to three lines, are predominately in the
manufacturing and retail industries, and our largest business
customers are hospitals, local governments and school districts.
The local telephone markets served by our Texas
Telephone Operations include all or parts of three counties:
Angelina, Fort Bend and Montgomery. The population growth
within Fort Bend and Montgomery has outpaced both the Texas
and U.S. national averages. According to data from the
U.S. Census 2000, the population of these counties grew by
3.6% annually between 1990 and 2000. This compares to a growth
rate of 1.9% for Texas and 1.2% for the United States during the
same period. In addition, according to the most recent census,
the weighted average median household income in our three Texas
markets was $55,298, which was higher than the average for
Texas, which was $39,927, and for the United States, which was
$42,148.
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Key Texas Market Data
In Texas we list below selected data from the
U.S. Census 2000, together with our number of local access
lines as of September 30, 2004.
Conroe Market
Lufkin Market
Katy Market
(Montgomery
(Angelina
(Fort Bend
County)
County)
County)
Totals
2000 Census Data
County Population (2000)
293,768
80,130
354,452
728,350
County Population CAGR 1990-2000
4.9
%
1.4
%
4.6
%
County Median Household Income
$
50,864
$
33,806
$
63,831
Market Territory (sq. miles)
433
1,080
541
2,054
Local Access Lines
Residential
50,572
31,057
32,663
114,292
Business
24,446
16,978
13,756
55,180
Total
75,018
48,035]
46,419
169,472
Number of Exchanges
7
9
5
21
The Conroe market is located primarily in
Montgomery County and is centered approximately 40 miles
north of Houston on Interstate I-45. Parts of the Conroe
operating territory extend south to within 28 miles of
downtown Houston, including parts of the affluent suburb of The
Woodlands. Major industries in this market include education,
health care, manufacturing, retail and social services.
The Lufkin market is centered primarily in
Angelina County in east Texas approximately 120 miles
northeast of Houston and extends into three neighboring
counties. Lufkin is the largest town within this market, which
also includes the towns of Diboll, Hudson and Huntington. The
area is a center for the lumber industry. Other significant
industries include education, health care, manufacturing, retail
and social services.
The Katy market is located in parts of
Fort Bend, Harris, Waller and Brazoria counties and is
centered approximately 30 miles west of downtown Houston
along the busy and expanding I-10 corridor. The majority of the
Katy market is considered part of metropolitan Houston with
major industries including administrative, education, health
care, management, professional, retail, scientific and waste
management services.
Some of our largest network access customers in
Texas include AT&T, MCI and Sprint.
Directory Publishing
sells advertising and publishes yellow
and white pages directories in our Texas service areas and
neighboring communities, with approximately 78% of yellow and
white pages revenues as of September 30, 2004 derived from
customers within our Texas service areas. Directory Publishing
customers are primarily small- to medium-sized local businesses
and companies in surrounding service areas and large national
accounts that advertise nationally in local yellow and white
pages directories.
Transport Services
provides connectivity in and between
major markets in Texas, including Austin, Corpus Christi,
Dallas, Fort Worth, Houston, San Antonio and many
second- and third-tier markets in-between these centers. Major
third party customers in Texas include some of the largest
national wireless and long distance carriers, such as Cingular
Wireless and AT&T.
Other Operations
Public Services
has
provided service to inmates in Illinois state correctional
facilities since 1990 and is currently providing service to
53 state and county correctional institutions. In 2003 and
for the nine months ended September 30, 2004, over 93.3%
and 92.8%, respectively, of Public Services revenues, which was
over 39.3% and 42.2% respectively of our Other Operations'
revenues over the same periods, was derived from a contract with
the Department of Corrections of the State of Illinois. Under
the contract,
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the State of Illinois does not pay Public
Services directly, but rather, Public Services bills and
collects revenue from the called parties and rebates commissions
to the State of Illinois based on this revenue. In 2003 and for
the nine months ended September 30, 2004, the actual
commissions paid by Public Services to the State of Illinois
under this contract was approximately $9.2 million and
$7.1 million, respectively. The initial term of the
contract expires on June 2007, with five additional one-year
extensions available at the State of Illinois' option.
Public Services currently serves 40 of 46 Illinois state
correctional facilities pursuant to this contract.
Operator Services
offers service to callers nationwide.
McLeodUSA represented 51.0% and 50.3% of Operator Services
revenues for 2003 and for the nine months ended
September 30, 2004, respectively, which was 10.9% and 10.1%
respectively of our Other Operations' revenues over the
same periods.
Market Response
provides telemarketing and order
fulfillment services to customers nationwide. The State of
Illinois represented 55.1% and 45.8% of Market Response's
revenues, which was 9.6% and 8.1% of our Other Operations'
revenues during 2003 and for the nine months ended
September 30, 2004, respectively, and 4.7% and 3.2% was
derived from McLeodUSA over the same periods. Revenues derived
from the State of Illinois related to a contract with the
Illinois State Toll Highway Authority pursuant to which Market
Response distributed to customers and provided customer service
for transponders used for electronic toll collection on
Illinois' toll-roads. In May 2004, the State of Illinois
informed us that it had awarded the renewal of this contract to
another provider. Market Response ended its provision of service
to the Illinois State Toll Highway Authority in September 2004.
While the recent non-renewal of the contract with the Illinois
State Toll Highway Authority will have a material impact on the
revenues generated by our Market Response business in the
near-term, we do not expect the loss of this contract to have a
material adverse impact on our results of operations as a whole.
Business Systems
sells, installs and maintains
telecommunications equipment and wiring primarily in our
Illinois service area and nearby cities. Revenues are derived
from equipment sales and maintenance contracts. Most of Business
Systems' equipment sales are telephone systems and
associated wiring to small business customers.
Mobile Services
provides paging services as a
convenience to some of our Illinois Telephone Operations'
emergency medical and government customers in and around our
Illinois service area.
In 2003 and for the nine months ended
September 30, 2004, 49.4% and 50.8%, respectively, of the
revenues of our Other Operations were derived from our
relationships with various agencies of the State of Illinois,
principally the Department of Corrections and the Toll Highway
Authority. Overall, during 2003 and for the nine months ended
September 30, 2004, 16.5% and 14.9%, respectively, of our
revenues were derived from our various relationships with the
State of Illinois. In addition, Public Services receives
revenues from various counties in Illinois. Our
predecessor's relationship with the Department of
Corrections and the Toll Highway Authority have existed since
1990 and 1997, respectively, despite changes in government
administrations. Nevertheless, obtaining contracts from
government agencies is challenging, and government contracts,
like our contracts with the State of Illinois, often include
provisions that are favorable to the government in ways that are
not standard in private commercial transactions. Specifically,
each of our contracts with the State of Illinois:
•
includes provisions that allow the respective
    state agency and county to terminate the contract without cause
    and without penalty under some circumstances;
•
is subject to decisions of state agencies and
    counties that are subject to political influence on renewal;
•
gives the State of Illinois the right to renew
    the contract at its option but does not give us the same
    right; and
•
could be cancelled if state funding becomes
    unavailable.
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Sales and Marketing
Key components of overall sales and marketing
strategy in our Telephone Operations have included the following:
•
positioning itself as a single point of contact
    for customers' telecommunications needs;
•
providing its customers with a broad array of
    voice and data services and bundling services where possible;
•
providing excellent customer service, including
    providing 24-hour, 7-day a week centralized customer support to
    coordinate installation of new services, repair and maintenance
    functions;
•
developing and delivering new services; and
•
with respect to our Illinois Telephone
    Operations, leveraging the history of CCI Illinois and its
    involvement with its local communities and expanding
    "Consolidated Communications" and
    "Consolidated" brand recognition, subject to
    regulatory and strategic business considerations and, with
    respect to our Texas Telephone Operations, leveraging the
    history of CCI Texas and its involvement with its local
    communities.
We have combined the management teams for sales
and marketing for our Illinois and Texas Telephone Operations
into a single centralized organization. Our combined strategy is
focused on:
•
accelerating DSL service penetration in all of
    our service areas;
•
cross-selling our services;
•
developing additional services to maximize
    revenues and increase revenues per customer;
•
increasing customer loyalty through superior
    customer service, local presence and motivated service
    employees; and
•
leveraging the telemarketing, order fulfillment
    and directory-assistance capabilities to provide functions that
    are currently being outsourced by our Texas Telephone
    Operations, a process that has already begun with the migration
    of Texas directory assistance traffic to the system in Illinois
    in May 2004.
Telephone Operations
Our Illinois Telephone Operations currently have
two main sales channels: customer service centers and
commissioned sales people. Our Illinois customer service centers
are the primary sales channels for residential and business
customers with one or two phone lines, whereas commissioned
sales representatives provide customized proposals to larger
business customers. In addition, our customers can also visit
customer retail centers for various communications needs,
including new telephone, Internet and paging service purchases.
We believe that customer service centers have helped decrease
our customers' late payments and bad debt due to their
ability to pay their bills easily at these centers. Our Illinois
Telephone Operations' sales efforts are supported by direct
mail, bill inserts, newspaper advertising, public relations
activities, sponsorship of community events and website
promotions.
Our Texas Telephone Operations currently have two
main sales channels: customer service centers and commissioned
sales people. Our Texas customer service centers are the primary
sales channels for residential customers and business customers
with one or two phone lines, whereas commissioned sales people
provide customized proposals to larger businesses. In addition,
field service technicians in Texas are trained in customer
service and are provided with incentives to cross-sell
additional services to customers. Our sales efforts in Texas are
supported by local print and electronic media advertising, and
also by bill inserts, door hangers, special promotional
activities and sponsorship of community events.
Directory Publishing in Texas is supported by a
dedicated sales force, which spends a certain number of months
each year focused on each of the directory markets in order to
maximize the advertising sales in
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each directory. We believe the directory business
has been an efficient tool for marketing our other services in
Texas and for promoting brand development and awareness.
Transport Services has a sales force that
consists of commissioned sales people specializing in wholesale
transport products.
Other Operations
Each of our Other Operations businesses primarily
use an independent sales and marketing team comprised of
dedicated field sales account managers, management teams and
service representatives to execute our sales and marketing
strategy. These efforts are supported by attendance at industry
trade shows and leadership in industry groups including the
United States Telecom Association, the Associated Communications
Companies of America and the Independent Telephone and
Telecommunications Alliance.
Information Technology and Support
Systems
Our information technology and support systems
staff is a seasoned organization that supports day-to-day
operations and develops system enhancements. The technology
supporting our Telephone Operations is centered on a core of
commercially available and internally maintained systems.
We have developed detailed plans to migrate key
business processes of our Illinois and Texas Telephone
Operations onto single, company-wide systems and platforms. Our
objective is to improve profitability by reducing individual
company costs through the sharing of best practices,
centralization or standardization of functions and processes and
the use of technologies and systems that provide for greater
efficiencies. A number of key billing, network provisioning,
network management and workforce management systems of our
Illinois and Texas Telephone Operations already use common
software and hardware platforms, and we have successfully
completed large-scale customer and billing migration projects in
the last five years in both Illinois and Texas. We believe our
core operating systems and hardware platform will have
significant scalability.
Network Architecture and
Technology
Our local network in Illinois and Texas is based
on a carrier serving area architecture. Carrier serving area
architecture is a structure that allows access equipment to be
placed closer to customer premises enabling the customer to be
connected to the equipment over shorter copper loops than would
be possible if all customers were connected directly to the
carrier's main switch. The access equipment is then
connected back to that switch on a high capacity fiber circuit,
resulting in extensive fiber deployment throughout the network.
The access equipment is sometimes referred to as a digital loop
carrier and the geographic area that it serves is the carrier
serving area.
We have begun the integration of the our long
distance networks in Illinois and Texas and are leveraging the
combined usage of the two networks to obtain reduced costs of
transport and termination from wholesale vendors of those
services. A single engineering team is responsible for the
overall architecture and interoperability of the various
elements in the combined network of our Illinois and Texas
Telephone Operations. Currently, our Illinois Telephone
Operations have a network operations center in Mattoon, which
monitors network performance 24 hours per day,
365 days per year. We believe this network operations
center allows our Illinois and Texas Telephone Operations to
maintain high network performance standards. Our goal is to
interconnect the Illinois and Texas network operations centers,
using common network systems and platforms where possible. We
expect this will allow us to share weekend and after-hours
coverage between markets and more efficiently allocate personnel
to manage fluctuations in our workload volumes.
Our network in Illinois is supported by three
advanced 100% digital switches, with a fiber network connecting
33 of our 35 exchanges and 69 of our 103 field-deployed
carriers. These switches provide all of our Illinois local
telephone customers with access to custom calling features,
value-added services and
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dial-up Internet access. In addition,
approximately 87% of our Telephone Operations' total local
access lines in Illinois, excluding local access lines already
served by other high speed connections, are served by exchanges
or carriers equipped with digital subscriber line access
multiplexers, or DSLAMs, and are within distance limitations for
providing DSL service. DSLAMs are devices designed to separate
voice-frequency signals from DSL traffic. Our Illinois Telephone
Operations have two additional switches, one primarily dedicated
to long distance service and the other primarily dedicated to
Public Services and Operator Services.
In early 2004, we commenced the network
improvements needed to support the introduction of an
all-digital video service that is functionally similar to a
digital cable television offering in our Illinois markets of
Mattoon, Charleston and Effingham. We have since completed the
initial capital investments necessary to provide these services
in these Illinois markets and have begun to test market this
product. Other than the provision of success-based set-top boxes
to subscribers, we do not anticipate having to make any material
capital upgrades to our network infrastructure in connection
with our introduction of home video services in these markets.
Our Texas network is supported by advanced 100%
digital switches, with fiber network connecting all of our 21
exchanges and 68% of our wire centers. These switches provide
all of our Texas local telephone customers with access to custom
calling features. In addition, as of September 30, 2004,
approximately 90% of our Texas total local access lines,
excluding local access lines already served by other high speed
connections, were served by exchanges or carriers are equipped
with DSLAMs and were within distance limitations for providing
DSL service. Our Texas Telephone Operations also dedicate a
separate switch for the provision of long distance service.
Our Texas transport network consists of
approximately 2,500 route-miles of fiber optic cable.
Approximately 56% of this network consists of cable sheath owned
by our Texas Telephone Operations, either directly or through
our majority-owned subsidiary East Texas Fiber Line Incorporated
and a partnership partly owned by us, Fort Bend Fibernet.
For most of the remaining route-miles of the network, we
purchased strands on third-party fiber networks pursuant to
contracts commonly known as indefeasible rights of use. In
limited cases, our Texas Telephone Operations also leases
capacity on third-party fiber networks to complete routes, in
addition to these fiber routes.
Employees
As of September 30, 2004, we had a total of
1,338 employees, of which 787 employees are from CCI Illinois,
(661 of which were full-time and 126 of which were part-time)
and of which 551 employees are from our Texas Telephone
Operations, (547 of which were full-time and four of which were
part-time).
Of the 787 employees of CCI Illinois, 313
employees are attributable to our Illinois RLEC. 341 of our
full-time employees and 124 part-time employees are
represented by the International Brotherhood of Electrical
Workers. The current collective bargaining agreement expires on
November 15, 2005. We believe management currently has a
good relationship with our Illinois union and non-union
employees. In addition, at September 30, 2004, Market
Response had 135 temporary employees hired through a local
temporary employment agency.
Approximately 223 of the employees located in
Lufkin or Conroe, are represented by a collective bargaining
agreement with the Communications Workers of America, which
expired on October 16, 2004. On November 4, 2004, our
Texas Telephone Operations reached an agreement with the union
that was subsequently ratified by its membership. In the winter
of 2003, a union expansion campaign was initiated in Katy but
was unsuccessful. We are not aware of any further attempts to
organize employees in Texas. We believe that management
currently has a good relationship with our Texas union and
non-union employees.
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Properties
Our headquarters and most of the administrative
offices for our Illinois Telephone Operations are located in
Mattoon, Illinois.
The properties that our Illinois Telephone
Operations lease are pursuant to leases that expire at various
times between 2004 and 2007. The following chart summarizes the
principal facilities owned or leased in Illinois as of
September 30, 2004.
Owned/
Approx.
Location
Primary Use
Leased
Sq. Ft.
Charleston
Illinois Telephone Operations Communications
    Center and Market Response Offices(1)
Leased
33,987
Effingham
Office and Illinois Telephone Operations
    Communications Center
Leased
3,365
Mattoon
Sales and Administration Office(1)
Leased
30,687
Mattoon
Corporate Headquarters(1)
Leased
49,054
Mattoon
Operator Services and Operations
Owned
36,263
Mattoon
Archive
Owned
9,097
Mattoon
Operations and Distribution Center(1)
Leased
30,883
Mattoon
Communications Center
Leased
5,677
Mattoon
Market Response Order Fulfillment(2)
Leased
20,000
Mattoon
Office
Owned
10,086
Taylorville
Operations and Branch Distribution Center(1)
Leased
14,655
Taylorville
Office and Illinois Telephone Operations
    Communications Center
Owned
15,934
Taylorville
Operator Services Call Center(2)
Leased
11,500
(1)
In 2002, our Illinois Telephone Operations sold
    these facilities to, and leased them back from, LATEL, LLC, or
    LATEL, an entity affiliated with Mr. Lumpkin. For more
    information about these arrangements, see "Certain
    Relationships and Related Party Transactions — LATEL
    Sale/ Leaseback".
(2)
All properties listed above other than these two
    properties are used by both Illinois Telephone Operations and
    Other Operations. These two properties are used by Other
    Operations only.
In addition to the facilities listed above, our
Illinois Telephone Operations own or have the right to use 181
additional properties consisting of central offices, remote
switching sites and buildings, tower sites, small offices,
storage sites and parking lots. Some of the facilities listed
above also serve as central office locations.
Our Texas Telephone Operations expect to continue
to execute its current strategy of moving all employees into
owned space, with the exception of the offices in Irving and the
long distance switch location in Dallas, and canceling or
subletting leased office space. The properties that our Texas
Telephone Operations leases are pursuant to leases that expire
at various times between 2004 and 2015. Our Texas Telephone
Operations have recently initiated legal proceedings to
terminate our office lease in Irving, Texas. We do not believe,
however, that any liability that may result from such lease
termination would have a material adverse effect on our results
of operations or financial conditions in Texas.
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The following chart summarizes the principal
facilities owned or leased in Texas as of September 30,
2004:
Owned/
Approx.
Location
Primary Use
Leased
Sq. Ft.
Brookshire
Office
Owned
4,400
Conroe
Regional Office
Owned
51,875
Conroe
Warehouse & Plant
Owned
28,500
Conroe
Office
Owned
10,650
Dallas
Office
Leased
5,997
Irving
Current Texas Headquarters —
    Administration
Leased
44,060
Katy
Regional Office
Owned
6,500
Katy
Office (Electric Shop)
Owned
1,600
Katy
Warehouse
Owned
13,983
Katy
Office
Owned
5,733
Lufkin
Regional Office
Owned
30,145
Lufkin
Business Office
Owned
23,190
Lufkin
Warehouse
Owned
14,240
Lufkin
Office and Data Center
Owned
11,920
Lufkin
Office
Owned
8,000
Lufkin
Office and Parking Area
Owned
7,925
Needville
Office
Owned
6,649
Rosenberg
Storage
Leased
10,000
In addition to the facilities listed above, our
Texas Telephone Operations own or have the right to use 275
additional properties consisting of cabinet/pop sites, central
offices, remote switching sites and buildings, small offices,
tower sites, storage sites and parking lots. Some of the
facilities listed above also serve as central office locations.
Legal Proceedings
We currently and from time to time, are subject
to claims arising in the ordinary course of business. Our
Illinois Telephone Operations are not currently subject to any
such claims that we believe could reasonably be expected to have
a material adverse effect on our results of operation or
financial condition in Illinois.
In addition, on March 5, 2004, Michael Hinds
filed a claim against our existing equity investors, Homebase
and Texas Holdings, among others, in the district court of
Harris County, Texas asserting various contract and tort claims
relating to an alleged oral agreement to provide Mr. Hinds
with compensation and investment opportunities in connection
with the acquisition of TXUCV. Although we believe that this
suit is without merit and intend to vigorously defend our
position, we cannot predict at this time the outcome of this
matter.
Industry Overview and Competition
Local Exchange Market
The telecommunications industry is comprised of
companies involved in the transmission of voice, data and video
communications over various media and through various
technologies. There are two predominant types of local telephone
service providers, or carriers, in the telecommunications
industry: ILECs and CLECs. An ILEC refers to the regional bell
operating companies, which were the local telephone companies
created from the break up of AT&T in 1984 and independent
telephone companies,
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such as Cincinnati Bell Inc. and Sprint's
local telephone division, which sell local telephone service.
These ILECs were the traditional monopoly providers of local
telephone service prior to the break up of AT&T. Within the
ILEC sector, there are RLECs, such as our local telephone
operations that operate primarily in rural areas, and regional
bell operating companies, such as SBC and Verizon
Communications. Each of our subsidiaries that operates our local
telephone businesses is classified as an ILEC and a RLEC under
the Telecommunications Act. A CLEC is a competitor to local
telephone companies that has been granted permission by a state
regulatory commission to offer local telephone service in an
area already served by an ILEC.
RLEC Cost Structure and
Competition
In general, telecommunications service in rural
areas is more costly to provide than service in urban areas
because the lower customer density necessitates higher capital
expenditures on a per customer basis. In rural areas, local
access line density is relatively low, typically less than 100
local access lines per square mile versus urban areas that can
be in excess of 300 local access lines per square mile. This low
customer density in rural areas means that switching and other
facilities serve few customers. It also means that a given
length of cable, connecting the telephone company office to end
users, serves fewer customers than it would in a more densely
populated area. As a result, the average operating and capital
cost per line is higher for RLECs than non-rural operators. An
industry source estimates that the total investment cost per
loop for rural operators is $5,000, compared to $3,000 for
non-rural carriers. The amount is estimated to be as high as
$10,000 for the smallest rural carriers. The RLECs' higher
cost structure has two important consequences.
The first consequence is that it is generally not
commercially viable to overbuild an RLEC. In urban areas, where
population density is higher, some CLECs have built redundant
wireline telephone networks within the incumbent provider's
service territory. These facilities-based CLECs compete with the
incumbent providers on their own stand-alone networks. Because
it is comparatively more expensive to build a redundant network
in rural areas, overbuilding is less common in RLEC service
territories.
The second consequence associated with the
RLEC's higher cost structure is the existence of federal
and state subsidies designed to promote widely available,
quality telephone service at affordable prices in rural areas.
This is accomplished through two principal mechanisms. The first
mechanism is through network access fees that regulators
historically have allowed to be set at higher rates in rural
areas than the actual cost of originating or terminating
interstate and intrastate calls. The second mechanism is through
explicit transfers to RLECs via the universal service fund and
state funds such as the Texas universal service fund.
Furthermore, RLECs face less regulatory oversight
than the larger carriers and are exempt from the more burdensome
interconnection requirements of the Telecommunications Act such
as unbundling of network elements, information sharing and
co-location.
Wireline Competition
Despite the barriers to entry for voice services
described above, RLECs face some competition for voice services
from new market entrants, such as cable providers, CLECs and
electric utility companies. Cable providers are entering the
telecommunications market by upgrading their networks with fiber
optics and installing facilities to provide fully interactive
transmission of broadband voice, data and video communications.
Electric utility companies have existing assets and low cost
access to capital that may allow them to enter a market rapidly
and accelerate network development. Increased competition could
lead to price reductions, reduced operating margins and loss of
market share. While we have limited competition for voice
services from cable providers and electric utilities for basic
voice services, we cannot guarantee that we will not face
increased competition from such providers in the future.
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Wireless Competition
RLECs are facing increasing competition for voice
services from wireless carriers. In particular, the FCC's
new number portability rules may result in increased competition
from wireless providers. As of May 2004, the FCC required RLECs
to allow consumers to move a phone number from a wireline phone
to a wireless phone. Generally, RLECs face less wireless
competition than non-rural providers of voice services because
wireless networks in rural areas are generally less developed
than in urban areas. Our Texas RLECs' service areas in
Conroe and Katy, Texas are exceptions to this general rule due
to their proximity to Houston and, as a result, are facing
increased competition from wireless service providers. Although
we do not believe that wireless technology represents a
significant threat to our RLECs in the near term, we expect to
face increased competition from wireless carriers as technology,
wireless network capacity and economies of scale improve,
wireless service prices continue to decline and subscribers
continue to increase.
VOIP Competition
VOIP service is increasingly being embraced by
all industry participants, including AT&T, SBC and Time
Warner. VOIP service essentially involves the routing of voice
calls, at least in part, over the Internet through packets of
data instead of transmitting the calls over the existing
telephone system. While current VOIP applications typically
complete calls using ILEC infrastructure and networks, as VOIP
services obtain acceptance and market penetration and technology
advances further, a greater quantity of communication may be
placed without the use of the telephone system. On
March 10, 2004, the FCC issued a Notice of Proposed
Rulemaking with respect to IP-enabled Services. Among other
things, the FCC is considering whether VOIP Services are
regulated telecommunications services or unregulated information
services. We cannot predict the outcome of the FCC's
rulemaking or the impact on the revenues of our RLECs. The
proliferation of VOIP, particularly to the extent such
communications do not utilize our RLECs' networks, may
result in an erosion of our customer base and loss of access
fees and other funding.
Internet Competition
The Internet services market in which our company
operates is highly competitive and there are few barriers to
entry. Industry sources expect competition to intensify.
Internet services, meaning both Internet access (wired and
wireless) and on-line content services, are provided by cable
providers, Internet service providers, long distance carriers
and satellite-based companies. Many of these companies provide
direct access to the Internet and a variety of supporting
services to businesses and individuals. In addition, many of
these companies offer on-line content services consisting of
access to closed, proprietary information networks. Cable
providers and long distance carriers, among others, are
aggressively entering the Internet access markets. Both have
substantial transmission capabilities, traditionally carry data
to large numbers of customers and have a billing system
infrastructure that permits them to add new services. Satellite
companies are also offering broadband access to the Internet. We
expect that competition for Internet services will increase.
Long Distance Competition
The long distance telecommunications market is
highly competitive. Competition in the long distance business is
based primarily on price, although service bundling, branding,
customer service, billing service and quality play a role in
customers' choices.
Other Competition
Our other lines of business are subject to
substantial competition from local, regional and national
competitors. In particular, our directory publishing and
transport businesses operate in competitive markets. We expect
that competition as a general matter in our businesses will
continue to intensify as new technologies and new services are
offered. Our businesses operate in a competitive environment
where
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long-term contracts are either not the norm or
have cancellation clauses that allow quick termination of the
agreements. Where long-term contracts are common, they are being
renewed with shorter duration terms. Customers in these
businesses can and do change vendors frequently. Customer
business failures and consolidation of customers through mergers
and buyouts can cause loss of customers.
Related Risks
Our ability to compete successfully in our
markets will depend on several factors, including the following:
•
how well we market our existing services and
    develop new technologies;
•
the quality and reliability of our network and
    service; and
•
on our ability to anticipate and respond to
    various competitive factors affecting the telecommunications
    industry, including a changing regulatory environment that may
    affect us differently from our competitors, pricing strategies
    by competitors, changes in consumer preferences, demographic
    trends and economic conditions.
We expect competition to intensify as a result of
new competitors and the development of new technologies,
products and services. In addition, we believe that the
traditional dividing lines between different telecommunications
services will be blurred and that mergers and strategic
alliances may allow one telecommunications provider to offer
increased services or access to wider geographic markets. Some
or all of these risks may cause us to have to spend
significantly more in capital expenditures than we currently
anticipate to keep existing and attract new customers.
Some of our voice and data competitors, such as
cable providers, Internet access providers, wireless service
providers and long distance carriers such as AT&T, MCI and
Sprint, have brand recognition and financial, personnel,
marketing and other resources that are significantly greater
than ours. In addition, due to consolidation and strategic
alliances within the telecommunications industry, we cannot
predict the number of competitors that will emerge, especially
as a result of existing or new federal and state regulatory or
legislative actions. Increased competition from existing and new
entities could lead to price reductions, loss of customers,
reduced operating margins or loss of market share.
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REGULATION
The following summary does not describe all
present and proposed federal, state and local legislation and
regulations affecting the telecommunications industry. Some
legislation and regulations are currently the subject of
judicial proceedings, legislative hearings and administrative
proposals that could change the manner in which this industry
operates. Neither the outcome of any of these developments, nor
their potential impact on us, can be predicted at this time.
Regulation can change rapidly in the telecommunications
industry, and these changes may have an adverse effect on us in
the future. See "Risk Factors — Regulatory
Risks".
Overview
The telecommunications industry in which we
operate is subject to extensive federal, state and local
regulation. Pursuant to the Telecommunications Act, federal and
state regulators share responsibility for implementing and
enforcing statutes and regulations designed to encourage
competition and the preservation and advancement of 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
RLECs, to the extent they are used to provide, originate or
terminate interstate or international communications. State
regulatory commissions, such as the ICC in Illinois and the PUCT
in Texas, generally exercise jurisdiction over these 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 RLECs.
In addition, municipalities and other local government agencies
regulate the public rights-of-way necessary to install and
operate networks.
The FCC has the authority to condition, modify,
cancel, terminate or revoke our operating authority for failure
to comply with applicable federal laws or rules, regulations and
policies of the FCC. Fines or other penalties also may be
imposed for any of these violations. In addition, the states
have the authority to sanction our RLECs or to revoke our
certifications if we violate relevant laws or regulations.
Federal Regulation
Our RLECs must comply with the Communications Act
of 1934, as amended, or the Communications Act, which requires,
among other things, that telecommunications carriers offer
services at just and reasonable rates and on non-discriminatory
terms and conditions. The amendments to the Communications Act
enacted in 1996 and contained in the Telecommunications Act
dramatically changed, and are expected to continue to change,
the landscape of the telecommunications industry.
Removal of Entry Barriers
The central aim of the Telecommunications Act is
to open local telecommunications markets to competition while
enhancing universal service. Prior to the enactment of the
Telecommunications Act, many states limited the services that
could be offered by a company competing with an ILEC. The
Telecommunications Act preempts these state and local laws.
The Telecommunications Act imposes a number of
interconnection and other requirements on all local
communications providers. All telecommunications carriers have a
duty to interconnect directly or indirectly with the facilities
and equipment of other telecommunications carriers. Local
exchange carriers, including our RLECs, are required to:
•
allow others to resell their services;
•
where feasible, provide number portability;
•
ensure dialing parity, whereby consumers can
    choose their local or long distance telephone company over which
    their calls will automatically route without having to dial
    additional digits;
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•
ensure that competitors' customers receive
    nondiscriminatory access to telephone numbers, operator service,
    directory assistance and directory listing;
•
afford competitors access to telephone poles,
    ducts, conduits and rights-of-way; and
•
establish reciprocal compensation arrangements
    for the transport and termination of telecommunications traffic.
Furthermore, the Telecommunications Act imposes
on ILECs, other than RLECs that maintain their so-called
"rural exemption", additional obligations, by
requiring them to:
•
negotiate any interconnection agreements in good
    faith;
•
interconnect their facilities and equipment with
    any requesting telecommunications carrier, at any technically
    feasible point, at nondiscriminatory rates and on
    nondiscriminatory terms and conditions;
•
provide nondiscriminatory access to unbundled
    network elements, commonly known as UNEs, such as local loops,
    switches and transport facilities, at any technically feasible
    point, at nondiscriminatory rates and on nondiscriminatory terms
    and conditions;
•
offer their retail services for resale at
    discounted wholesale rates;
•
provide reasonable notice of changes in the
    information necessary for transmission and routing of services
    over the ILEC's facilities or in the information necessary
    for interoperability; and
•
provide, at rates, terms and conditions that are
    just, reasonable and nondiscriminatory, for the physical
    co-location of equipment necessary for interconnection or access
    to UNEs at the premises of the ILEC.
The unbundling requirements, while not applicable
to our RLECs as long as they maintain their rural exemption,
have been some of the most controversial requirements of the
Telecommunications Act. The FCC has generally required ILECs to
lease a wide range of unbundled network elements to CLECs to
enable delivery of services to the competitor's customers,
either in combination with the CLEC's network or as a
recombined service offering on an unbundled network element
platform, commonly known as the UNE Platform, or UNEP. These
unbundling requirements, and the duty to offer UNEs to
competitors, imposed substantial costs on, and resulted in
customer attrition for, the ILECs that had to comply with these
requirements. A recent decision by the U.S. Court of
Appeals for the D.C. Circuit vacated several components of the
latest FCC ruling concerning ILECs' obligations to offer
UNEs and UNEPs to competitors, effective June 30, 2004. The
FCC has indicated that it intends to issue its revised rules
prior to the end of 2004. We cannot predict the timing or nature
of any subsequent rulings the FCC may issue on these topics as a
result of the Court of Appeals' or other court decisions.
Rural Exemption
Each of the subsidiaries through which we operate
our local telephone businesses is an ILEC, but is also
classified as a rural telephone company, commonly known as a
RLEC, under the Telecommunications Act. The Telecommunications
Act exempts rural telephone companies, such as our RLECs, from
certain of the more burdensome interconnection requirements such
as unbundling of network elements, information sharing and
co-location.
As to each of our RLECs, the ICC or PUCT can
remove the applicable rural exemption if the RLEC receives a
bona fide request for full interconnection and the state
commission determines that the request is technically feasible,
not unduly economically burdensome and consistent with universal
service requirements. We are not aware of any interconnection
request inconsistent with our RLECs' status as rural
telephone companies.
If the ICC or PUCT rescinds the applicable rural
exemption in whole, or in part, for any of our RLECs or if the
applicable state commission does not allow us adequate
compensation for the costs of
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providing the interconnection or UNEs, our
administrative and regulatory costs could significantly increase
and we could suffer a significant loss of customers to existing
or new competitors.
Access Charges
A significant portion of our RLECs' revenues
come from network access charges paid by long distance and other
carriers for originating or terminating calls within our
RLECs' service areas. The amount of network access charge
revenues our RLECs receive is based on rates set by federal and
state regulatory commissions, and these rates are subject to
change at any time. The FCC regulates the prices our RLECs may
charge for the use of our local telephone facilities in
originating or terminating interstate and international
transmissions. The FCC has structured these prices as a
combination of flat monthly charges paid by the end-users and
usage sensitive charges or flat monthly rate charges paid by
long distance or other carriers. Intrastate network access
charges are regulated by state commissions, which in our case
are the ICC and the PUCT. Our Illinois RLEC's intrastate
network access charges currently mirror interstate network
access charges for all but one element, local switching. In
contrast, in accordance with the regulatory regime in Texas, our
Texas RLECs may charge significantly higher intrastate network
access charges than interstate network access charges.
The FCC regulates levels of interstate network
access charges by imposing either price caps or rate of return
regulation. Price caps are mandatory for the RBOCs and elective
for all other ILECs. Price caps, introduced in 1992, are
adjusted based on various formulae, such as inflation and
productivity, and otherwise through regulatory proceedings. In
2000, the FCC approved the CALLS plan, which eliminated annual
rate reductions once an average rate was met. Small ILECs may
elect to base network access charges on price caps or CALLS, but
are not required to do so. Our Illinois RLEC and Texas RLECs
elected not to apply federal price caps or CALLS. Instead, our
RLECs employ rate-of-return regulation for their network
interstate access charges, whereby they earn a fixed return on
their investment over and above operating costs. The FCC
determines the profits our RLECs can earn by setting the
rate-of-return on their allowable investment base, which is
currently 11.25%.
Traditionally, regulators have allowed network
access rates to be set higher in rural areas than the actual
cost of terminating or originating long distance calls as an
implicit means of subsidizing the high cost of providing local
service in rural areas. Following a series of federal circuit
court decisions in 2001 ruling that subsidies must be explicit
rather than implicit, the FCC began to consider various reforms
to the existing rate structure for interstate network access
rates as proposed by the Multi Association Group, and the Rural
Task Force, each of which is a consortium of various
telecommunications industry groups. We believe that the states
will likely mirror any FCC reforms in establishing intrastate
network access charges.
In 2001, the FCC adopted an order implementing
the beginning phases of the plan of the Multi Association Group
to reform the network access charge system for rural carriers.
The FCC reforms reduced network access charges and shifted a
portion of cost recovery, which historically was based on
minutes of use and was imposed on long distance carriers, to
flat-rate, monthly subscriber line charges imposed on end-user
customers. While the FCC has simultaneously increased explicit
subsidies through the universal service fund to RLECs, the
aggregate amount of interstate network access charges paid by
long distance carriers to access providers, such as our RLECs,
has decreased and may continue to decrease. In addition, the FCC
initiated a rulemaking proceeding to investigate the Multi
Association Group's proposed incentive regulation plan for
small ILECs and other means of allowing rate-of-return carriers
to increase their efficiency and competitiveness.
The FCC's 2001 access reform order had a
negative impact on the intrastate network access revenues of our
Illinois RLEC. Under Illinois network access regulations, our
Illinois RLEC's intrastate network access rates mirror
interstate network access rates. Illinois, however, unlike the
federal system, does not provide an explicit subsidy in the form
of a universal service fund. Therefore, while subsidies from the
federal universal service fund offset Illinois Telephone
Operations' decrease in revenues resulting from the
reduction in interstate network access rates, there was not a
corresponding offset for the decrease in
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revenues from the reduction in intrastate network
access rates. In Texas, because the intrastate network access
rate regime applicable to our Texas RLECs does not mirror the
FCC regime, the impact of the reforms was revenue neutral. The
ICC and the PUCT are continuing to investigate possible changes
to the structure for intrastate access charges in their
respective states.
VOIP service is increasingly being embraced by
many industry participants, including AT&T, SBC and Time
Warner. On March 10, 2004, the FCC issued a Notice of
Proposed Rulemaking with respect to issues relating to services
and applications of IP-enabled services. Among other things, the
FCC is considering whether VOIP services are regulated
telecommunications services or unregulated information services.
We cannot predict the outcome of the FCC's rulemaking or
the impact on the revenues of our RLECs. The proliferation of
VOIP, particularly to the extent such communications do not
utilize our RLECs' networks, may result in an erosion of
our customer base and loss of access fees and other funding.
In recent years, long distance carriers, such as
AT&T, MCI and Sprint, have become more aggressive in
disputing interstate access charge rates set by the FCC and the
applicability of access charges to their telecommunications
traffic. We believe that these disputes have increased in part
due to advances in technology which have rendered the identity
and jurisdiction of traffic more difficult to ascertain and
which have afforded carriers an increased opportunity to assert
regulatory distinctions and claims to lower access costs for
their traffic. For example, in October 2002, AT&T filed a
petition with the FCC challenging its current and prospective
obligation to pay access charges to local exchange carriers for
the use of their networks. In September 2003, Vonage Holdings
Corporation filed a petition with the FCC to preempt an order of
the Minnesota Public Utilities Commission which had issued an
order requiring Vonage to comply with the Minnesota
Commission's order. The FCC determined that Vonage's
VOIP service was such that it was impossible to divide it into
interstate and intrastate components without negating federal
rules and policies. Accordingly, the FCC found it was an
interstate service not subject to traditional state telephone
regulation. While the FCC Order did not specifically address the
issue of the application of intrastate access charges to
Vonage's VOIP service, the fact that the service was found
to be solely interstate raises that concern. Although the FCC
rejected AT&T's petition, we cannot predict what other
actions that other long distance carriers may take before the
FCC or with their local exchange carriers, including our RLECs,
to challenge the applicability of access charges. To date, no
long distance or other carrier has made a claim to us contesting
the applicability of network access charges billed by our RLECs.
We cannot assure you, however, that long distance or other
carriers will not make such claims to us in the future nor, if
such a claim is made, can we predict the magnitude of the claim.
As a result of the increasing deployment of VOIP services and
other technological changes, we believe that these types of
disputes and claims will likely increase.
Promotion of Universal
    Service
In general, telecommunications service in rural
areas is more costly to provide than service in urban areas
because there is a lower customer density and higher capital
requirements compared to urban areas. The low customer density
in rural areas means that switching and other facilities serve
fewer customers and loops are typically longer requiring greater
capital expenditure per customer to build and maintain. By
supporting the high cost of operations in our rural markets, the
federal universal service fund subsidies our RLECs receive are
intended to promote widely available, quality telephone service
at affordable prices in rural areas. In 2003, CCI Illinois
received $6.0 million from the federal universal service
fund and CCI Texas received $21.4 million from the federal
universal service fund.
The administration of collections and
distributions of federal universal service fund payments is
performed by the National Exchange Carrier Association, or NECA,
which was formed by the FCC in 1983 to perform telephone
industry tariff filings and revenue distributions following the
breakup of AT&T. The board of directors of NECA is comprised
of representatives from the RBOCs, large and small ILECs and
other industry participants. NECA also performs various other
functions including filing access charge tariffs with the FCC,
collecting and validating cost and revenues data, assisting with
compliance with FCC rules and processing FCC regulatory fees.
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NECA distributes federal universal service fund
subsidies only to carriers that are designated as eligible
telecommunications carriers, or ETCs, by a state commission.
Each of our RLECs has been designated as an ETC by the
applicable state commission. Under the Telecommunications Act,
however, competitors can obtain the same level of federal
universal service fund subsidies as we do, per line served, if
the ICC or PUCT, as applicable, determines that granting such
federal universal service fund subsidies to competitors would be
in the public interest and the competitors offer and advertise
certain telephone services as required by the Telecommunications
Act and the FCC. One such application for ETC designation by a
potential competitor in Illinois was recently dismissed by the
ICC due to the applicant's lack of appropriate ICC
certifications and at least two other such applications are
presently pending before the ICC. We are not aware of any having
been filed in our Texas service areas. Under current rules, the
subsidies received by our RLECs are not affected by any such
payments to competitors.
With some limitations, incumbent telephone
companies receive federal universal service fund subsidies
pursuant to existing mechanisms for determining the amounts of
such payments on a cost per loop basis. The FCC has adopted,
with modifications, the proposed framework of the Rural Task
Force for rural, high-cost universal service fund subsidies. The
FCC order modifies the existing universal service fund mechanism
for RLECs and adopts an interim embedded, or historical, cost
mechanism for a five-year period that provides predictable
levels of support to rural carriers. The FCC intends to develop
a long-term plan based on forward-looking costs when the
five-year period expires in 2006.
During the last two years, the FCC has made
modifications to the universal service support system that
changed the sources of support and the method for determining
the level of support. These changes, which, among other things,
removed the implicit support from network access charges and
made it explicit support, have been, generally, revenue neutral
to our RLECs' operations. It is unclear whether the changes
in methodology will continue to accurately reflect the costs
incurred by our RLECs and whether it will provide for the same
amount of universal service support that our RLECs have received
in the past. In addition, several parties have raised objections
to the size of the federal universal service fund and the types
of services eligible for support. A number of issues regarding
the source and amount of contributions to, and eligibility for
payments from, the federal universal service fund need to be
resolved in the near future. For example, the FCC is considering
adopting a recommendation from the Federal-State Joint Board on
Universal Service that, if adopted in its current form, could
make it harder for competitors to qualify for federal universal
service fund subsidies, but could also reduce the amount of
subsidies available to our RLECs if a competitor does qualify.
We cannot predict the outcome of any FCC rulemaking or similar
proceedings. The outcome of any of these proceedings or other
legislative or regulatory changes could affect the amount of
universal service support received by our RLECs.
RLEC Services Regulation
The FCC treats our RLECs' DSL services as
interstate network access services, and therefore regulates the
rates, terms and conditions for these services. This regulation
requires us to give advance notice of proposed rate changes and
new service offerings, and allows the FCC to suspend and
investigate proposed changes, thereby limiting our flexibility
to respond to offerings by providers of competing services such
as cable broadband. The FCC is currently considering two
proposals that may increase our competitive flexibility. Under
one proposal, DSL services would be classified as information
services, not telecommunications, and thereby would become
exempt from all FCC price regulation. Under the second proposal,
DSL would continue to be regulated as a telecommunications
service, but the FCC would forbear from enforcing some or all of
its regulatory requirements on this service. We cannot predict
when, or if, the FCC will act, or whether it will eventually
adopt either of these proposals.
The FCC requires ILECs providing interstate long
distance services originating from their local exchange service
territories to operate in accordance with "separate
affiliate" rules. These rules require that our subsidiaries
providing long distance service do the following:
•
maintain separate books of account;
•
not own transmission or switching facilities
    jointly with our RLECs; and
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•
acquire any services from our RLECs at tariffed
    rates, term and conditions.
The FCC has initiated a rulemaking proceeding to
examine whether there is a continuing need for these
requirements. We cannot predict, however, the outcome of that
proceeding.
In addition, generally, the FCC must approve in
advance most transfers of control, and assignments of operating
authorizations by, FCC-regulated entities. Therefore, if, in the
future, we seek to acquire a company holding an FCC
authorization, in most instances we will be required to seek
approval from the FCC prior to completing the acquisition.
Similarly, we would need to obtain FCC approval to dispose of
our RLEC properties, or for our existing equity investors to
transfer control of our RLECs to third parties.
States may also require prior approvals or
notifications for certain acquisitions and transfers or
dispositions of assets, customers, or ownership of regulated
entities, issuance of debt and equity, and in certain instances,
transactions between an ILEC and its affiliates.
State Regulation of CCI Illinois
Illinois requires providers of telecommunications
services to obtain authority from the ICC prior to offering
common carrier services. Our Illinois RLEC is certified to
provide local telephone services. In addition, Illinois
Telephone Operations' long distance, operator services and
payphone services subsidiaries hold the necessary certifications
in Illinois and the other states in which they operate. In
Illinois, our long distance, operator services and payphone
services subsidiaries are required to file tariffs with the ICC
but generally can change the prices, terms and conditions stated
in their tariffs on one day's notice. Our Illinois
Telephone Operations other services are not subject to any
significant state regulations in Illinois. Our Other Operations
are not subject to any significant state regulation outside of
any specific contractually imposed obligations.
Our Illinois RLEC operates as a distinct company
from an Illinois regulatory standpoint and is regulated under a
rate of return system for intrastate revenues. Although the FCC
has preempted certain state regulations pursuant to the
Telecommunications Act, as explained above, the ICC retains the
authority to impose requirements on our Illinois RLEC to
preserve universal service, protect public safety and welfare,
ensure quality of service and protect consumers. For instance,
our Illinois RLEC must file tariffs setting forth the terms,
conditions and prices for its intrastate services and these
tariffs may be challenged by third parties. Our Illinois RLEC
has not had, however, a general rate proceeding before the ICC
since 1983.
The ICC has broad authority to impose service
quality and service offering requirements on our Illinois RLEC,
including credit and collection policies and practices, and to
require our Illinois RLEC to take other actions in order to
insure that it meets its statutory obligation to provide
reliable local exchange service. In connection with ICTC's
guarantee of the CoBank credit facility, the ICC issued an order
that imposed a minimum capital expenditure requirement on our
Illinois RLEC and restricted the amount of cash that our
Illinois RLEC could transfer to its parent company, CCI. The ICC
order terminated following repayment of the CoBank credit
facility on April 14, 2004. However, the ICC could impose
additional or other restrictions of this type in the future. In
particular, under our existing credit facilities, we have agreed
to use our reasonable efforts as promptly as reasonably
practicable after the closing to obtain the consent of the ICC
for ICTC and its subsidiaries to guarantee $195.0 million
of the obligations of the borrowers under our existing credit
facilities and to grant a security interest in its respective
properties securing $195.0 million of borrowings. ICTC has
not yet requested this consent from the ICC. Although any order
granted by the ICC will likely place conditions and/or limits on
any such guarantee and security, if such an order is granted, it
will also likely require ICTC to make a minimum dollar amount of
capital expenditures and limit its ability to pay dividends to
CCI based on its free cash flow. Any requirements or
restrictions of this type could limit the amount of cash that is
available to be transferred from our Illinois RLEC to CCI
Holdings and could adversely impact our ability to meet our debt
service requirements and repayment obligations and to pay
dividends on our common stock.
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The Illinois General Assembly has made major
revisions and added significant new provisions to the portions
of the Illinois Public Utilities Act governing the regulation
and obligations of telecommunications carriers on at least three
occasions since 1985. The next comprehensive review and
potential amendment of this statute is scheduled to occur in the
first half of 2005. We cannot predict the nature or extent of
the legislative changes that may result from the 2005 review or
the resulting changes to the business and operations of ICTC and
our other subsidiaries operating in Illinois.
Local Government
    Authorizations
In Illinois, we historically have been required
to obtain franchises from each incorporated municipality in
which our Illinois RLEC operates. Effective January 1,
2003, an Illinois state statute prescribes the fees that a
municipality may impose on our Illinois RLEC for the privilege
of originating and terminating messages and placing facilities
within the municipality. Illinois Telephone Operations may also
be required to obtain from municipal authorities permits for
street opening and construction, or operating franchises to
install and expand fiber optic facilities in specified rural
areas and from county authorities in unincorporated areas. These
permits or other licenses or agreements typically require the
payment of fees.
State Regulation of CCI Texas
Texas requires providers of telecommunications
services to obtain authority from the PUCT prior to offering
common carrier services. Our Texas RLECs are each certified to
provide local telephone services in their respective
territories. In addition, CCI Texas' long distance and
transport subsidiaries are registered with the PUCT as
interexchange carriers. The transport subsidiary also has
obtained from the PUCT a service provider certificate of
authority to better assist the transport subsidiary with its
operations in municipal areas. While our Texas RLEC services are
extensively regulated by the PUCT, CCI Texas' other
services, such as long distance and transport services are not
subject to any significant state regulation.
Our Texas RLECs operate as distinct companies
from a Texas regulatory standpoint. Each Texas RLEC is
separately regulated by the PUCT in order to preserve universal
service, protect public safety and welfare, ensure quality of
service and protect consumers. Each Texas RLEC also must file
and maintain tariffs setting forth the terms, conditions and
prices for its intrastate services.
Currently, both Texas RLECs have immunity from
adjustments to their rates, including their intrastate network
access rates, due to their election of incentive regulation
under the Texas Public Utilities Regulatory Act, or PURA. In
order to qualify for this incentive regulation, our RLECs agreed
to fulfill certain infrastructure requirements and, in exchange,
they are not subject to challenge by the PUCT regarding their
rates, overall revenues, return on invested capital or net
income.
There are two different forms of incentive
regulation designated by PURA: Chapter 58 and
Chapter 59. Generally under either election, the rates,
including network access rates, an ILEC may charge in connection
with basic local services cannot be increased from the amount(s)
on the date of election without PUCT approval. Even with PUCT
approval, increases can only occur in very specific situations.
Pricing flexibility under Chapter 59 is extremely limited.
In contrast, Chapter 58 allows greater pricing flexibility
on non-basic network services, customer specific contracts and
new services.
Initially, both Texas RLECs elected incentive
regulation under Chapter 59 and fulfilled the applicable
infrastructure requirements to maintain their election status.
Consolidated Communications of Texas Company made its election
on August 17, 1997. Consolidated Communications of
Fort Bend Company made its election on May 12, 2000.
On March 25, 2003, both Texas RLECs changed their election
status from Chapter 59 to Chapter 58. The rate freezes
for basic services with respect to the current Chapter 58
elections are due to expire on March 24, 2007.
In connection with the 2003 election by each of
our Texas RLECs to be governed under an incentive regulation
regime, our Texas RLECs were obligated to fulfill certain
infrastructure requirements. While our Texas RLECs have met the
current infrastructure requirements, the PUCT could impose
additional or
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other restrictions of this type in the future.
Any requirements or restrictions of this type could limit the
amount of cash that is available to be transferred from our
RLECs to Texas Holdings and could adversely impact our ability
to meet our debt service requirements and repayment obligations.
Telecommunications regulation in Texas may
undergo extensive changes in the near future. The Texas
Legislature has made major revisions to PURA on numerous
occasions since its adoption in 1975. Also, PURA is scheduled to
expire in September 2005 pursuant to Texas' sunset laws.
Accordingly, the Texas Legislature will be required to take
action to extend PURA or enact a new law during the legislative
session beginning in January 2005. We cannot predict the nature
or extent of the legislative changes that may result from the
sunset process or the impact these changes may have on CCI
Texas, its ILECs or our other subsidiaries operating in Texas.
Texas Universal Service
The Texas universal service fund was established
within PURA and is administered by NECA. The law directs the
PUCT to adopt and enforce rules requiring local exchange
carriers to contribute to a state universal service fund which
assists telecommunications providers in providing basic local
telecommunications service at reasonable rates in high cost
rural areas. The Texas universal service fund is also used to
reimburse telecommunications providers for revenues lost by
providing Tel-Assistance and to reimburse carriers for providing
lifeline service. The Texas universal service fund is funded by
a statewide charge payable by specified telecommunications
providers at rates determined by the PUCT. Our Texas RLECs
qualify for disbursements from this fund pursuant to criteria
established by the PUCT. In 2003, CCI Texas received Texas
universal service fund subsidies of $20.0 million, or 10.3%
of CCI Texas' revenues. Texas universal service fund
funding is subject to adjustment during the next comprehensive
review of the state statutes governing the regulation and
obligations of telecommunications carriers, which is scheduled
to occur in 2005.
Local Government
    Authorizations
In Texas, ILECs have historically been required
to obtain franchises from each incorporated municipality in
which our Texas RLECs operate. In 1999, Texas enacted
legislation generally eliminating the need for ILECs to obtain
franchises or other licenses to use municipal rights-of-way for
delivering services. Payments to municipalities for
rights-of-way are administered through the PUCT and through a
reporting process by each ILEC and other similar
telecommunications provider. ILECs still need to obtain permits
from municipal authorities for street opening and construction,
but most burdens of obtaining municipal authorizations for
access to rights-of-way have been streamlined or removed.
Our Texas RLECs still operate pursuant to the
terms of municipal franchise agreements in some territories
served by Consolidated Communications of Fort Bend Company.
As the franchises expire, they are not being renewed.
Potential Internet Regulatory
Obligations
Our Internet access offerings may become subject
to newly adopted laws and regulations. Currently, there exists
only a small body of law and regulation applicable to access to,
or commerce on, the Internet. As the significance of the
Internet expands, federal, state and local governments may adopt
new rules and regulations or apply existing laws and regulations
to the Internet. The FCC is currently reviewing the appropriate
regulatory framework governing high speed access to the Internet
through telephone and cable providers' communications
networks. We cannot predict the outcome of these proceedings,
and they may affect our regulatory obligations and the form of
competition for these services.
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MANAGEMENT
The following table sets forth the persons who
will be the directors and executive officers of CCI Holdings as
of the date of the completion of the offering and their ages as
of December 1, 2004. Executive officers are appointed by
and serve at the pleasure of our board of directors. A brief
biography of each person who will serve as a director or
executive officer upon consummation of this offering follows.
Name
Age
Position
Richard A. Lumpkin
69
Chairman of the board and director
Robert J. Currey
59
President, Chief Executive Officer and director
Steven L. Childers
49
Chief Financial Officer
Joseph R. Dively
45
Senior Vice President of CCI Holdings and
    President of Illinois Telephone Operations
Steven J. Shirar
46
Senior Vice President of CCI Holdings and
    President of Enterprise Operations of CCI Holdings
C. Robert Udell, Jr.
38
Senior Vice President of CCI Holdings and
    President of Texas Telephone Operations
Jason K. Whitehair
44
Vice President of Human Resources
Christopher A. Young
49
Chief Information Officer
Brian L. Carr
46
Vice President of Public Services and Network
    Services
Michael W. Smith
39
Vice President of Market Response of CCI
Steven L. Grissom
52
Treasurer and Secretary
Kevin J. Maroni
42
Director
Mark A. Pelson
42
Director
Richard A. Lumpkin
is the Chairman of the board and a
director of CCI Holdings. Mr. Lumpkin has served in these
positions with CCI Holdings and its predecessors since 2002.
From 1997 to 2002, Mr. Lumpkin served as Vice Chairman of
McLeodUSA, which acquired the predecessor of CCI in 1997. From
1963 to 1997, Mr. Lumpkin served in various positions at
the predecessor of CCI and ICTC, including Chairman, Chief
Executive Officer, President and Treasurer. Mr. Lumpkin is
currently a director of Ameren Corp., a public utility holding
company, First Mid-Illinois Bancshares, Inc., or First
Mid-Illinois, a financial services holding company, and Agracel,
Inc., a real estate investment company, and serves on the
advisory board of Eastern Illinois University and as a director
of The Lumpkin Family Foundation. Mr. Lumpkin is also a
former director, former President and former Treasurer of the
United States Telecom Association and a former president of the
Illinois Telecommunications Association. Mr. Lumpkin has
also served on the University Council Committee on Information
Technology for Yale University.
Robert J. Currey
serves as the President, Chief
Executive Officer and a director of CCI Holdings.
Mr. Currey served as a director of CCI Holdings and its
predecessors since 2002 and as President and Chief Executive
Officer of CCI since 2002. From 2000 to 2002, Mr. Currey
served as Vice Chairman of RCN Corporation, a CLEC providing
telephony, cable and Internet services in high-density markets
nationwide. From 1998 to 2000, Mr. Currey served as
President and Chief Executive Officer of 21st Century
Telecom Group. From 1997 to 1998, Mr. Currey served as
Director and Group President of Telecommunications Services of
McLeodUSA, which acquired the predecessor of CCI in 1997.
Mr. Currey joined the predecessor of CCI in 1990 and served
as President through its acquisition in 1997. Mr. Currey
has served as Chairman of the Illinois Coalition, a non-profit
organization of business, government, academic and labor leaders
that promotes technology-based economic development in Illinois,
and as Chairman of the Board of the Illinois State Chamber of
Commerce. Mr. Currey is also a director of Management
Network Group, Inc.
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Steven L. Childers
serves as Chief Financial Officer of
CCI Holdings. Mr. Childers has served in this position for
CCI since April 2004. From April 2003 to April 2004,
Mr. Childers served as Vice President of Finance of CCI.
From January 2003 to April 2003, Mr. Childers served as the
Director of Corporate Development of CCI. From 1997 to 2002,
Mr. Childers served in various capacities at McLeodUSA,
including as Vice President of Customer Service and, most
recently, as a member of its Business Process Teams, leading an
effort to implement new revenue assurance processes and
controls. Mr. Childers joined the predecessor of CCI in
1986 and served in various capacities through its acquisition in
1997, including as President of its then existing Market
Response division and in various finance and executive roles.
Mr. Childers is a member of the board of directors of the
Eastern Illinois University Foundation.
Joseph R. Dively
serves as Senior Vice President of CCI
Holdings and President of Illinois Telephone Operations.
Mr. Dively has served in this position for CCI since 2002.
From 1999 to 2002, Mr. Dively served as Vice President and
General Manager of ICTC. In 2001, Mr. Dively also assumed
responsibility for the then existing non-regulated subsidiaries
of the predecessor of CCI, including Operator Services, Public
Services, and Market Response. From 1997 to 1999,
Mr. Dively served as Senior Vice President of Sales of
McLeodUSA. Mr. Dively joined the predecessor of CCI in 1991
and served in various capacities through its acquisition in
1997, including Vice President and General Manager of
Consolidated Market Response and Vice President of Sales and
Marketing of Consolidated Communications. Mr. Dively is
currently a director of First Mid-Illinois. Mr. Dively
currently serves on the boards of the Sarah Bush Lincoln Health
System, the Illinois State Chamber of Commerce and chairs the
EIU Business School Advisory Board. He is also past president of
the Charleston Area Chamber of Commerce.
Steven J. Shirar
serves as Senior Vice President and
President of Enterprise Operations of CCI Holdings.
Mr. Shirar has served in this position for CCI since 2003.
From 1997 to 2002, Mr. Shirar served in various capacities
at McLeodUSA, progressing from Chief Marketing Officer to Chief
Sales and Marketing Officer. From 1996 to 1997, Mr. Shirar
served as President of the predecessor of CCI's then
existing software development subsidiary, Consolidated
Communications Systems and Services, Inc.
C. Robert
Udell, Jr.
serves as Senior Vice
President of CCI Holdings and President of Texas Telephone
Operations. From 1999 to 2004, Mr. Udell served in various
capacities at the predecessor of CCI Texas, including Executive
Vice President and Chief Operating Officer. He is also Chairman
of East Texas Fiber Line Incorporated. Prior to joining the
predecessor of CCI Texas in March 1999, Mr. Udell was
employed by the predecessor of CCI from 1993 to 1999 in a
variety of senior roles including Senior Vice President, Network
Operations, and Engineering.
Jason K. Whitehair
serves as the Vice President of Human
Resources of CCI Holdings. From 2001 to 2004, Mr. Whitehair
served as Senior Director of Human Resources, TXUCV. From 2000
to 2001, Mr. Whitehair served as a Vice President at
Lasercom, Inc. and from 1998 to 2000 he served as a Vice
President at Caprock Communications. Mr. Whitehair served
in various human resources positions for MCI, Inc. between 1992
and 1998, most recently as Director of Human Resources. From
1982 to 1992, Mr. Whitehair served in various capacities
with Rockwell International Corporation.
Christopher A. Young
serves as Chief Information Officer of
CCI Holdings. Mr. Young has served in this position for CCI
since 2003. From 2000 to 2003, Mr. Young served as Chief
Information Officer of NewSouth Communications, Inc., a
broadband communications provider. From 1998 to 2000,
Mr. Young served as Chief Information Officer for
21st Century Telecom Group.
Brian L. Carr
serves
as Vice President of Public Services and Network Services of CCI
Holdings. Mr. Carr has served in this position for CCI
since 2003. From 1997 to 2002, Mr. Carr served in various
capacities at McLeodUSA, including as Vice President of
Wholesale Sales. From 1980 to 1997, Mr. Carr held various
management positions at the predecessor of CCI. Mr. Carr is
currently a director of Associated Communications Companies of
America, a ten-member interexchange carrier purchasing
consortium, of which Network Services is a member.
Michael W. Smith
serves as Vice President and General
Manager of Market Response of CCI. Mr. Smith has served in
this position for CCI since 2003. From 2001 to 2003,
Mr. Smith served as Vice
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President of Marketing and Integrated Business
Systems of ICTC, which included managing the central Illinois
CLEC territories for McLeodUSA. Mr. Smith served as Senior
Vice President of Sales, Customer Service and Product Marketing
of WorkNet Communications, a start-up wireless Internet company
based in St. Louis, from 1998 to 2001. Mr. Smith
joined the predecessor of CCI in 1989 and served in various
capacities through its acquisition in 1997.
Steven L. Grissom
serves as Treasurer and Secretary of
CCI Holdings. Mr. Grissom has served in this position for
CCI since 2002. Since 1997, Mr. Grissom has also served as
the administrative officer of SKL Investment Group, LLC, or SKL
Investment Group, an investment holding company. From 1989 to
2002, Mr. Grissom served as Treasurer of ICTC.
Mr. Grissom is currently a director of First Mid-Illinois.
Mr. Grissom is also a director of Agracel, Coles Together,
Mattoon Area Industrial Development Corporation and The Lumpkin
Family Foundation.
Kevin J. Maroni
has
been a director of CCI Holdings since 2002. Mr. Maroni is a
General Partner of Spectrum Equity. Mr. Maroni has worked
for Spectrum Equity since its inception in 1994.
Mark A. Pelson
has
been a director of CCI Holdings since 2002. Mr. Pelson is a
Managing Director of Providence Equity. Mr. Pelson has
worked for Providence Equity since 1996. Mr. Pelson is also
a director of Madison River Telephone Company, LLC.
Each of Messrs. Lumpkin, Shirar, Dively,
Carr, Childers, Smith and Grissom were employed by McLeodUSA
during 2002. In January 2002, in order to complete a
recapitalization, McLeodUSA filed a prenegotiated plan of
reorganization through a Chapter 11 bankruptcy petition in
the United States Bankruptcy Court for the District of Delaware.
In April 2002, McLeodUSA's plan of reorganization became
effective and McLeodUSA emerged from Chapter 11 protection.
Messrs Lumpkin and Shirar resigned from McLeodUSA in April 2002
and June 2002, respectively. In addition, Mr. Currey was
employed by RCN Corporation from 2000 to 2002. In May 2004, RCN
Corporation filed a plan of reorganization through a
Chapter 11 bankruptcy petition on a voluntary basis.
Composition of the Board After the
Offering
Our board of directors currently consists
of            members.
In connection with the closing of the offering, we intend to
elect at least one additional member of the board of directors
who shall qualify as an "independent" director under
applicable SEC and NYSE rules.
Following the closing of the offering, we expect
to avail ourselves of the "controlled company"
exception under the New York Stock Exchange rules which
eliminates the requirements that we have a majority of
independent directors on our board of directors and that our
compensation and nominating and corporate governance committees
be composed entirely of independent directors. However, in the
event that we are no longer a "controlled company," we
will be required to have a majority of independent directors on
our board of directors and to have our compensation and
nominating and corporate governance committees be composed
entirely of independent directors within one year of the date
that we lose our status as a "controlled company."
Committees of the Board
The standing committees of our board of directors
will consist of an audit committee, a compensation committee and
a nominating and corporate governance committee.
Audit Committee.
Upon completion of this offering, we will have an audit
committee and, as required by SEC and New York Stock Exchange
rules, we intend for the audit committee to have one independent
director by the closing of this offering, a majority of
"independent" directors within 90 days of this
offering and to be fully independent within one year of this
offering.
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The principal duties and responsibilities of our
audit committee will be to assist our board of directors in its
oversight of:
•
the integrity of our financial statements;
•
our compliance with legal and regulatory matters;
•
the independent registered public accounting
    firm's qualifications and independence; and
•
the performance of our internal audit function
    and registered public accounting firm.
Our audit committee will also be responsible for:
•
conducting an annual performance evaluation of
    the audit committee;
•
compensating, retaining and overseeing the work
    of our registered public accounting firm; and
•
establishing procedures for (a) receipt and
    treatment of complaints on accounting and other related matters
    and (b) submission of confidential employee concerns
    regarding questionable accounting or auditing matters.
The audit committee will have the power to
investigate any matter brought to its attention within the scope
of its duties. It will also have the authority to retain counsel
and advisors to fulfill its responsibilities and duties. Our
board of directors will adopt a written charter for the audit
committee, which will be posted on our website.
Compensation
Committee.
The principal duties and
responsibilities of the compensation committee will be as
follows:
•
to review and approve goals and objectives
    relating to the compensation of our chief executive officer and,
    based upon a performance evaluation, to determine and approve
    the compensation of the chief executive officer;
•
to make recommendations to our board of directors
    on the compensation of other executive officers and on incentive
    compensation and equity-based plans; and
•
to produce reports on executive compensation to
    be included in our public filings with the SEC.
Nominating and Corporate Governance
Committee.
The principal duties and
responsibilities of the nominating and corporate governance
committee will be as follows:
•
to identify individuals qualified for membership
    on our board of directors and to select, or recommend for
    selection, director nominees;
•
to develop and recommend to our board of
    directors a set of corporate governance principles; and
•
to oversee the evaluation of our board of
    directors and management.
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Compensation of Executive Officers
Summary Compensation Table
The following table lists information regarding
the compensation of our Chairman, Chief Executive Officer and
the four next most highly compensated officers, to whom we refer
to, collectively, as the named officers. The compensation of
each of these named officers exceeded $100,000 for the fiscal
year ended December 31, 2003.
Long-Term
Annual Compensation
Compensation
2003 Restricted
Fiscal
Other Annual
Share Plan
All Other
Name(1)
Year
Salary
Bonus
Compensation
Awards(6)
Compensation(7)
Richard A. Lumpkin
2003
$
816,205
(2)
—
$
21,945
(3)
—
$
2,077
Chairman of the Board and Director
Robert J. Currey
2003
$
263,846
—
$
37,991
(4)
$
0
$
3,077
President, Chief Executive Officer and Director
Steven J. Shirar
2003
$
178,615
$
20,000
$
5,138
$
0
$
2,769
Senior Vice President and President of Enterprise
    Operations
Joseph R. Dively
2003
$
148,846
—
$
1,979
$
0
$
2,423
Senior Vice President and President of Telephone
    Operations of Illinois Holdings
Christopher A. Young
2003
$
144,615
$
20,000
$
58,724
(5)
$
0
$
1,108
Chief Information Officer
Brian L. Carr
2003
$
126,000
$
20,000
$
219
$
0
$
2,435
Vice President of Public Services and Network
    Services
(1)
Each of our executive officers served in their
    positions throughout fiscal year 2003, other than
    Mr. Young, who was hired on February 3, 2003.
(2)
Includes a professional services fee of $666,667
    paid to Mr. Lumpkin as one of our existing equity
    investors. See "Certain Relationships and Related Party
    Transactions — Professional Services Fee
    Agreements". Pursuant to a side letter agreement with some
    of the other investors in Central Illinois Telephone, including
    affiliates of Mr. Lumpkin and members of his family,
    whereby Mr. Lumpkin shares a portion of this professional
    services fee, Mr. Lumpkin retained only $492,468 of the
    professional services fee in 2003. In addition, the remaining
    $149,538 in the table above represents amounts paid to
    Mr. Lumpkin for his services to ICTC.
(3)
Includes a car allowance of $21,945. Of the car
    allowance, $353 represents reimbursement of taxes.
(4)
Includes a relocation allowance of $33,241. Of
    the relocation allowance, $13,847 represents reimbursement of
    taxes.
(5)
Includes a relocation allowance of $58,724. Of
    the relocation allowance, $24,315 represents reimbursement of
    taxes.
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(6)
The board of managers of Homebase ascribed no
    value to the restricted shares on the date awarded. The value of
    the restricted shares of our Class A common stock (giving
    effect to the reorganization) held by each of the named officers
    as of December 31, 2003 was as follows:
Restricted
Value as of
Named Officer
Shares Held
December 31, 2003
Robert J. Currey
$
0
Steven J. Shirar
$
0
Joseph R. Dively
$
0
Christopher A. Young
$
0
Brian L. Carr
$
0
25.0% of these shares will vest every
    December 31st, beginning December 31, 2004 and ending
    December 31, 2007. Holders of our restricted Class A
    common stock are entitled to receive dividends and other
    distributions if and when declared by the board of directors.
(7)
Amounts listed consist of CCI's matching
    contributions to its 401(k) plan. We also provide the named
    officers with certain group life, health, medical and other
    non-cash benefits generally available to all salaried employees
    and excluded from this column pursuant to SEC rules.
Director Compensation
Following this offering, directors who are not
our employees or who are not otherwise affiliated with us or our
existing equity investors will receive compensation that is
commensurate with arrangements offered to directors of companies
that are similar to us. Compensation arrangements for
independent directors established by our board may be in the
form of cash payments and/or option grants.
Restricted Share Plan
General
In August 2003, Homebase adopted the 2003
Restricted Share Plan (to which we have succeeded), or the
restricted share plan. In connection with the reorganization,
all holders of Homebase restricted common shares will receive
similarly restricted shares of our Class A common stock.
The restricted share plan authorized our board of directors to
grant to members of management, as incentive compensation,
awards of restricted shares of our common stock or securities
convertible into shares of our common stock. Unless altered by
the board, awards under the restricted share plan cannot exceed
an aggregate
of                     shares.
As of September 30, 2004, the
entire                     shares
were issued and outstanding. The restricted share plan also
provides for adjustment of the number of shares of our common
stock available for grant in the event of an increase or
reduction in the number of shares of common stock, an exchange
of our common stock for a different number or type of security
of ours or other specified changes in our capitalization. All
shares of common stock awarded under the restricted share plan
are and will be subject to restrictions on transfer.
Administration and Terms of
    Awards
The board of directors administers the restricted
share plan and designates the employees to receive awards. The
board of directors will determine the nature of the awards, the
number of shares of common stock subject to the awards and the
terms and conditions of each award.
Vesting
25.0% of
the                      shares
granted in 2003 will vest every December 31st, beginning
December 31, 2004 and ending December 31, 2007. The
remaining 25,000 shares and, unless otherwise agreed, all
subsequent awards under the restricted share plan will vest
25.0% on the second anniversary date of the
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award and 25.0% each following year through the
fifth anniversary date of the award. All shares awarded under
the restricted share plan will automatically vest
•
if the board of directors accelerates the vesting
    at any time for any reason, which it is entitled to do; or
•
upon a change of control (as defined in the
    restricted share plan) of CCI Holdings, if the employee is
    terminated without cause, the employee's compensation is
    reduced below 90.0% of the compensation prior to the change of
    control or the employee is assigned duties and responsibilities
    materially inconsistent with his or her previous level of
    responsibility.
If the employee is terminated without cause or as
a result of death or disability, subject to our right to
purchase the shares described below under "— Call
Rights", the employee will retain all vested shares but
will forfeit all of his or her rights to unvested shares.
All shares of common stock, vested or unvested,
awarded under the restricted share plan are subject to
forfeiture and employees are required to sell to us, at the
price the employee paid for the shares, upon any of the
following events: termination of employment for cause or any
attempt by the employee to transfer the shares without the prior
written approval of the board of directors.
Call Rights
For one year following an employee's death,
disability or termination of employment for any reason other
than for cause, we have the right to buy all vested shares at a
price per share equal to the lesser of (1) the fair market
value of a vested share, as determined by the board of directors
in good faith, and (2) the amount determined by dividing
our enterprise value (as defined in the restricted share plan)
by the total number of shares of common stock outstanding as of
the date of the triggering event.
Other Stockholder Rights
Other than as described above, employees will
have all of the rights of a stockholder, including the right to
vote the shares and receive dividends and other distributions.
Term
The restricted share plan will continue in effect
until August 28, 2013, unless terminated prior to that date
by the board of directors.
Compensation Committee Interlocks and Insider
Participation
Following this offering, the compensation levels
of our executive officers will be determined by our board of
directors upon the recommendation of the compensation committee.
In 2003, Mr. Currey, our President and Chief Executive
Officer, and Mr. Lumpkin, our Chairman, both employees of
ICTC, participated in deliberations of the board of managers
regarding executive compensation.
Employment and Other Arrangements
We do not anticipate entering into any employment
agreements with our officers or employees.
On March 27, 2003, CCI Texas entered into a
retention and change in control agreement with Mr. Udell.
Pursuant to the retention agreement, CCI Texas named
Mr. Udell as Executive Vice President through
March 27, 2005. The retention agreement provided that
Mr. Udell would receive an annual base salary of $243,775
with a bonus based on the greater of 45.0% of his base salary
and $109,698 and Mr. Udell was also entitled to participate
in an annual incentive plan and all benefit plans, programs and
arrangements and fringe benefit policies applicable generally to
other employees. The retention agreement also provided that
Mr. Udell would receive a one time payment upon a change of
control, which included the closing of the TXUCV acquisition. In
addition, Mr. Udell's salary may not be decreased for
a period of two years following the closing of the TXUCV
acquisition.
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In connection with the TXUCV acquisition, we paid
Mr. Udell $706,948 to terminate the retention agreement
without the other benefits described in the preceding paragraph
in exchange for continuing to be employed in the position
described above. Mr. Udell's annual base salary is now
$200,000 with a potential bonus of up to 40.0% of his annual
salary based on the achievement of various corporate objectives.
Supplemental Executive Retirement
    Plan
The Supplemental Executive Retirement Plan for
Mr. Lumpkin has been effective since 1986 and provided that
Mr. Lumpkin or his beneficiary would have been entitled to
supplemental benefits of $50,000 per year, payable monthly
for a period of twenty years, if Mr. Lumpkin retired after
age 65 or if his employment was terminated prior to such
time due to his death. On July 29, 2004, the board of
directors of ICTC paid Mr. Lumpkin a lump sum of $649,617
to terminate the Supplemental Executive Retirement Plan for
Mr. Lumpkin.
Directors' and Officers'
    Indemnification and Insurance
Our amended and restated certificate of
incorporation will provide that, to the fullest extent permitted
by the DGCL and except as otherwise provided in our bylaws, none
of our directors shall be liable to us or our stockholders for
monetary damages for a breach of fiduciary duty. In addition,
our amended and restated certificate of incorporation will
provide for indemnification of any person who was or is made, or
threatened to be made, a party to any action, suit or other
proceeding, whether criminal, civil, administrative or
investigative, because of his or her status as a director or
officer of CCI Holdings, or service as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise at our request to the fullest
extent authorized under the DGCL against all expenses,
liabilities and losses reasonably incurred by such person.
Further, our amended and restated certificate of incorporation
will provide that we may purchase and maintain insurance on our
own behalf and on behalf of any other person who is or was a
director, officer or agent of CCI Holdings or was serving at our
request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information, as of
the date of this prospectus, regarding the beneficial ownership
of our common capital stock: (1) immediately prior to the
consummation of the offering; and (2) as adjusted to
reflect the sale of shares of Class A common stock in this
offering by:
•
each person or entity who is known to us to
    beneficially own more than 5.0% of our capital stock;
•
our named officers;
•
our directors; and
•
our directors and officers as a group.
Beneficial ownership has been determined in
accordance with the applicable rules and regulations of the SEC,
which generally require inclusion of shares over which a person
has voting or investment power. Share ownership in each case
includes shares that may be acquired within 60 days through
the exercise of any options.
Shares Beneficially Owned
Shares Beneficially Owned
Prior to Offering
After Offering
Class A
Class B
Class A
Class B
Common Stock
Common Stock
% Total
Shares
Common Stock
Common Stock
% Total
Name and Address of
Voting
Being
Voting
Beneficial Owner
Shares
%
Shares
%
Power
Offered
Shares
%
Shares
%
Power
Central Illinois Telephone(a)
c/o Homebase
P.O. Box 1234
Mattoon, Illinois 61938
Providence Equity(b)
c/o Providence Equity Partners, Inc.
50 Kennedy Plaza, 18th Floor
Providence, Rhode Island 02903
Spectrum Equity(c)
c/o Spectrum Equity Investors
One International Place, 29th Floor
Boston, Massachusetts 02110
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Shares Beneficially Owned
Shares Beneficially Owned
Prior to Offering
After Offering
Class A
Class B
Class A
Class B
Common Stock
Common Stock
% Total
Shares
Common Stock
Common Stock
% Total
Name and Address of
Voting
Being
Voting
Beneficial Owner
Shares
%
Shares
%
Power
Offered
Shares
%
Shares
%
Power
Named Officers and Directors
Richard A. Lumpkin(d)
Robert J. Currey(e)
Steven J. Shirar(f)
Joseph R. Dively(g)
Christopher A. Young
Brian L. Carr
Kevin J. Maroni(h)
Mark A. Pelson(i)
All directors and executive officers as a
    group (13 persons)
(j)
*
Less than 1.0% ownership.
(a)
The equity interests in Central Illinois
    Telephone are approximately 81.9% owned by SKL Investment Group,
    a Delaware limited liability company, approximately 9.5% owned
    by LTIC, LLC, an Illinois limited liability company,
    approximately 1.0% owned by GRISS, LLC, an Illinois limited
    liability company, and approximately 7.6% owned collectively by
    Messrs. Currey, Shirar, Dively and others, either directly
    or indirectly through retirement accounts and various trusts.
    SKL Investment Group is owned by Mr. Lumpkin and members of
    his family, Mr. Lumpkin is the sole manager of an SKL
    Investment Group investment fund and has the sole power to
    direct the voting and disposition of its investments. LTIC, LLC
    is managed by Agracel, an Illinois corporation, which has a four
    member board of directors, two of whom are Messrs. Lumpkin
    and Grissom. In addition, Mr. Lumpkin and members of his
    family own approximately 50.0% of Agracel and Mr. Grissom
    owns approximately 2.6% of Agracel. In addition, GRISS, LLC is
    approximately 80.0% owned by Mr. Grissom and members of his
    family, and Mr. Grissom is also a co-trustee of trusts that
    own approximately 37.4% of the common shares of Central Illinois
    Telephone through SKL Investment Group. As a result of the
    above, Messrs. Lumpkin, Currey, Shirar, Dively and Grissom
    may be deemed to share beneficial ownership of the shares owned
    by Central Illinois Telephone. Each of them disclaims this
    beneficial ownership.
(b)
Consists
    of                   shares
    of Class A common stock held by Providence Equity Partners
    IV, L.P. and       shares of
    Class A common stock held by Providence Equity Operating
    Partners IV, L.P. Providence Equity GP IV, L.P. is the general
    partner of each of these entities and Providence Equity Partners
    IV, LLC is the general partner of Providence Equity GP IV, L.P.
    Providence Equity Partners IV, LLC has the sole power to direct
    the voting and disposition of the shares. As a result, each of
    the entities may be deemed to share beneficial ownership of the
    shares owned by the others. Each of the entities disclaims this
    beneficial ownership.
(c)
Consists
    of                   shares
    of Class A common stock held by Spectrum Equity Investors
    IV,
    L.P.;                   shares
    of Class A common stock held by Spectrum IV Investment
    Managers' Fund,
    L.P.;                   shares
    of Class A common stock held by Spectrum Equity Investors
    Parallel IV,
    L.P.;                   shares
    of Class A common stock held by Spectrum Equity
    Investors III,
    LP;                   shares
    of Class A common stock held by SEI III
    Entrepreneurs' Fund, L.P.;
    and                   shares
    of Class A common stock and held by Spectrum III
    Investment Managers' Fund, L.P. These funds ultimately are
    under common management that shares the power to direct the
    voting and disposition of the shares. As a result, each of the
    entities may be deemed to share beneficial ownership of the
    shares owned by the others. Each of the entities disclaims this
    beneficial ownership.
(d)
Mr. Lumpkin and his family own a majority of
    the shares of Central Illinois Telephone, Mr. Lumpkin is
    its sole manager and has the sole power to direct the voting and
    disposition of its shares. As a result, Mr. Lumpkin may
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be deemed to share beneficial ownership of the
    shares owned by Central Illinois Telephone. Mr. Lumpkin
    disclaims this beneficial ownership.
(e)
Consists
    of                   shares
    of Class A common stock received from Homebase under the
    restricted share plan. See "Management —
    Restricted Share Plan". In addition, Mr. Currey,
    through an IRA trust, owns less than 1.0% of Central Illinois
    Telephone. As a result, Mr. Currey may be deemed to share
    beneficial ownership of the shares owned by Central Illinois
    Telephone. Mr. Currey disclaims this beneficial ownership.
(f)
Consists
    of                   shares
    of Class A common stock received from Homebase under the
    restricted share plan. See "Management —
    Restricted Share Plan". In addition, Mr. Shirar,
    through a trust, owns less than 1.0% of Central Illinois
    Telephone. As a result, Mr. Shirar may be deemed to share
    beneficial ownership of the shares owned by Central Illinois
    Telephone. Mr. Shirar disclaims this beneficial ownership.
(g)
Consists
    of                   shares
    of Class A common stock received from Homebase under the
    restricted share plan. See "Management —
    Restricted Share Plan". In addition, Mr. Dively owns
    less than 1.0% of Central Illinois Telephone. As a result,
    Mr. Dively may be deemed to share beneficial ownership of
    the shares owned by Central Illinois Telephone. Mr. Dively
    disclaims this beneficial ownership.
(h)
Mr. Maroni is a general partner or managing
    member of, and holds a minority interest in, the Spectrum Equity
    funds that own Homebase shares. As a result, Mr. Maroni may
    be deemed to share beneficial ownership of the shares owned by
    Spectrum Equity. Mr. Maroni disclaims this beneficial
    ownership.
(i)
Mr. Pelson is a Managing Director of
    Providence Equity and holds a minority interest in the
    Providence Equity funds that own Homebase shares. As result,
    Mr. Pelson may be deemed to share beneficial ownership of
    the shares owned by Providence Equity. Mr. Pelson disclaims
    this beneficial ownership.
(j)
Excludes                   shares
    of restricted Class A common stock received from Homebase
    by employees, other than our executive officers under the
    restricted share plan.
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CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
Reorganization Agreement
Our existing equity investors and members of
management who will own shares of Class A common stock will
enter into a reorganization agreement, dated as
of                ,
2005, which sets forth the terms of the reorganization and the
certain other rights and obligations of our existing equity
investors in connection with this offering. The reorganization
agreement will provide for the merger of Consolidated
Communications Texas Holdings, Inc. with and into CCI Holdings
and the merger of Homebase with and into CCI Holdings, in each
case, with CCI Holdings being the entity surviving the
merger. In connection with the merger of Homebase with and into
CCI Holdings, (i) Central Illinois Telephone will receive from
Homebase an aggregate
of            million
share of Class B common stock
and          million
shares of Class A common stock, (ii) Spectrum Equity will
receive from Homebase an aggregate
of            million
shares of Class A common stock, (iii) Providence Equity
will receive from Homebase an aggregate
of           million
shares of Class A common stock and (iv) our management
stockholders will receive shares of restricted Class A
common stock under the restricted share plan.
Limited Liability Company Agreement
CCI Holdings is presently a wholly owned
subsidiary of Homebase, a Delaware limited liability company
organized on June 26, 2002. Currently, the operating
agreement for Homebase, which we refer to as the
LLC Agreement, provides for the management and the conduct
of our business prior to this offering. Except as provided
below, the provisions of the LLC agreement will terminate upon
the consummation of this offering.
Tag Along Rights
Following a public offering of our equity
securities, each of our existing equity investors will have the
right to participate, on a proportional basis, in any sale of
our equity securities that would result in either the purchaser
of those securities becoming the largest single holder of our
equity securities or the holder of more than 40.0% of our
outstanding voting securities.
Indemnification and Limitations on the
    Fiduciary Duty of Members
Under the LLC agreement, Homebase agreed to
indemnify, to the fullest extent permitted by applicable law,
its directors, employees and agents and the existing equity
investors and their respective directors, stockholders, members,
partners, representatives or agents for losses which the
indemnified person may sustain, incur or assume as a result of,
or relative to, any act or omission performed by the indemnified
person on behalf of Homebase in a manner reasonably believed to
be within the scope of authority provided by the LLC agreement.
The indemnification does not apply to any loss incurred by the
indemnified person as a result of his or its gross negligence or
willful misconduct. Furthermore, this indemnity is limited to
the value of the assets of Homebase.
Under the LLC agreement, none of Homebase's
members, directors, employees or agents will be liable to
Homebase or other members, directors, employees or agents of
Homebase for acts undertaken in good faith reliance on the
provisions of the LLC agreement.
Registration Rights Agreement
In connection with this offering and the related
transactions, we will enter into a registration rights agreement
that will provide each of our existing equity investors with,
among other things:
•
up to two demand registration rights;
•
unlimited shelf registration rights; and
•
unlimited "piggyback" registration
    rights.
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Professional Services Fee
    Agreements
Homebase and certain of its subsidiaries have
entered into two professional services fee agreements, each
effective as of April 14, 2004, with existing equity
investors. One agreement requires CCI to pay to Mr. Lumpkin
and such affiliates of Providence Equity and Spectrum Equity an
annual professional services fee in the aggregate amount of
$2.0 million for consulting, advisory and other
professional services provided to CCI and its subsidiaries
relating to the Illinois operations. The other agreement
requires Texas Holdings to pay to Mr. Lumpkin and such
affiliates of Providence Equity and Spectrum Equity an annual
professional services fee in the aggregate amount of
$3.0 million for consulting, advisory and other
professional services provided to Texas Holdings and its
subsidiaries relating to the Texas operations. The professional
services fees are generally payable in cash. The professional
services fee, however, must be paid in the form of class A
preferred shares if payment in cash is prohibited by the
existing credit facilities or if consolidated EBITDA (determined
in accordance with the existing credit facilities) is less than
or equal to $106.0 million. Payment of the professional
services fees is subordinate to the obligations under the
existing credit facilities and our senior notes. The rights of
Mr. Lumpkin and the affiliates of Providence Equity and
Spectrum Equity to receive professional services fees described
above will terminate upon the closing of this offering.
LATEL Sale/ Leaseback
In 2002, in connection with CCI Holdings'
acquisition of ICTC and several related businesses from
McLeodUSA, each of ICTC and Consolidated Communications Market
Response, Inc., or Consolidated Market Response, an indirect,
wholly owned subsidiary of CCI Holdings, entered into separate
agreements with LATEL, pursuant to which each of them sold to
LATEL real property for total consideration of approximately
$9.2 million and then leased the property back from LATEL.
LATEL is owned 50.0% by Mr. Lumpkin and 50.0% by Agracel,
and Agracel is the sole managing member of LATEL.
Mr. Lumpkin, together with members of his family,
beneficially owns 49.7% and Mr. Grissom owns 2.6% of
Agracel. In addition, Messrs. Lumpkin and Grissom are
directors of Agracel.
The initial term of both leases was one year
beginning on December 31, 2002. Each lease automatically
renews for successive one year terms through 2013, unless either
ICTC or Consolidated Market Response provides one year prior
written notice that it intends to terminate its respective
lease. Collectively, the initial rent for 2003 was approximately
$1.2 million, of which ICTC paid approximately
$1.0 million and Consolidated Market Response paid the
remainder. These lease payments represent 100.0% of the revenues
of LATEL. The annual rent for each lease will increase by 2.5%
upon each renewal. Either subsidiary can terminate its lease
agreement with LATEL at any time by giving LATEL one year prior
written notice.
Upon the closing of this offering, we expect that
LATEL will exercise its option in the lease to convert the term
of the lease to a fixed term of six years commencing on the date
the option is exercised.
Currently, the leases are recorded as operating
leases of ICTC and Consolidated Market Response.
MACC, LLC
In 1997, Consolidated Market Response entered
into a lease agreement with MACC pursuant to which Consolidated
Market Response leases office space for a period of five years.
Agracel is the sole managing member and 66.7% owner of MACC,
LLC, or MACC, an Illinois limited liability company.
Mr. Lumpkin and members of his family directly own the
remainder of MACC. The parties extended the lease for an
additional five years beginning October 14, 2002.
Consolidated Market Response paid MACC rent for 2003 in the
amount of $122,520. These payments represent
approximately 65.0% of MACC's total revenues for 2003.
The lease provides for a cost of living increase to the annual
lease payments based on the "Revised Consumers Price Index,
All Urban Consumers" published by the Bureau of Labor
Statistics for the United States Department of Labor. Neither
party has the right to terminate this agreement by the terms of
the agreement.
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SKL Investment Group, LLC
Mr. Lumpkin, together with members of his
family, beneficially owns 100.0% of SKL Investment Group, a
Delaware limited liability company which is an investment
company serving the Lumpkin family. Mr. Lumpkin and members
of his family are the sole voting members of SKL Investment
Group. SKL Investment Group paid to CCI $74,400 in 2003 for
the use of office space, computers and telephones and for other
office related expenses. This amount also includes a
reimbursement for a portion of Mr. Grissom's salary
paid by CCI. Mr. Grissom serves as Administrative Officer
of SKL Investment Group.
First Mid-Illinois
Pursuant to various agreements with CCI, First
Mid-Illinois provides general banking services, including
depository, disbursement and payroll accounts, to
CCI Illinois. Mr. Lumpkin and members of his family
own approximately 29.0% of the common stock of First
Mid-Illinois, Mr. Grissom owns less than 1.0%, and is the
co-trustee of trusts, with discretionary voting power, that hold
5.7% of the common stock of First Mid-Illinois and
Mr. Dively owns less than 1.0% of the common stock of
First Mid-Illinois. In addition, Messrs. Lumpkin, Grissom
and Dively are directors of First Mid-Illinois. The fees charged
and earnings received on deposits, through repurchase
agreements, are based on First Mid-Illinois's standard
schedule for large customers. During 2003, CCI Illinois
paid maintenance and activity related charges of $1,530 to First
Mid-Illinois and earned $97,281 of interest on its deposits. In
addition, First Mid-Illinois administers CCI Illinois'
hourly 401(k) plan. During 2003, CCI paid $46,348 to First
Mid-Illinois for this service.
In 2003, a wholly owned subsidiary of First
Mid-Illinois received a commission from Arthur J. Gallagher
Risk Management Services, Inc., or AJG Risk Management, a
company which provides insurance and risk management services,
for introducing CCI Illinois to AJG Risk Management.
In 2003, CCI Illinois paid AJG Risk
Management $744,622.
Illinois Telephone Operations provides First
Mid-Illinois with local dial tone, custom calling features, long
distance and other related services. In 2003, First Mid-Illinois
paid Illinois Telephone Operations $394,129 for these services.
Business Systems
Consolidated Communications Business Services,
Inc., or Consolidated Business Services, an indirect wholly
owned subsidiary of CCI Holdings, provides repair services
and, if First Mid-Illinois elects, maintenance services for
First Mid-Illinois's communications equipment. First
Mid-Illinois paid $39,862 in 2003 to Consolidated Business
Services for these services. The initial term of the contract
expired on June 6, 2003 and automatically renews annually
unless either party provides prior written notice of termination.
In 2003, Consolidated Business Systems also
entered into two sales agreement with First Mid-Illinois to
deliver and install communications and computer equipment.
Pursuant to one agreement, First Mid-Illinois paid a one-time
fee of $13,032 and pursuant to the second agreement, First
Mid-Illinois paid a one-time fee of $18,493.
Mobile Services
Consolidated Communications Mobile Services,
Inc., or Consolidated Mobile Services, an indirect wholly owned
subsidiary of CCI Holdings, provides paging services to
First Mid-Illinois. During 2003, First Mid-Illinois paid $2,662
to Consolidated Mobile Services.
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DESCRIPTION OF INDEBTEDNESS
We summarize below certain terms of our
amended and restated credit facilities, the indenture governing
our senior notes and the GECC capital leases. This summary is
not a complete description of all of the terms and provisions of
these agreements and is qualified entirely by reference to these
agreements, which are exhibits to the registration statement of
which this prospectus forms a part.
Amended and Restated Credit
Facilities
Overview
Concurrently with the closing of this offering,
we expect to amend and restate our existing credit agreement.
The descriptions set forth below represent our current
expectations regarding the terms of the amended and restated
credit facilities. The definitive terms of the amended and
restated credit facilities could materially differ from those
described below. The closing of this offering is conditioned
upon the closing of the amended and restated credit facilities.
We currently expect that the amended and restated
credit facilities will provide financing of $419.6 million,
consisting of:
•
a $389.6 million term loan C facility
    maturing on October 14, 2011; and
•
a $30.0 million revolving credit facility
    maturing on April 14, 2010.
Each of CCI and Texas Holdings is expected to be
a borrower under the amended and restated credit facilities. The
borrowers' obligations under the amended and restated
credit facilities are expected to be joint and several.
The term loan C facility is expected to be
increased by $75.7 million from the existing term
loan C facility. The proceeds of the increased term
loan C facility, together with approximately
$47.7 million of cash on hand, are expected to be used to
repay in full all of the approximately $118.7 million of
indebtedness under our term loan A facility, which is
expected to be terminated in connection with the amendment and
restatement. The revolving credit facility is not expected to
change materially from our existing revolving credit facility,
and is expected to continue to include a subfacility for letters
of credit as well as a swingline subfacility. We currently
expect that the revolving credit facility will be undrawn on the
closing of the offering and will remain available for general
corporate purposes.
Amortization; Prepayments
We anticipate that our amended and restated
credit facilities will require the borrowers to make nominal
amortization payments in respect of the increased term
loan C facility that are proportionate to the amortization
payments required by our existing term loan C facility.
Such amortization payments are expected to be approximately
$4.2 million during 2005, decreasing to approximately
$3.9 million in each year thereafter prior to 2011. In 2011
we expect to be required to amortize 25.0% of the outstanding
balance of the increased term loan C facility at the end of
each fiscal quarter and on the maturity date. Principal amounts
outstanding under the revolving credit facility are expected to
be due and payable in full at its maturity.
The amended and restated credit facilities are
expected to require the borrowers to prepay the increased term
loan C facility, subject to certain exceptions, in an
amount equal to the amount of any Excess Dividends (defined
below), subject to adjustment from time to time in the future
based on our total net leverage ratio, and with the net proceeds
of all non-ordinary course asset sales and any insurance or
condemnation proceeds, not reinvested within required time
periods, the net proceeds of certain incurrences of indebtedness
and the net proceeds from certain issuances of equity
(excluding, among other things, the proceeds of this offering).
We also expect that the borrowers will be able to voluntarily
repay outstanding loans under the amended and restated credit
facilities at any time without any premium or penalty, other
than customary "breakage" costs with respect to LIBOR
loans;
provided
that prior to October 14, 2005, we
expect that the borrowers will be required to pay a 1.0% premium
with respect to
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any prepayments of the increased term loan C
facility made with the proceeds of the amended and restated
credit facilities.
Interest
Rates and Fees
The borrowings under the amended and restated
credit facilities are expected to bear interest at a rate per
annum equal to an applicable margin plus, at the borrowers'
option, either a base rate or a LIBOR rate. The initial
applicable margin for borrowings under the amended and restated
credit facilities are expected to be 1.5% with respect to base
rate loans and 2.5% with respect to LIBOR loans. After
April 1, 2005, if and for so long as the loans are rated at
least B1 (stable) by Moody's Investors Service, Inc.
and B+ (stable) by Standard & Poor's Rating
Services, a division of the McGraw-Hill Companies, Inc., we
expect that the amended and restated credit facilities will
provide that applicable margin under the increased term
loan C facility will decrease by 0.25%. We also expect the
applicable margin under the revolving credit facility will be
adjusted from time to time in the future based on our total net
leverage ratio (defined below), but will not exceed 1.5% with
respect to base rate loans and 2.5% with respect to LIBOR loans.
In addition to paying interest on outstanding
principal amounts under the amended and restated credit
facilities, we expect that the borrowers will be required to pay
a commitment fee of 0.5% per annum to the lenders under the
revolving credit facility in respect of unutilized commitments
thereunder subject to adjustment from time to time in the future
based on our total net leverage ratio, but not exceeding 0.5%.
We also anticipate that the borrowers will pay customary letter
of credit fees and fees of the administrative agent.
Collateral
and Guarantees
We expect that we and each of the existing
subsidiaries of CCI and CCV (other than East Texas Fiber Line
Incorporated, Telecon, Inc. and in the case of ICTC, subject to
obtaining the consent of the ICC for ICTC to guarantee the
borrowings) and certain future direct and indirect subsidiaries,
or the Subsidiary Guarantors, will, on a joint and several
basis, fully and unconditionally guarantee the obligations of
the borrowers under the amended and restated credit facilities.
The obligations under the amended and restated
credit facilities and all the guarantees are expected to be
secured by substantially all of the assets of each borrower and
each guarantor, including, but not limited to, the following,
and subject to certain exceptions:
•
a pledge of the capital stock of the borrowers
    and each of the Subsidiary Guarantors and ICTC (the enforcement
    of the pledges of capital stock being subject to regulatory
    restriction); and
•
a security interest in substantially all tangible
    and intangible assets of CCI Holdings, the borrowers and the
    Subsidiary Guarantors.
Certain
Covenants and Events of Default
The amended and restated credit facilities are
expected to contain a number of covenants, that, among other
things, will restrict, subject to certain exceptions, the
borrowers' ability and the ability of us and our
subsidiaries, to:
•
incur additional indebtedness or issue capital
    stock;
•
create liens on assets;
•
repay other indebtedness (including our senior
    notes other than as described under "Use of Proceeds");
•
sell assets;
•
make investments, loans, guarantees or advances;
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•
pay dividends, repurchase equity interests or
    make other restricted payments (other than Permitted
    Distributions as described below);
•
engage in transactions with affiliates;
•
make capital expenditures;
•
engage in mergers, acquisitions or consolidations;
•
enter into sale-leaseback transactions;
•
amend or otherwise modify agreements governing
    indebtedness, formation documents and certain material
    agreements;
•
enter into agreements that restrict dividends
    from subsidiaries; and
•
change the business conducted by us and our
    subsidiaries.
In addition, the amended and restated credit
facilities are expected to limit our business activities to
specific activities and require the borrowers and the guarantors
to, among other things:
•
furnish specified financial information to the
    lenders;
•
comply with applicable laws;
•
maintain its properties and assets;
•
maintain insurance on its properties;
•
keep books and records which accurately reflect
    its business affairs;
•
comply with environmental laws;
•
pledge after acquired property as collateral and
    cause certain additional subsidiaries to become guarantors;
•
keep in effect all rights, licenses, permits,
    privileges, franchises, patents and other intellectual
    property; and
•
hedge a portion of the term loans.
Our amended and restated credit facilities are
also expected to include specified financial covenants,
requiring the borrowers to comply with certain financial
covenants, and to certify compliance on a quarterly basis,
including a maximum total net leverage ratio, a minimum interest
coverage ratio, a minimum fixed charge coverage ratio and a
maximum senior secured leverage ratio. We also expect that the
amended and restated credit facilities will contain customary
representations and warranties and events of default, including
but not limited to payment defaults, breach of representations
and warranties, covenant defaults, cross-defaults to certain
indebtedness and other material agreements, certain events of
bankruptcy, material judgments, the occurrence of certain ERISA
events and the occurrence of a change of control. If such an
event of default occurs, we expect that the lenders under the
amended and restated credit facilities will be entitled to take
various actions, including accelerating the amounts due
thereunder and enforcing the rights of a secured creditor.
Permitted
Distributions
Subject to certain conditions and restrictions,
we expect the restricted payments covenant in the amended and
restated credit facilities to permit us, during any fiscal
quarter, to pay:
•
current dividends on our common stock in an
    aggregate amount not to exceed
(i) $               million
    in respect of the proportionate amount of dividends expected to
    be paid in respect of the portion of the quarter in which the
    closing of the amendment and restatement is consummated between
    the closing date of this offering and the end of such quarter,
and
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(ii) thereafter, the difference (calculated
    including all of our subsidiaries on a consolidated basis)
    between
(a) Available Cash (defined below) for a
    period commencing on the first day of the first full fiscal
    quarter after the closing of the amended and restated credit
    facilities and ending on the last day of the fiscal quarter most
    recently ended for which a compliance certificate has been
    delivered; and
(b) the aggregate amount of dividends paid
    during such period, other than any such dividends paid from the
    proceeds of equity as described in the bullet point below;
provided
that no dividend suspension period, as defined
    below, and no event of default shall have occurred and be
    continuing; and
•
dividends from the portion of the proceeds of any
    incurrence, issuance or sale of our equity not used to make
    mandatory prepayments of loans and not used to fund
    acquisitions, capital expenditures or make other investments;
provided
that no event of default shall have occurred and
    be continuing.
We expect that "Available Cash" will be
defined in the amended and restated credit facilities as, on any
date of determination, for the period commencing on the first
day of the first full fiscal quarter that starts after the date
of the closing of these facilities and ending on the last day of
the fiscal quarter most recently ended for which a compliance
certificate has been delivered, an amount equal to the sum (as
calculated for us and our subsidiaries on a consolidated basis)
of:
(a) Bank EBITDA for such period
minus
(b) to the extent not deducted in the
    determination of Bank EBITDA, the sum of the following:
(i) non-cash interest income and dividend
    income for such period;
(ii) interest expense for such period net of
    amortization of debt issuance costs incurred in connection with
    or prior to the consummation of this offering;
(iii) capital expenditures for such period;
(iv) cash income taxes for such period;
(v) scheduled principal payments, if any,
    during such period;
(vi) voluntary prepayments of debt,
    prepayments of loans on account of Excess Dividends and net
    increases in revolving loans (during such period);
(vii) the cash cost of any extraordinary or
    unusual losses or charges during such period; and
(viii) all cash payments made during such
    period on account of losses or charges expensed during or prior
    to such period (to the extent deducted in the determination of
    Bank EBITDA for such prior period);
plus
(c) to the extent not including in the
    determination of Bank EBITDA, (i) the cash amount realized
    in respect of extraordinary or unusual gains during such period
    and (ii) net decreases in revolving loans (during such
    period).
We expect that "Bank EBITDA" will be
defined in the amended and restated credit facilities as, for
any period, our Bank Consolidated Net Income (defined below) for
such period
(a)
plus
all amounts deducted in
    arriving at such Bank Consolidated Net Income amount in respect
    of, without duplication,
(i) interest expense, amortization or
    write-off of debt discount,
(ii) foreign, federal, state and local
    income taxes for such period,
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(iii) charges for depreciation of fixed
    assets and amortization of intangible assets during such period,
(iv) non-cash charges for the impairment of
    long lived assets during such period,
(v) fees accrued during periods prior to
    this offering payable to certain of our equity investors in an
    amount not to exceed $5.0 million in any twelve-month
    period,
(b)
minus
(in the case of gains) or
plus
(in the case of losses) gain or loss on any sale of
    assets,
(c)
minus
(in the case of gains) or
plus
(in the case of losses) non-cash charges relating to
    foreign currency gains or losses,
(d)
plus
(in the case losses) and
minus
(in the case of income) non-cash minority interest
    income or loss,
(e)
plus
(in the case of items
    deducted in arriving at Bank Consolidated Net Income) and
minus
(in the case of items added in arriving at Bank
    Consolidated Net Income) non-cash charges resulting from changes
    in accounting principles,
(f)
plus
extraordinary loss as
    defined by GAAP,
(g)
plus
the first $15.0 million
    of other expenses relating to the integration of CCV incurred
    after its acquisition during 2004 and 2005,
(h)
minus
the sum of
    (x) interest income, and (y) extraordinary income or
    gains as defined by GAAP;
provided
that for
the fiscal quarter ending June 30, 2004, Bank EBITDA will
be increased by the amount of unusual or nonrecurring charges,
fees or expenses (excluding integration expenses) relating to
our acquisition of CCV and related financings (including,
without limitation, for severance payments and retention
bonuses) to the extent such charges, fees or expenses reduced
Bank EBITDA in such fiscal quarter (net of any offsetting items
that increased Bank EBITDA in such fiscal quarter as a result
thereof) and to give pro forma effect to our acquisition of CCV
and related financings as if they had occurred on the first day
of such fiscal quarter in an aggregate amount not to exceed
$12.0 million.
We expect that "Bank Consolidated Net
Income" will be defined in the amended and restated credit
facilities as, for any period, our net income or loss for such
period determined on a consolidated basis in accordance with
GAAP;
provided
that there shall be excluded therefrom,
without duplication,
(i) the income or loss of any person (other
    any of our consolidated subsidiaries) in which any other person
    (other than any of our consolidated subsidiaries) has a joint
    interest, except to the extent of the amount of dividends or
    other distributions actually paid to any of our consolidated
    subsidiaries by such person during such period,
(ii) the cumulative effect of a change in
    accounting principles during such period,
(iii) any net after-tax income (loss) from
    discontinued operations and any net after-tax gains or losses on
    disposal of discontinued operations,
(iv) the income or loss of any person
    accrued prior to the date it becomes a subsidiary of a borrower
    or is merged into or consolidated with any of our subsidiaries
    or that person's assets are acquired by any of our
    subsidiaries,
(v) the income of any consolidated
    subsidiary of a borrower to the extent that declaration of
    payment of dividends or similar distributions by that subsidiary
    to the borrowers of that income is not at the time permitted by
    operation of the terms of its charter or any agreement,
    instrument, judgment, decree, order, statute, rule or
    governmental regulation applicable to that subsidiary and
(vi) the amount of certain administrative
    and corporate overhead expenses in respect of which the
    borrowers are permitted to make distributions to Illinois
    Holdings.
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We expect that "Excess Dividends" will
be defined in the amended and restated credit facilities as, for
any quarter, the amount by which aggregate dividends paid in
such quarter exceed $11.875 million;
provided
that
the calculation of Excess Dividends will not give effect to
proportionate dividends in respect of Class A common stock
issued under our restricted share plan to the extent reserved
for future issuance at the time of consummation of this offering.
The ratio of total net debt (defined as total
debt minus the lesser of (x) our consolidated cash in excess of
$5 million and (y) $25 million) to Bank EBITDA, which
we refer to as the total net leverage ratio, will be tested
quarterly. If the total net leverage ratio is greater
than        :1.0, we will be
required to suspend dividends on our common stock unless
otherwise permitted under the first bullet point above (the
period of such suspension, a "dividend suspension
period"). During any dividend suspension period, we will be
required to prepay debt in an amount equal to 50.0% of any
increase in Available Cash during such dividend suspension
period.
Senior Notes
Overview
On April 14, 2004, CCI Holdings and
Consolidated Communications Texas Holdings, Inc. issued
$200,000,000 aggregate principal amount of senior notes in a
private placement exempt from the registration requirements of
the Securities Act. Our senior notes were issued under an
indenture, dated as of April 14, 2004, among CCI Holdings,
Consolidated Communications Texas Holdings, Inc., Homebase and
Wells Fargo Bank, National Association, as trustee. Following
the reorganization, CCI Holdings will succeed to the obligations
of Consolidated Communications Texas Holdings, Inc. under the
indenture and Homebase under its non-recourse guarantee.
Our senior notes:
•
mature on April 1, 2012;
•
are our unsecured obligations:
•
equal in right of payment to any of our existing
    and future senior unsecured indebtedness,
•
senior in right of payment to any of our existing
    and future subordinated indebtedness,
•
effectively junior in right of payment to all of
    our existing and future secured indebtedness to the extent of
    the value of the assets securing such indebtedness, and
•
effectively subordinated to the existing and
    future liabilities of our subsidiaries; and
•
accrue interest at a rate of 9 3/4% per
    annum, payable on a semi-annual basis, on April 1 and
    October 1 of each year.
Optional Redemption
We may elect to redeem our senior notes on or
after April 1, 2008, in whole or in part, in cash, at the
following redemption prices, plus accrued and unpaid interest
to, and including, the date of redemption:
Redemption
Period
Price
2008
104.875
%
2009
102.438
%
2010 and thereafter
100.000
%
In addition, at any time prior to April 1,
2007, we may, at our option and subject to certain requirements,
redeem up to 35.0% of the aggregate principal amount of our
senior notes with the net proceeds of certain equity offerings
(including with this offering) at a redemption price equal to
109.750% of the principal amount plus accrued and unpaid
interest thereon, if any, to the date of redemption. Upon
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the closing of this offering, we intend to
exercise this right and redeem 35% of our outstanding senior
notes. See "Use of Proceeds".
Further, at any time prior to October 6,
2005, we may redeem our senior notes in whole but not in part
with all or a portion of the net proceeds of an offering of a
qualified income depository security at the following redemption
prices:
Redemption
Period
Price
Day 1 through Day 360
104.875
%
Day 361 through Day 540
102.438
%
Change of Control
If a change of control, as defined in the
indenture, occurs, we will be required to make an offer to
repurchase our senior notes. The repurchase price will be 101.0%
of the principal amount thereof, plus accrued and unpaid
interest, if any, to, but excluding, the date of repurchase.
Covenants
The indenture contains restrictive covenants
which restricts our ability, and the ability of our restricted
subsidiaries, to, among other things:
•
to incur additional indebtedness or issue
    preferred stock;
•
pay dividends or make other distributions to its
    stockholders
•
purchase or redeem capital stock or subordinated
    indebtedness;
•
make investments;
•
create liens;
•
incur restrictions on the ability of our
    restricted subsidiaries to pay dividends or make other payments
    to us;
•
sell assets;
•
consolidate or merge with or into other companies
    or transfer all of substantially all of our assets; and
•
engage in transactions with affiliates.
Limitation on Restricted
    Payments
We summarize below the material provisions of the
restricted payments covenant in the indenture. This summary is
qualified in its entirety by reference to the actual restricted
payments covenant, which has been filed as an exhibit to the
registration statement of which this prospectus forms a part.
We shall not make, and shall not permit any of
our restricted subsidiaries to make, directly or indirectly, any
restricted payment if at the time of, and after giving effect
to, such proposed restricted payment:
•
a default or event of default shall have occurred
    and be continuing (or would result from such payment);
•
we could not incur at least $1.00 of additional
    indebtedness pursuant a 6.0 to 1.0 leverage ratio (as
    defined in the indenture);
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•
the aggregate amount of such restricted payment
    and all other restricted payments declared or made subsequent to
    the issue date and then outstanding would exceed, at the date of
    determination, without duplication, the sum of:
•
an amount (whether positive or negative) equal to
    consolidated EBITDA (as defined in the indenture) from the
    beginning of the first fiscal quarter in which our senior notes
    were originally issued to the end of our most recent fiscal
    quarter for which internal financial statements are available at
    the date of such restricted payment, taken as a single
    accounting period, less the product of 1.5 times our
    consolidated interest expense (as defined in the indenture) from
    the first date of the fiscal quarter in which the issue date
    occurs to the end of our most recent fiscal quarter ending at
    least 45 days prior to the date of such restricted payment,
    taken as a single accounting period,
•
proceeds of capital stock sales,
•
the sum of (A) the aggregate net cash
    proceeds received by us or any of our restricted subsidiaries
    from the issuance or sale after the issue date of convertible or
    exchangeable indebtedness that has been converted into or
    exchanged for our capital stock (other than disqualified stock)
    and (B) the aggregate amount by which our indebtedness or
    any of our restricted subsidiaries is reduced on our
    consolidated balance sheet on or after the issue date upon the
    conversion or exchange of any indebtedness issued or sold on or
    prior to the issue date that is convertible or exchangeable for
    our capital stock (other than disqualified stock) (excluding, in
    the case of clause (A) or (B), (x) any such
    indebtedness issued or sold to us or a subsidiary of ours or an
    employee stock ownership plan or trust established by us or any
    such subsidiary of ours for the benefit of their employees and
    (y) the aggregate amount of any cash or other property
    distributed by us or any of our restricted subsidiaries upon any
    such conversion or exchange), and
•
an amount equal to the sum of (A) the net
    reduction in, or any return on, investments (other than
    permitted investments) resulting from dividends, repayments of
    loans or advances or other transfers of property, in each case
    to us or any restricted subsidiary in respect of such
    investment, or from the reclassification of any unrestricted
    subsidiary as a restricted subsidiary, or from the disposition
    of capital stock of an unrestricted subsidiary for cash or
    property received by us or any restricted subsidiary, and
    (B) the portion (proportionate to our equity interest in an
    unrestricted subsidiary) of the fair market value of the net
    assets of an unrestricted subsidiary at the time such
    unrestricted subsidiary is designated a restricted subsidiary;
    provided, however, that the foregoing sum shall not exceed, in
    the case of any person, the amount of investments previously
    made (and treated as a restricted payment) by any Issuer or any
    restricted subsidiary in such person.
Regardless of whether we could make any
restricted payment under the build-up amount referred to above,
we may, following the first public equity offering that results
in a public market, pay dividends on our capital stock of up to
6.0% per year of the cash proceeds (net of
underwriters' fees, discounts or commissions paid by us) of
such first public equity offering; provided, however, that
(1) such dividends shall be (x) paid pro rata to the
holders of all classes of the applicable class of capital stock
and (y) included in the calculation of the amount of
restricted payments and (2) at the time of payment of any
such dividend, no default or event of default shall have
occurred and be continuing or would result therefrom.
Events of Default
The indenture also provides for events of default
which, if any of them occurs, would permit or require the
principal of and accrued interest on such senior notes to become
or be declared due and payable.
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Registration Rights
Pursuant to a registration rights agreement
entered into as part of our senior notes issuance, we will:
•
use our reasonable best efforts to cause the
    registration of our senior notes within 195 days after the
    issuance date of our senior notes;
•
use our reasonable best efforts to cause the
    registration statement to become effective within 270 days
    of the issue date of the notes;
•
consummate the exchange offer within
    300 days after the issuance date of our senior
    notes; and
•
use our reasonable best efforts to file a shelf
    registration statement for the resale of our senior notes if we
    do not consummate an exchange offer within the time period
    listed above and in certain other circumstances.
We will pay additional interest on our senior
notes if we do not meet these timing requirements for the filing
the registration statement, consummating the exchange offer or
causing the shelf registration statement to become effective.
GECC Capital Leases
CCI Texas leases certain furniture, fixtures,
equipment and leasehold improvements at CCI Texas' current
corporate headquarters in Irving pursuant to two Master Lease
Agreements between CCI Texas and GECC. During 2003,
CCI Texas paid a total of $1.1 million to GECC
pursuant to these capital leases. As of September 30, 2004,
the outstanding principal amount of these capital leases was
$1.3 million. The leases had an initial term of
30 months and each ended on October 1, 2004. At the
termination of the initial term of the first lease for leasehold
improvements, CCI Texas elected to purchase the scheduled
leasehold improvements for $1.1 million. At the termination
of the initial term of the second lease for furniture, fixtures
and equipment, CCI Texas elected to extend the term of the
agreement until April 1, 2007, at which time CCI Texas will
have an option to purchase the equipment for its then fair
market value. These leases require Texas Holdings to maintain a
specified debt rating. As of the date of this prospectus, Texas
Holdings is not in compliance with this covenant, although we
are not aware of the delivery of any notice of default. Upon a
default under these leases, GECC may take possession of the
scheduled equipment and require Texas Holdings to pay certain
stipulated loss amounts.
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DESCRIPTION OF CAPITAL STOCK
We summarize below the material terms and
provisions of our amended and restated certificate of
incorporation and amended and restated bylaws. The following
summary of our capital stock is intended as a summary only and
is qualified in its entirety by reference to our amended and
restated certificate of incorporation and our amended and
restated bylaws, the forms of which are filed as exhibits to the
registration statement of which this prospectus forms a part and
by reference to the DGCL.
General Matters
CCI Holdings, the issuer in this offering, is
presently a wholly owned subsidiary of Homebase. Prior to the
consummation of this offering, and subject to obtaining the
prior approval of the ICC, we plan to effect a reorganization
pursuant to which (1) our sister subsidiary Consolidated
Communications Texas Holdings, Inc. will merge with and into CCI
Holdings and (2) Homebase will merge with and into CCI
Holdings, in each case, with CCI Holdings being the entity
surviving the merger. See "Summary — Our Current
Organizational Structure" and
"— Post-Offering Organizational Structure".
Upon completion of the reorganization and in connection with
this offering and the related transactions, we will amend and
restate our certificate of incorporation to, among other things,
change our name to Consolidated Communications Holdings, Inc.
Throughout this prospectus, unless the context otherwise
requires, we have assumed that the foregoing reorganization has
been consummated.
Our amended and restated certificate of
incorporation will provide that, upon closing of this offering,
we will have two classes of common stock: Class A common
stock, which will have one vote per share; and Class B
common stock, which will have ten votes per share. Any holder of
Class B common stock may convert his or her shares at any
time into shares of Class A common stock on a
share-for-share basis. In addition, all shares of Class B
common stock will automatically convert to Class A common
stock under certain circumstances. The rights of these classes
of common stock are discussed in greater detail below.
Authorized Capitalization
Upon the closing of this offering, our authorized
common stock and preferred stock will consist of:
•
shares
    of Class A common stock, par value $0.01 per share;
•
shares
    of Class B common stock, par value $0.01 per
    share; and
•
shares
    of preferred stock, par value $0.01 per share.
Immediately following the closing of this
offering, we will have outstanding:
•
shares
    of Class A common stock;
•
shares
    of Class B common stock; and
•
no shares of preferred stock.
All of our outstanding shares of Class B
common stock will be owned by Central Illinois Telephone upon
the closing of the offering.
Common Stock
Voting Rights
Holders of our Class A common stock are
entitled to one vote per share and holders of our Class B
common stock are entitled to ten votes per share. Holders of
shares of Class A common stock and Class B common
stock will vote together as a single class on all matters
submitted to a vote of stockholders, unless
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otherwise required by law. Delaware law could,
however, require either our Class A common stock or
Class B common stock to vote separately as a single class
in certain other circumstances, including:
•
if we amended our amended and restated
    certificate of incorporation to increase the authorized shares
    of a class of stock, or to increase or decrease the par value of
    a class of common stock, then that class would be required to
    vote separately to approve the proposed amendment; or
•
if we amended our amended and restated
    certificate of incorporation in a manner that altered or changed
    the powers, preferences or special rights of a class of common
    stock in a manner that affects them adversely then that class
    would be required to vote separately to approve the proposed
    amendment.
Dividends
Subject to preferences that may apply to any
shares of preferred stock outstanding at the time, the holders
of Class A common stock and Class B common stock shall
be entitled to share equally in any dividends that our board of
directors may determine to issue from time to time. In the event
a dividend is paid in the form of shares of common stock or
rights to acquire shares of common stock, the holders of
Class A common stock shall receive Class A common
stock, or rights to acquire Class A common stock, as the
case may be, and the holders of Class B common stock shall
receive Class B common stock, or rights to acquire
Class B common stock, as the case may be.
Our board of directors has adopted a dividend
policy, effective upon the closing of this offering, which
reflects an intention to distribute as regular quarterly
dividends to our stockholders a substantial portion of the cash
generated by our business in excess of various expected cash
needs and other possible uses. These expected cash needs include
interest and principal payments on our indebtedness, capital
expenditures, integration and restructuring costs of the TXUCV
acquisition, incremental costs associated with being a public
company, taxes and certain other costs. In accordance with our
dividend policy, we currently intend to pay an initial dividend
of
$           per
share on or
about                     ,
2005 and to continue to pay quarterly dividends at an annual
rate of
$           per
share for the first full year following the closing of this
offering, subject to our board of director's decision to
declare these dividends and various restrictions on our ability
to do so. We are not required to pay dividends, and our
stockholders will not be guaranteed, or have contractual or
other rights, to receive dividends. Our board of directors may
decide, in its discretion, at any time, to decrease the amount
of dividends, otherwise modify or repeal the dividend policy or
discontinue entirely the payment of dividends. See "Risk
Factors — Risks Relating to Our Class A Common
Stock — You may not receive any dividends, and
there are several risks relating to our paying, and the
restrictions on our ability to pay, dividends" and
"— Our dividend policy may limit our ability to
pursue growth opportunities." and "Dividend Policy and
Restrictions."
Rights Upon
Liquidation
In the event of our voluntary or involuntary
liquidation, dissolution or winding up, holders of shares of our
common stock will be entitled to share equally in our assets
available for distribution to holders of shares of our common
stock on an equal, pro rata basis, subject to the prior rights
of our creditors and holders of any outstanding preferred stock.
Preemptive and Other Subscription
Rights
The holders of our common stock do not have
preemptive, subscription or redemption rights and are not
subject to further calls or assessments. All outstanding shares
of our common stock, including the common stock offered in this
offering, will be fully paid and non-assessable.
Conversion
Our Class A common stock is not convertible
into any other shares of our capital stock. Each share of
Class B common stock is convertible at any time at the
option of the holder into one share of Class A
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common stock. In addition, each share of
Class B common stock shall convert automatically into one
share of Class A common stock upon any transfer, whether or
not for value, except for transfers to "permitted
transferees" as described in our amended and restated
certificate of incorporation.
"Permitted transferee" means:
•
Richard A. Lumpkin or one of this immediate
    family members;
•
any trust (including a voting trust),
    corporation, partnership or other entity, more than 50% of the
    voting equity interests of which are owned directly or
    indirectly by (or, in the case of a trust not having voting
    equity interests, which is more than 50% for the benefit of) and
    which is controlled by, Richard A. Lumpkin or one of his
    immediate family members; or
•
the estate of Richard A. Lumpkin or one of his
    immediate family members until such time as the property of such
    estate is distributed in accordance with his will or applicable
    law.
For purposes of the definition of "permitted
transferee":
•
"immediate family member" means
    (i) the spouse or any parent of Richard A. Lumpkin,
    (ii) any lineal descendant of a parent of Richard A.
    Lumpkin, and (iii) the spouse of any such lineal descendant
    (parentage and descent in each case to include adoptive and step
    relationships);
•
"control" of a trust, corporation or
    other entity means the possession, directly or indirectly, of
    the power to direct or cause the direction of the management or
    policies of the trust, corporation or other entity, whether
    through the ownership of voting securities, by agreement or
    otherwise; and
•
the failure of any trust, corporation,
    partnership of other entity to continue to satisfy the
    requirements of the definition set forth in clause (2)
    above shall in and of itself constitute a transfer of shares of
    Class B common stock.
A pledge of shares of Class B common stock
to a pledge pursuant to a bona fide pledge of such shares as
collateral security for indebtedness due to the pledgee shall
not constitute a transfer of such shares of Class B common
stock; provided that any event of foreclosure or other similar
action by the pledgee shall constitute a transfer unless in
connection with such foreclosure such pledged shares of
Class B common stock are transferred to a permitted
transferee.
Once transferred and converted into Class A
common stock, the Class B common stock shall not be
reissued. No class of common stock may be subdivided or combined
unless the other class of common stock concurrently is
subdivided or combined in the same proportion and in the same
manner.
Preferred Stock
Our amended and restated certificate of
incorporation provides that we may issue up
to                      shares
of preferred stock in one or more classes or series as may be
determined by our board of directors.
Our board of directors has broad discretionary
authority with respect to the rights of issued classes or series
of our preferred stock and may take several actions without any
vote or action of the holders of our common stock, including:
•
determining the number of shares to be included
    in each class or series; and
•
fixing the designation, preferences, limitations
    and relative rights of the shares of each class or series,
    including provisions related to dividends, conversion, voting,
    redemption and liquidation, which may be superior to those of
    our common stock.
The board of directors may authorize, without
approval of holders of our common stock, the issuance of
preferred stock with voting and conversion rights that could
adversely affect the voting power and other rights of holders of
our common stock. For example, our preferred stock may rank
prior to our common stock as to dividend rights, liquidation
preferences or both, may have full or limited voting rights and
may
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be convertible into shares of our common stock.
The number of authorized shares of our preferred stock may be
increased or decreased (but not below the number of shares then
outstanding) by the affirmative vote of the holders of at least
a majority of our common stock, without a vote of the holders of
any other class or series of our preferred stock unless required
by the terms of such class or series of preferred stock or by
the DGCL.
Our preferred stock could be issued quickly with
terms designed to delay or prevent a change in the control of
our company or to make the removal of our management more
difficult. This could have the effect of discouraging third
party bids for our common stock or may otherwise adversely
affect the market price of our Class A common stock.
We believe that the ability of our board of
directors to issue one or more series of our preferred stock
will provide us with flexibility in structuring possible future
financings and acquisitions and in meeting other corporate needs
that might arise. The authorized shares of our preferred stock
and common stock will be available for issuance without action
by holders of our common stock, unless such action is required
by applicable law or the rules of any stock exchange or
automated quotation system on which our securities may be listed
or traded.
Although our board of directors has no intention
at the present time of doing so, it could issue a series of our
preferred stock that could, depending on the terms of such
series, be used to implement a stockholder rights plan or
otherwise impede the completion of a merger, tender offer or
other takeover attempt of our company. Our board of directors
could issue preferred stock having terms that could discourage
an acquisition attempt through which an acquirer may be able to
change the composition of the board of directors, including by a
tender offer or other transaction that some, or a majority, of
our stockholders might believe to be in their best interests or
in which stockholders might receive a premium for their stock
over the then current market price.
Registration Rights
In connection with this offering and the related
transactions, we will enter into a registration rights agreement
that will provide each of our existing equity investors with,
among other things:
•
up to two demand registration rights;
•
unlimited shelf registration rights; and
•
unlimited "piggyback" registration
    rights.
Anti-takeover Effects of our Amended and
Restated Certificate of Incorporation, Amended and Restated
Bylaws and Applicable Laws
Our amended and restated certificate of
incorporation and amended and restated bylaws will contain
certain provisions that are intended to enhance the likelihood
of continuity and stability in the composition of the board of
directors and which may have the effect of delaying, deferring
or preventing a future takeover or change in control of the
company unless such takeover or change in control is approved by
the board of directors. A stockholder might consider an attempt
to takeover or effect a change in control to be in its best
interest, including those attempts that might result in a
premium over the market price for the shares held by
stockholders.
These provisions include:
Dual Class Structure
As discussed above, our Class B common stock has
ten votes per share, while our Class A common stock, which is
the class of stock we are selling in this offering and which
will be the only class of stock which is publicly traded, has
one vote per share. After giving effect to this offering and the
related transactions, all of our Class B common stock will be
owned by Central Illinois Telephone, an entity affiliated with
our chairman Richard Lumpkin, and will
represent           %
of the voting power of our
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outstanding capital stock. Because of our dual
class structure, Central Illinois Telephone will continue to be
able to control all matters submitted to our stockholders for
approval notwithstanding the fact that it owns significantly
less than 50% of the shares of our outstanding common stock.
This concentrated control could discourage others from
initiating any potential merger, takeover or other possible
change of control transaction that other stockholders may view
as beneficial.
No Cumulative Voting
The DGCL provides that stockholders are not
entitled to the right or cumulate votes in the election of
directors unless our certificate of incorporation provides
otherwise. Our amended and restated certificate of incorporation
does not expressly provide for cumulative voting.
Special Meetings of
    Stockholders
Our amended and restated bylaws will provide
that, except as otherwise required by law, special meetings of
the stockholders can only be called by the chairman of the board
or our president, or pursuant to a resolution adopted by a
majority of the board of directors or by one or more
stockholders holding shares of common stock representing at
least 50% of the combined voting power of the outstanding common
stock. Except as provided above, stockholders will not be
permitted to call a special meeting or to require the board of
directors to call a special meeting.
Undesignated Preferred Stock
The ability to authorize undesignated or
"blank check" preferred stock makes it possible for
our board of directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any
attempt to acquire us. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in
control or management of our company.
Anti-takeover Effects of Delaware
    Law
Section 203 of the DGCL provides that,
subject to exceptions specified therein, an "interested
stockholder" of a Delaware corporation shall not engage in
any "business combination," including general mergers
or consolidations or acquisitions of additional shares of the
corporation, with the corporation for a three-year period
following the time that such stockholder becomes an interested
stockholder unless:
•
prior to such time, the board of directors of the
    corporation approved either the business combination or the
    transaction which resulted in the stockholder becoming an
    interested stockholder;
•
upon consummation of the transaction which
    resulted in the stockholder becoming an "interested
    stockholder," the interested stockholder owned at least 85%
    of the voting stock of the corporation outstanding at the time
    the transaction commenced (excluding specified shares); or
•
on or subsequent to such time, the business
    combination is approved by the board of directors of the
    corporation and authorized at an annual or special meeting of
    stockholders, and not by written consent, by the affirmative
    vote of at least 66 2/3% percent of the outstanding voting
    stock not owned by the interested stockholder.
Under Section 203, the restrictions
described above also do not apply to specified business
combinations proposed by an interested stockholder following the
announcement or notification of one of specified transactions
involving the corporation and a person who had not been an
interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority
of the corporation's directors, if such transaction is
approved or not opposed by a majority of the directors who were
directors prior to any person becoming an interested stockholder
during the previous three years or were recommended for election
or elected to succeed such directors by a majority of such
directors.
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Except as otherwise specified in
Section 203, an "interested stockholder" is
defined to include:
•
any person that is the owner of 15% or more of
    the outstanding voting stock of the corporation, or is an
    affiliate or associate of the corporation and was the owner of
    15% or more of the outstanding voting stock of the corporation
    at any time within three years immediately prior to the date of
    determination; and
•
the affiliates and associates of any such person.
Under some circumstances, Section 203 makes
it more difficult for a person who would be an interested
stockholder to effect various business combinations with a
Delaware corporation for a three-year period. We have not
elected to be exempt from the restrictions imposed under
Section 203.
Our amended and restated certificate of
incorporation provides that, to the fullest extent permitted by
the DGCL and except as otherwise provided in our amended and
restated bylaws, none of our directors shall be liable to us or
our stockholders for monetary damages for a breach of fiduciary
duty. In addition, our amended and restated certificate of
incorporation provides for indemnification of any person who was
or is made, or threatened to be made, a party to any action,
suit or other proceeding, whether criminal, civil,
administrative or investigative, because of his or her status as
a director or officer of CCI Holdings, or service as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise at our request to the
fullest extent authorized under the DGCL against all expenses,
liabilities and losses reasonably incurred by such person.
Further, our amended and restated certificate of incorporation
provides that we may purchase and maintain insurance on our own
behalf and on behalf of any other person who is or was a
director, officer or agent of CCI Holdings or was serving at our
request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise.
Transfer Agent and Registrar
will
be appointed as the transfer agent and registrar for our common
stock upon completion of this offering.
Listing
We will apply to have our Class A common stock
listed on the New York Stock Exchange under the
symbol "          ".
Our Class B common stock will not be listed on any stock market
or exchange.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any
public market for our Class A common stock, and we cannot
predict what effect, if any, market sales of shares or the
availability of shares for sale will have on the market price of
our Class A common stock. Nevertheless, sales of
substantial amounts of Class A common stock in the public
market, or the perception that such sales could occur, could
materially and adversely affect the market price of our
Class A common stock and could impair our future ability to
raise capital through the sale of our equity or equity-related
securities at a time and price that we deem appropriate.
Upon completion of this
offering,            shares
of our common stock will be outstanding. Of these shares, the
shares of Class A common stock expected to be sold in this
offering will be freely tradable without restriction or further
registration under the Securities Act, unless held by our
"affiliates", as that term is defined in Rule 144
under the Securities Act. The remaining outstanding shares of
common stock will be deemed "restricted securities" as
that term is defined under Rule 144. Restricted securities
may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rule 144
or 144(k) under the Securities Act, which are summarized below.
If permitted under our current and future
agreements governing our debt, such as the amended and restated
credit facilities and indenture, we may issue shares of Class A
common stock from time to time as consideration for future
acquisitions, investments or other purposes. In the event any
such acquisition, investment or other transaction is
significant, the number of shares of Class A common stock that
we may issue may in turn be significant. In addition, we may
also grant registration rights covering those shares of Class A
common stock issued in connection with any such acquisitions,
investments or other transactions.
Lock-Up Arrangements
In connection with this offering and the related
transactions, we, our executive officers, directors, and our
existing equity investors have, subject to certain exceptions,
agreed with the underwriters not to dispose of or hedge any of
our shares of common stock during the 180-day period following
the date of this prospectus. See "Underwriting" for a
further discussion of the lock-up agreements.
Stockholders and Registration Rights
Agreement
Our existing equity investors will have
registration rights for their shares of common stock for resale
in some circumstances. See "Related Party
Transactions — Registration Rights Agreement."
Rule 144
In general, under Rule 144, as currently in
effect, beginning 90 days after the date of this
prospectus, any person, including an affiliate, who has
beneficially owned shares of our common stock for a period of at
least one year is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of:
•
1.0% of the then-outstanding shares of common
    stock; and
•
the average weekly trading volume in the common
    stock on the New York Stock Exchange during the four calendar
    weeks preceding the date on which the notice of the sale is
    filed with the SEC.
Sales under Rule 144 are also subject to
provisions relating to notice, manner of sale, volume
limitations and the availability of current public information
about us.
Following the lock-up period, we estimate that
approximately            shares
of our common stock that are restricted securities or are held
by our affiliates as of the date of this prospectus will be
eligible for sale in the public market in compliance with
Rule 144 under the Securities Act.
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Rule 144(k)
Under Rule 144(k), a person who is not
deemed to have been one of our affiliates at any time during the
90 days preceding a sale, and who has beneficially owned
the shares for at least two years, including the holding period
of any prior owner other than an "affiliate," is
entitled to sell the shares without complying with the manner of
sale, public information, volume limitation or notice provisions
of Rule 144.
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MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS
The following is a summary of the material
U.S. federal income tax considerations with respect to the
ownership and disposition of our common stock by
U.S. holders (as defined below) and non-U.S. holders
(as defined below) as of the date hereof. This summary deals
only with holders that hold our common stock as a capital asset.
For purposes of this summary, a
"U.S. holder" means a beneficial owner of our
common stock that is any of the following for U.S. federal
income tax purposes: (i) a citizen or resident of the
United States, (ii) a corporation created or organized in
or under the laws of the United States, any state thereof, or
the District of Columbia, (iii) an estate the income of
which is subject to U.S. federal income taxation regardless
of its source, or (iv) a trust if (1) its
administration is subject to the primary supervision of a court
within the United States and one or more U.S. persons have
the authority to control all of its substantial decisions, or
(2) it has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a
U.S. person. A "non-U.S. holder" is a
beneficial owner, other than an entity classified as a
partnership for U.S. federal income tax purposes, that is
not a U.S. holder.
This summary is based upon provisions of the
Internal Revenue Code of 1986, as amended, and regulations,
rulings and judicial decisions as of the date hereof. Those
authorities may be changed, perhaps retroactively, or be subject
to differing interpretations, so as to result in
U.S. federal tax considerations different from those
summarized below. This summary does not represent a detailed
description of the U.S. federal tax considerations to you
in light of your particular circumstances. In addition, it does
not represent a description of the U.S. federal tax
considerations to you if you are subject to special treatment
under U.S. federal tax laws (including if you are a dealer
in securities or currency trader in securities that uses a
mark-to-market method of accounting for securities holdings,
financial institution, tax-exempt entity, insurance company,
person holding common stock as part of a hedging, integrated,
conversion or constructive sale transaction or a straddle,
person owning 10 percent or more of our voting stock,
person subject to alternative minimum tax, U.S. holder
whose functional currency is not the U.S. dollar,
U.S. expatriate, "controlled foreign corporation"
or "passive foreign investment company"), and it
generally does not address any U.S. taxes other than the
federal income tax. We cannot assure you that a change in law
will not alter significantly the tax considerations that we
describe in this summary.
If an entity classified as a partnership for
U.S. federal income tax purposes holds our common stock,
the tax treatment of a partner will generally depend on the
status of the partner and the activities of the partnership. If
you are a partnership holding our common stock, or a partner in
such a partnership, you should consult your tax advisors.
If you are considering the purchase of our
common stock, you should consult your own tax advisors
concerning the particular U.S. federal tax consequences to
you of the ownership and disposition of the common stock, as
well as the consequences to you arising under the laws of any
other taxing jurisdiction, including any state, local or foreign
tax consequences.
U.S. Holders
Dividends
The gross amount of dividends paid to
U.S. holders of common stock will be treated as dividend
income to such holders, to the extent paid out of current or
accumulated earnings and profits, as determined under
U.S. federal income tax principles. Such income will be
includable in the gross income of a U.S. holder on the day
received by the U.S. holder. Under current legislation,
which is scheduled to "sunset" at the end of 2008,
dividend income will generally be taxed to individual
U.S. holders at rates applicable to long-term capital
gains, provided that a minimum holding period and other
limitations and requirements are satisfied. Dividends received
after 2008 will be taxable at ordinary rates. Corporate
U.S. holders may be entitled to a dividends received
deduction with respect to distributions treated as dividend
income for U.S. federal income tax purposes, subject to
numerous limitations and requirements.
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To the extent that the amount of any distribution
exceeds our current and accumulated earnings and profits, the
distribution will first be treated as a tax-free return of
capital, causing a reduction in the adjusted basis of the shares
of common stock (thereby increasing the amount of gain, or
decreasing the amount of loss, to be recognized by the holder on
a subsequent disposition of our common stock), and the balance
in excess of adjusted basis will be taxed as capital gain
(short-term or long-term, as applicable) recognized on a sale or
exchange.
Gain on Disposition of Common
    Stock
A U.S. holder will recognize taxable gain or
loss on any sale or exchange of shares of our common stock in an
amount equal to the difference between the amount realized and
the U.S. holder's basis in such shares of common
stock. Such gain or loss will be capital gain or loss. Capital
gains of individuals derived with respect to capital assets held
for more than one year are eligible for reduced rates of
taxation. The deductibility of capital losses is subject to
limitation.
Information Reporting and Backup
    Withholding
In general, information reporting requirements
will apply to dividends paid on our common stock and to the
proceeds received on the sale, exchange or other disposition of
common stock by a U.S. holder other than certain exempt
recipients (such as corporations). A backup withholding tax will
apply to such payments if the U.S. holder fails to provide
an accurate taxpayer identification number and to comply with
certain certification procedures or otherwise establish an
exemption from backup withholding. The amount of any backup
withholding from a payment to a U.S. holder will be allowed
as a refund or credit against the U.S. holder's
U.S. federal income tax liability provided that the
required information is furnished to the Internal Revenue
Service, or IRS.
Non-U.S. Holders
Dividends
Dividends paid to a non-U.S. holder of our
common stock, to the extent paid out of current or accumulated
earnings and profits, as determined under U.S. federal
income tax principles, generally will be subject to withholding
of U.S. federal income tax at a 30.0% rate or such lower
rate as may be specified by an applicable income tax treaty.
However, dividends that are effectively connected with the
conduct of a trade or business by a non-U.S. holder within
the United States and, where an income tax treaty applies, are
attributable to a U.S. permanent establishment of the
non-U.S. holder, are not subject to this withholding tax,
but instead are subject to U.S. federal income tax on a net
income basis at applicable individual or corporate rates.
Certain certification and disclosure requirements must be
complied with in order for effectively connected dividends to be
exempt from this withholding tax. Any such effectively connected
dividends received by a foreign corporation may be subject to an
additional "branch profits tax" at a 30.0% rate or
such lower rate as may be specified by an applicable income tax
treaty.
A non-U.S. holder of our common stock who is
entitled to and wishes to claim the benefits of an applicable
treaty rate (and avoid backup withholding as discussed below)
for dividends, will be required to (i) complete IRS
Form W-8BEN (or successor form) and make certain
certifications, under penalty of perjury, to establish its
status as a non-U.S. person and its entitlement to treaty
benefits or (ii) if the common stock is held through
certain foreign intermediaries, satisfy the relevant
certification requirements of applicable U.S. Treasury
regulations. Special certification and other requirements apply
to certain non-U.S. holders that are entities rather than
individuals.
A non-U.S. holder of our common stock
eligible for a reduced rate of U.S. federal withholding tax
pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by timely filing an appropriate claim
for refund with the IRS.
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Gain on Disposition of Common
    Stock
A non-U.S. holder generally will not be
subject to U.S. federal income tax with respect to gain
recognized on a sale or other disposition of our common stock
unless: (i) the gain is effectively connected with a trade
or business of the non-U.S. holder in the U.S. and, where a
tax treaty applies, is attributable to a U.S. permanent
establishment of the non-U.S. holder (in which case, for a
non-U.S. holder that is a foreign corporation, the branch
profits tax described above may also apply); (ii) in the
case of a non-U.S. holder who is an individual, such holder
is present in the U.S. for 183 or more days in the taxable
year of the sale or other disposition and certain other
conditions are met; or (iii) we are or have been a
"U.S. real property holding corporation" for
U.S. federal income tax purposes.
We believe we currently are not, and do not
anticipate becoming, a "U.S. real property holding
corporation" for U.S. federal income tax purposes. If
we are or if we become a U.S. real property holding
corporation, if the common stock is regularly traded on an
established securities market, a non-U.S. holder who holds
or held (at any time during the shorter of the five year period
preceding the date of disposition or the holder's holding
period) more than five percent of the common stock will be
subject to U.S. federal income tax on a disposition of the
common stock but other non-U.S. holders will not. If the
common stock is not so traded, all non-U.S. holders will be
subject to U.S. federal income tax on disposition of the
common stock.
Federal Estate Tax
Common stock held by an individual
non-U.S. holder at the time of death will be included in
such holder's gross estate for U.S. federal estate tax
purposes, unless an applicable estate tax treaty provides
otherwise.
Information Reporting and Backup
    Withholding
We must report annually to the IRS and to each
non-U.S. holder the amount of dividends paid to such holder
and the tax withheld (if any) with respect to such dividends,
regardless of whether withholding was required. Copies of the
information returns reporting such dividends and any withholding
may also be made available to the tax authorities in the country
in which the non-U.S. holder resides under the provisions
of an applicable income tax treaty. In addition, dividends paid
to a non-U.S. holder generally will be subject to backup
withholding unless applicable certification requirements are met.
Payment of the proceeds of a sale of our common
stock within the United States or conducted through certain
U.S. related financial intermediaries is subject to
information reporting and, depending upon the circumstances,
backup withholding unless the beneficial owner certifies under
penalties of perjury that it is not a United States person (and
the payor does not have actual knowledge or reason to know that
the beneficial owner is a United States person) or the holder
otherwise establishes an exemption.
Any amounts withheld under the backup withholding
rules may be allowed as a refund or a credit against such
holder's U.S. federal income tax liability provided
the required information is timely furnished to the IRS.
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UNDERWRITING
Under the terms and subject to the conditions
contained in an underwriting agreement dated 2005, we and the
selling stockholders have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston LLC is acting
as representative, the following respective numbers of shares of
Class A common stock:
Number of
Underwriter
Shares
Credit Suisse First Boston LLC
Total
The underwriting agreement provides that the
underwriters are obligated to purchase all the shares of Class A
common stock in this offering if any are purchased, other than
those shares covered by the over-allotment option described
below. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting
underwriters may be increased or the offering may be terminated.
The selling stockholders have granted to the
underwriters a 30-day option to purchase on a pro rata basis up
to                     additional
shares at the initial public offering price less the
underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of Class A common
stock.
The underwriters propose to offer the shares of
Class A common stock initially at the public offering price on
the cover page of this prospectus and to selling group members
at that price less a selling concession of
$           per
share. The underwriters and selling group members may allow a
discount of
$           per
share on sales to other brokers or dealers. After the initial
public offering, the underwriters may change the public offering
price and concession and discount to brokers and dealers.
The following table summarizes the compensation
and estimated expenses we and the selling stockholders will pay:
Per Share
Total
Without Over-
With Over-
Without Over-
With Over-
allotment
allotment
allotment
allotment
Underwriting discounts and commissions paid by us
$
$
$
$
Expenses payable by us
$
$
$
$
Underwriting discounts and commissions paid by
    the selling stockholders
$
$
$
$
Expenses payable by the selling stockholders
$
$
$
$
The underwriters have informed us that they do
not expect sales to accounts over which the underwriters have
discretionary authority to exceed 5.0% of the shares of Class A
common stock being offered.
We have agreed, subject to certain exceptions,
that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement
under the Securities Act relating to, any shares of our Class A
common stock or securities convertible into or exchangeable or
exercisable for any shares of our Class A common stock, or
publicly disclose the intention to make any offer, sale, pledge,
disposition or filing, without the prior written consent of
Credit Suisse First Boston LLC for a period of 180 days
after the date of this prospectus.
Our officers and directors and existing
stockholders, including the selling stockholders, have agreed,
subject to certain exceptions, that they will not offer, sell,
contract to sell, pledge or otherwise dispose of,
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directly or indirectly, any shares of our Class A
common stock or securities convertible into or exchangeable or
exercisable for any shares of our Class A common stock, enter
into a transaction that would have the same effect, or enter
into any swap, hedge or other arrangement that transfers, in
whole or in part, any of the economic consequences of ownership
of our Class A common stock, whether any of these transactions
are to be settled by delivery of our Class A common stock or
other securities, in cash or otherwise, or publicly disclose the
intention to make any offer, sale, pledge or disposition, or to
enter into any transaction, swap, hedge or other arrangement,
without, in each case, the prior written consent of Credit
Suisse First Boston LLC for a period of 180 days after the
date of this prospectus.
The underwriters have reserved for sale at the
initial public offering price up
to                      shares
of the Class A common stock for employees, directors and other
persons associated with us who have expressed an interest in
purchasing Class A common stock in the offering.
The number of shares available for sale to the
general public in the offering will be reduced to the extent
these persons purchase the reserved shares. Any reserved shares
not so purchased will be offered by the underwriters to the
general public on the same terms as the other shares.
We and the selling stockholders have agreed to
indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments that the underwriters
may be required to make in that respect.
We will apply to list the shares of Class A
common stock on the New York Stock Exchange under the symbol
"          ".
There has been no public market for our Class A
common stock prior to this offering. We and the underwriters
will negotiate the initial public offering price. The factors
that will be considered include:
•
prevailing market conditions;
•
the history of and prospects for our industry;
•
an assessment of our management;
•
our present operations;
•
our historical results of operations;
•
the trend of our revenues and earnings; and
•
our earnings prospects.
We and the underwriters will consider these and
other relevant factors in relation to the price of similar
securities of generally comparable companies. Neither we nor the
selling stockholders nor the underwriters can assure investors
that an active trading market will develop for our Class A
common stock, or that our Class A common stock will trade in the
public market at or above the initial public offering price.
In connection with this offering and the related
transactions, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering
transactions, and penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934.
•
Stabilizing transactions permit bids to purchase
    the underlying security so long as the stabilizing bids do not
    exceed a specified maximum.
•
Over-allotment involves sales by the underwriters
    of shares in excess of the number of shares the underwriters are
    obligated to purchase, which creates a syndicate short position.
    The short position may be either a covered short position or a
    naked short position. In a covered short position, the number of
    shares over-allotted by the underwriters is not greater than the
    number of shares that they may purchase in the over-allotment
    option. In a naked short position, the number of shares involved
    is greater than the number of shares in the over-allotment
    option. The underwriters may close out any covered short
    position by either exercising their over-allotment option or
    purchasing shares in the open market.
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•
Syndicate covering transactions involve purchases
    of the Class A common stock in the open market after the
    distribution has been completed in order to cover syndicate
    short positions. In determining the source of shares to close
    out the short position, the underwriters will consider, among
    other things, the price of shares available for purchase in the
    open market as compared to the price at which they may purchase
    shares through the over-allotment option. If the underwriters
    sell more shares than could be covered by the over- allotment
    option, a naked short position, the position can only be closed
    out by buying shares in the open market. A naked short position
    is more likely to be created if the underwriters are concerned
    that there could be downward pressure on the price of the shares
    in the open market after pricing that could adversely affect
    investors who purchase in the offering.
•
Penalty bids permit the representatives to
    reclaim a selling concession from a syndicate member when the
    Class A common stock originally sold by the syndicate
    member is purchased in a stabilizing or syndicate covering
    transaction to cover syndicate short positions.
These stabilizing transactions, syndicate
covering transactions and penalty bids may have the effect of
raising or maintaining the market price of our Class A
common stock or preventing or retarding a decline in the market
price of the Class A common stock. As a result the price of
our Class A common stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on the New York Stock Exchange or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format may be made
available on the web sites maintained by one or more of the
underwriters, or selling group members, if any, participating in
this offering, and one or more of the underwriters participating
in this offering may distribute prospectuses electronically. The
representatives may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members that
will make Internet distributions on the same basis as other
allocations.
Certain of the underwriters and their respective
affiliates have, from time to time, performed, and may in the
future perform, various financial advisory and investment
banking services for us, for which they received or will receive
customary fees and expenses. An affiliate of Credit Suisse First
Boston LLC is expected to act as lender and agent under, and in
connection therewith will receive customary fees and expenses in
connection with, our amended and restated credit facilities and
will receive a portion of the prepayment of the term loan A
facility. See "Description of Indebtedness —
Amended and Restated Credit Facilities".
The decision of Credit Suisse First Boston LLC to
distribute the shares of our Class A common stock in this
offering was made independent of the lender with which it is
affiliated. That lender had no involvement in determining
whether or when to distribute the shares of our Class A
common stock under this offering or the terms of this offering.
The underwriters will not receive any benefit from this offering
other than the underwriting discounts and commissions described
in the prospectus.
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NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of our Class A common stock
in Canada is being made only on a private placement basis exempt
from the requirement that we and the selling stockholders
prepare and file a prospectus with the securities regulatory
authorities in each province where trades of Class A common
stock are made. Any resale of our Class A common stock in
Canada must be made under applicable securities laws which will
vary depending on the relevant jurisdiction, and which may
require resales to be made under available statutory exemptions
or under a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised
to seek legal advice prior to any resale of our Class A
common stock.
Representations of Purchasers
By purchasing our Class A common stock in
Canada and accepting a purchase confirmation, a purchaser is
representing to us, the selling stockholders and the dealer from
whom the purchase confirmation is received that:
•
the purchaser is entitled under applicable
    provincial securities laws to purchase our Class A common
    stock without the benefit of a prospectus qualified under those
    securities laws;
•
where required by law, the purchaser is
    purchasing as principal and not as agent; and
•
the purchaser has reviewed the text above under
    "Resale Restrictions".
Rights of Action — Ontario
Purchasers Only
Under Ontario securities legislation, a purchaser
who purchases a security offered by this prospectus during the
period of distribution will have a statutory right of action for
damages or, while still the owner of the shares, for rescission
against us and the selling stockholders in the event that this
circular contains a misrepresentation. A purchaser will be
deemed to have relied on the misrepresentation. The right of
action for damages is exercisable not later than the earlier of
180 days from the date the purchaser first had knowledge of
the facts giving rise to the cause of action and three years
from the date on which payment is made for the shares. The right
of action for rescission is exercisable not later than
180 days from the date on which payment is made for the
shares. If a purchaser elects to exercise the right of action
for rescission, the purchaser will have no right of action for
damages against us or the selling stockholders. In no case will
the amount recoverable in any action exceed the price at which
the shares were offered to the purchaser, and if the purchaser
is shown to have purchased the securities with knowledge of the
misrepresentation, we and the selling stockholders will have no
liability. In the case of an action for damages, we and the
selling stockholders will not be liable for all or any portion
of the damages that are proven to not represent the depreciation
in value of the shares as a result of the misrepresentation
relied on. These rights are in addition to, and without
derogation from, any other rights or remedies available at law
to an Ontario purchaser. The foregoing is a summary of the
rights available to an Ontario purchaser. Ontario purchasers
should refer to the complete text of the relevant statutory
provisions.
Enforcement of Legal Rights
All of our directors and officers as well as the
experts named herein and the selling stockholders may be located
outside Canada and, as a result, it may not be possible for
Canadian purchasers to effect service of process within Canada
upon us or those persons. All or a substantial portion of our
assets and the assets of those persons may be located outside
Canada and, as a result, it may not be possible to satisfy a
judgment against us or those persons in Canada or to enforce a
judgment obtained in Canadian courts against us or those persons
outside Canada.
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Taxation and Eligibility for
Investment
Canadian purchasers of our Class A common
stock should consult their own legal and tax advisors with
respect to the tax consequences of an investment in our
Class A common stock in their particular circumstances and
about the eligibility of our Class A common stock for
investment by the purchaser under relevant Canadian legislation.
VALIDITY OF THE CLASS A COMMON STOCK
The validity of the shares of Class A common
stock being offered will be passed upon for CCI Holdings by
King & Spalding LLP. Certain legal matters relating to
this offering will be passed upon for the underwriters by Cahill
Gordon & Reindel LLP.
EXPERTS
The consolidated financial statements of Homebase
Acquisition, LLC (doing business as Consolidated Communications)
at December 31, 2003 and for the year then ended, appearing
in this Prospectus and Registration Statement, have been audited
by Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing. The combined financial statements of Illinois
Consolidated Telephone Company and Related Businesses (as
predecessor company to Homebase Acquisition, LLC) at
December 30, 2002 and December 31, 2001 and for each
of the years in the two year period ended December 30, 2002
and December 31, 2001, appearing in this Prospectus and
Registration Statement have been audited by Ernst &
Young LLP, independent registered public accounting firm, as set
forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority
of such firm as experts in accounting and auditing.
The financial statements of TXU Communications
Ventures Company and Subsidiaries as of April 13, 2004,
December 31, 2003 and 2002, and the period from
January 1, 2004 to April 13, 2004 and each of the
three years ended December 31, 2003 included in this
prospectus have been audited by Deloitte & Touche LLP,
an independent registered public accounting firm, as stated in
their report appearing herein (which report expresses an
unqualified opinion and includes an explanatory paragraph
relating to the adoption of the provisions of Statement of
Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets), and has been so included in reliance upon
the report of such firm given upon their authority as experts in
accounting and auditing.
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INDEX TO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Page
Unaudited Pro Forma
    Condensed Consolidated Statement of Operations — Year
    ended December 31, 2003
P-5
Unaudited Pro Forma
    Condensed Consolidated Statement of Operations — Nine
    Months ended September 30, 2003
P-6
Unaudited Pro Forma
    Condensed Consolidated Statement of Operations — Nine
    Months ended September 30, 2004
P-7
Unaudited Pro Forma
    Condensed Consolidated Balance Sheet — At
    September 30, 2004
P-8
Notes to Unaudited Pro Forma
    Condensed Consolidated Financial Statements
P-9
P-1
Table of Contents
CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Basis of Presentation
The unaudited pro forma condensed consolidated
financial statements are based upon the historical consolidated
financial statements of Homebase. The unaudited pro forma
condensed consolidated statement of operations give effect to
the two groups of transactions described below. The unaudited
pro forma condensed consolidated balance sheet gives effect only
to the initial public offering and related transactions
described below. All capitalized terms that are used but not
defined in these pro forma financial statements have the
meanings assigned to them in the other parts of this prospectus.
TXUCV Acquisition
The first group of transactions consisted of the
following:
•
the contribution by the existing equity investors
    of $89.0 million in cash in exchange for additional
    Class A preferred shares of Homebase, the distribution by
    CCI, a wholly owned subsidiary of Homebase, of
    $63.4 million to Homebase and the contribution by Homebase
    of $152.4 million to Consolidated Communications Texas
    Holdings, Inc. of the aggregate proceeds of such distribution
    and contribution;
•
the TXUCV acquisition by Texas Holdings, a wholly
    owned subsidiary of Homebase, on April 14, 2004, pursuant
    to which Texas Holdings acquired all of the capital stock of
    TXUCV for $527.0 million in cash, subject to adjustment
    for, among other things, our assumption of $2.8 million of
    capital leases and for TXCUV's working capital on the
    closing date;
•
the refinancing and termination of the prior
    credit facilities of CCI, and the entering into, and borrowing
    under, the existing credit facilities;
•
the issuance of $200.0 million of the senior
    notes; and
•
the payment of related fees and expenses.
On August 10, 2004, we made an additional
cash payment of $5.1 million as a result of the final
working capital adjustment for the TXUCV acquisition. The TXUCV
acquisition was accounted for as a purchase in accordance with
Statements of Financial Accounting Standards No. 141,
Business Combinations
("SFAS 141").
Following the closing of the TXUCV acquisition, the total
purchase price was allocated to the assets acquired and
liabilities assumed of TXUCV based on their respective fair
values in accordance with the purchase method of accounting.
We have engaged independent appraisers to assist
in determining the fair values of tangible and intangible assets
acquired in the TXUCV acquisition. We have allocated the total
purchase price to the assets and liabilities using preliminary
estimates of their fair value based on work performed to date by
the independent appraisers. We have not completed the purchase
price allocation and may make further adjustments to the
preliminary allocations in subsequent periods.
The existing credit facilities provided financing
of $467.0 million, consisting of
•
A $122.0 million term loan A facility with a
    six year maturity;
•
A $315.0 million term loan B facility with a
    seven year and six-month maturity; and
•
A $30.0 million revolving credit facility
    with a six year maturity.
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The borrowings under the existing credit
facilities have borne interest at a rate equal to an applicable
margin plus, at the borrowers' option, either a base rate
or a LIBOR rate. The initial applicable margin for borrowings
under the existing credit facility has been:
•
in respect of the term loan A facility and the
    revolving credit facility, 1.50% with respect to base rate loans
    and 2.50% with respect to LIBOR loans; and
•
in respect of the term loan B facility, 1.75%
    with respect to base rate loans and 2.75% with respect to LIBOR
    loans.
On October 22, 2004 we amended and restated
the existing credit facilities to, among other things, convert
all borrowings then outstanding under the term loan B facility
into approximately $314.0 million of aggregate borrowings
under a new term loan C facility. The term loan C facility is
substantially identical to the term loan B facility, except that
the applicable margin for borrowings under the term loan C
facility through April 1, 2005 is 1.50% with respect to
base rate loans and 2.50% with respect to LIBOR loans.
Thereafter, provided certain credit ratings are maintained, the
applicable margin for borrowings under the term loan C facility
will be 1.25% with respect to base rate loans and 2.25% with
respect to LIBOR loans.
Initial Public Offering and Related
Transactions
The second group of transactions will consist of
the following:
•
the reorganization of Homebase, Illinois Holdings
    and Consolidated Communications Texas Holdings, Inc., pursuant
    to which (1) Consolidated Communications Texas Holdings,
    Inc. will merge with and into CCI Holdings and (2) Homebase will
    merge with and into CCI Holdings, in each case, with CCI
    Holdings being the company surviving the merger;
•
Our existing stockholders receipt from Homebase
    of shares of CCI Holdings common stock representing 100% of the
    outstanding common stock of CCI Holdings;
•
the initial public offering of Class A
    common stock of CCI Holdings and the sale by the existing equity
    investors of additional shares of their Class A common
    stock;
•
the amendment and restatement of the existing
    credit facilities to provide for an increase in the principal
    amount of the existing term loan C facility and, in connection
    therewith, the repayment of the existing term loan A facility
    with a portion of the net proceeds of the offering and available
    cash on hand;
•
the redemption of 35.0% of the aggregate
    principal amount of our senior notes and pay the associated
    redemption premium of 9.75% of the principal amount to be
    redeemed, together with accrued and unpaid interest through the
    date of redemption; and
•
the payment of related fees and expenses.
The amended and restated credit facilities are
expected to provide financing of $419.6 million and consist
of:
•
an increased $389.6 million new term loan C
    facility maturing on October 14, 2011; and
•
$30.0 million revolving credit facility maturing
    on April 14, 2010.
We expect that the interest rates and commitment
fee on the amended and restated credit facilities will be the
same as those as the existing credit facilities. The amended and
restated credit facilities have not yet been agreed upon, and
the descriptions set forth in this prospectus represent our
current expectations regarding the terms of the credit
facilities.
In connection with the offering, CCI Holdings
will terminate two professional service fee agreements that
Homebase had entered into with its existing equity investors.
The first agreement has required CCI to pay to Mr. Lumpkin
and such affiliates of Providence Equity and Spectrum Equity an
annual professional services fee in the aggregate amount of
$2.0 million for consulting, advisory and other
professional services
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provided to CCI and its subsidiaries relating to
the Illinois operations. The second agreement, entered into in
connection with the TXUCV acquisition, has required Texas
Holdings to pay Mr. Lumpkin and such affiliates of
Providence Equity and Spectrum Equity an annual professional
services fee in the aggregate amount of $3.0 million for
consulting, advisory and other professional services provided to
Texas Holdings and its subsidiaries relating to the Texas
operations. The rights of Mr. Lumpkin and the affiliates of
Providence Equity and Spectrum Equity to receive professional
services fees described above will terminate upon the closing of
the offering.
The unaudited pro forma condensed consolidated
financial statements were prepared to illustrate the estimated
effects of the transactions described above. The pro forma
adjustments and the assumptions on which they are based are
described in the accompanying notes to the unaudited pro forma
condensed consolidated financial statements. You should read the
unaudited pro forma condensed consolidated financial statements
and the accompanying notes in conjunction with the information
contained in "Use of Proceeds",
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated
financial statements and notes thereto appearing elsewhere in
this prospectus.
The unaudited pro forma condensed consolidated
balance sheet as of September 30, 2004 gives effect to the
transactions described above, except for the impact of the TXUCV
acquisition, since the acquisition occurred on April 14,
2004 and is included in Consolidated Communications'
historical consolidated financial statements as of
September 30, 2004.
The unaudited pro forma condensed consolidated
statements of operations for the fiscal year ended
December 31, 2003 and the nine months ended
September 30, 2004 and 2003 give effect to the transactions
described above as if they had occurred as of the first day of
each period presented.
In connection with this offering and the related
transactions, we will record certain charges in our financial
statements at the time such transactions are consummated. As
these charges are non-recurring in nature, we have not recorded
any pro forma effect in the pro forma condensed consolidated
statements of operations. These non-recurring charges, which
total approximately $10.2 million, include approximately
$2.1 million of unamortized deferred financing costs
related to the redemption of senior notes, $1.3 million of
unamortized deferred financing costs associated with repayment
of a portion of term loan A facility and $6.8 million
related to the 9.75% redemption premium associated with the
senior note redemption.
The company anticipates that it will incur
additional costs related to being a public company of
approximately $1.0 million per year. No adjustment has been
made in the accompanying unaudited pro forma condensed
consolidated statements of operations for these costs.
The pro forma adjustments are based upon
available information and certain assumptions that we believe
are reasonable. The unaudited pro forma condensed consolidated
financial statements do not necessarily indicate the results
that would have actually occurred if the transactions described
above had been in effect on the date indicated or that may occur
in the future.
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CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
For the Year Ended December 31,
2003
Pro Forma
Consolidated
Acquisition
Pro Forma as
IPO
as Adjusted
Communications
CCI Texas
Pro Forma
Adjusted for
Pro Forma
for Acquisition
Historical
Historical
Adjustments
Acquisition
Adjustments
and IPO
(Amounts in thousands, except per share amounts)
Revenues
$
132,330
$
194,818
$
—
$
327,148
$
—
$
327,148
Operating expenses:
Cost of services and products
30,061
58,415
—
88,476
—
88,476
Selling, general and administrative expenses
58,739
75,365
(5,032
)(1)
129,072
(5,000
)(5)
124,072
Depreciation and amortization
22,476
32,875
11,294
(2)
66,645
—
66,645
Restructuring and other charges
—
248
—
248
—
248
Goodwill impairment charges
—
13,200
—
13,200
—
13,200
Total operating expenses
111,276
180,103
6,262
297,641
(5,000
)
292,641
Income from operations
21,054
14,715
(6,262
)
29,507
5,000
34,507
Other income (expense):
Interest income
154
—
—
154
—
154
Interest expense
(11,975
)
(5,422
)
(27,872
)(3)
(45,269
)
45,269
(6)
(35,528
)
(35,528
)(6)
Partnership income
—
2,693
—
2,693
—
2,693
Minority interest
—
(872
)
—
(872
)
—
(872
)
Other, net
(15
)
(1,000
)
—
(1,015
)
—
(1,015
)
Income (loss) before income taxes
9,218
10,114
(34,134
)
(14,802
)
14,741
(61
)
Income tax expense (benefit)
3,717
12,455
(13,073
)(4)
3,099
6,309
(7)
9,408
Net income (loss)
$
5,501
$
(2,341
)
$
(21,061
)
$
(17,901
)
$
8,432
$
(9,469
)
Earnings (loss) per share:
Basic and diluted
$
—
$
—
$
—
Number of shares for calculation:
Basic and diluted
—
—
—
See accompanying notes to unaudited pro forma
condensed consolidated financial statements
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CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30,
2003
Pro Forma
Consolidated
Acquisition
Pro Forma as
IPO
as Adjusted
Communications
CCI Texas
Pro Forma
Adjusted for
Pro Forma
for Acquisition
Historical
Historical
Adjustments
Acquisition
Adjustments
and IPO
(Amounts in thousands, except per share amounts)
Revenues
$
98,738
$
150,126
$
—
$
248,864
$
—
$
248,864
Operating expenses:
Cost of services and products
22,562
42,370
—
64,932
—
64,932
Selling, general and administrative expenses
43,455
61,937
(3,774
)(1)
101,618
(3,750
)(5)
97,868
Depreciation and amortization
17,229
24,680
8,574
(2)
50,483
—
50,483
Total operating expenses
83,246
128,987
4,800
217,033
(3,750
)
213,283
Income from operations
15,492
21,139
(4,800
)
31,831
3,750
35,581
Other income (expense):
Interest income
73
244
—
317
—
317
Interest expense
(9,083
)
(4,496
)
(18,872
)(3)
(32,451
)
32,451
(6)
(26,648
)
(26,648
)(6)
Partnership income
—
1,258
—
1,258
—
1,258
Minority interest
—
(588
)
—
(588
)
—
(588
)
Other, net
29
(474
)
—
(445
)
—
(445
)
Income (loss) before income taxes
6,511
17,083
(23,672
)
(78
)
9,553
9,475
Income tax expense (benefit)
2,647
5,858
(9,232
)(4)
(727
)
4,098
(7)
3,371
Net income (loss)
$
3,864
$
11,225
$
(14,440
)
$
649
$
5,455
$
6,104
Net loss per share:
Basic and diluted
$
(0.28
)
$
—
$
—
Number of shares for calculation:
Basic and diluted
9,000,000
—
—
See accompanying notes to unaudited pro forma
condensed consolidated financial statements
P-6
Table of Contents
CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
For The Nine Months Ended September 30,
2004
CCI Texas
Pro Forma
Consolidated
January 1, 2004
Acquisition
Pro Forma as
IPO
as Adjusted
Communications
to April 13, 2004
Pro Forma
Adjusted for
Pro Forma
for Acquisition
Historical
Historical
Adjustments
Acquisition
Adjustments
and IPO
(Amounts in thousands, except per share amounts)
Revenues
$
191,010
$
53,855
$
—
$
244,865
$
—
$
244,865
Operating expenses:
Cost of services and products
43,858
15,296
—
59,154
—
59,154
Selling, general and administrative expenses
74,938
24,126
(1,125
)(1)
97,939
(3,750
)(5)
94,189
Depreciation and amortization
37,484
8,124
4,875
(2)
50,483
—
50,483
Total operating expenses
156,280
47,546
3,750
207,576
(3,750
)
203,826
Income from operations
34,730
6,309
(3,750
)
37,289
3,750
41,039
Other income (expense):
Interest income
430
40
—
470
—
470
Interest expense
(28,522
)
(1,284
)
(2,647
)(3)
(32,453
)
32,453
(6)
(26,656
)
(26,656
)(6)
Prepayment penalty on extinguishment of debt
—
(1,914
)
—
(1,914
)
—
(1,914
)
Partnership income
2,027
1,174
—
3,201
—
3,201
Minority interest
(290
)
(106
)
—
(396
)
—
(396
)
Other, net
431
37
—
468
—
468
Income (loss) before income taxes
8,806
4,256
(6,397
)
6,665
9,547
16,212
Income tax expense (benefit)
3,662
2,473
(2,378
)(4)
3,757
3,972
(7)
7,729
Net income (loss)
$
5,144
$
1,783
$
(4,019
)
$
2,908
$
5,575
$
8,483
Net loss per share:
Basic and diluted
$
(0.61
)
$
—
$
—
Number of shares for calculation:
Basic and diluted
9,000,000
—
—
See accompanying notes to unaudited pro forma
condensed consolidated financial statements
P-7
Table of Contents
CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
September 30, 2004
Consolidated
IPO
Pro Forma
Communications
Pro Forma
as Adjusted
Historical
Adjustments
for IPO
(Amounts in thousands)
ASSETS
Current assets:
Cash and cash equivalents
$
55,229
$
81,465
(8)
$
15,000
(121,694
)(9)
Accounts receivable, net
29,489
29,489
Inventories
2,720
2,720
Prepaid expenses and other assets
17,312
—
17,312
Total current assets
104,750
(40,229
)
64,521
Property, plant and equipment, net
350,291
350,291
Investments
35,856
35,856
Goodwill
341,706
341,706
Customer lists, net
150,054
—
150,054
Other intangibles, net
26,471
—
26,471
Deferred financing costs
18,867
(1,551
)(10)
17,316
Other assets
23,723
4,267
(12)
27,990
Total assets
$
1,051,718
$
(37,513
)
$
1,014,205
LIABILITIES AND STOCKHOLDERS'
    EQUITY
Current liabilities:
Current portion of long-term debt
$
18,362
$
(13,763
)(9)
$
4,599
Accounts payable
13,044
13,044
Accrued expenses
48,160
—
48,160
Total current liabilities
79,566
(13,763
)
65,803
Long-term debt less current maturities
615,569
(112,988
)(9)
516,344
13,763
(9)
Deferred income taxes
94,588
94,588
Other liabilities
67,753
67,753
Total Liabilities
857,476
(112,988
)
744,488
Minority interests
2,254
2,254
Redeemable preferred shares
201,126
(201,126
)(8)
—
Stockholders' equity (deficit):
Common stock
—
Paid in capital
58
282,591
(8)
282,649
Accumulated deficit
(8,482
)
(5,990
)(11)
(14,472
)
Accumulated other comprehensive loss
(714
)
—
(714
)
Total stockholders' deficit
(9,138
)
276,601
267,463
Total liabilities and stockholders' equity
$
1,051,718
$
(37,513
)
$
1,014,205
See accompanying notes to unaudited pro forma
condensed consolidated financial statements
P-8
Table of Contents
CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS FOR TXUCV
ACQUISITION
The consolidated historical financial statements
include the results of operations of the TXUCV acquisition since
the April 14, 2004 acquisition date. The following entries
have been made to the accompanying unaudited pro forma condensed
consolidated statements of operations to reflect the results of
operations as if this acquisition occurred as of January 1,
2003 (amounts in thousands):
1.
Selling, General and Administrative
    Expenses
The pro forma adjustments to selling, general and
administrative expenses reflect a reduction in costs resulting
from the termination of TXUCV employees that occurred in
connection with the TXUCV acquisition and was recognized in
accordance with EITF 95-3,
"Recognition of
Liabilities in Connection with a Purchase Business
Combination"
, and incremental professional service fees
to be paid to Mr. Lumpkin, Providence Equity and Spectrum
Equity pursuant to the second professional services agreement
entered into in connection with the TXUCV acquisition.
Nine Months
Nine Months
Year Ended
Ended
Ended
December 31,
September 30,
September 30,
2003
2003
2004
Effect of TXUCV acquisition related headcount
    reductions
$
(8,032
)
$
(6,024
)
$
(1,983
)
Incremental professional service fees
3,000
2,250
858
$
(5,032
)
$
(3,774
)
$
(1,125
)
2.
Depreciation and Amortization
The pro forma adjustments to depreciation and
amortization reflect (a) the removal of the historical basis of
depreciation and amortization of the TXUCV assets and (b) based
on the write-up of these assets to fair value in accordance with
SFAS 141, the increase in depreciation and amortization expense
for of property and equipment, capitalized software, and
intangible assets acquired in the TXUCV acquisition.
Nine Months
Nine Months
Year Ended
Ended
Ended
December 31,
September 30,
September 30,
2003
2003
2004
Removing historical depreciation and amortization
$
(55,351
)
$
(41,909
)
$
(45,608
)
Recording new depreciation and amortization
66,645
50,483
50,483
$
11,294
$
8,574
$
4,875
3.
Interest Expense
The pro forma adjustments to interest expense are
based on the amounts borrowed and the rates assumed to be in
effect at the closing of the TXUCV acquisition.
Amounts outstanding under the term loan
facilities A and B bear interest at 250 basis points above
LIBOR. The interest rate on the senior notes is 9.75%.
P-9
Table of Contents
CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
Nine Months
Nine Months
Year Ended
Ended
Ended
December 31,
September 30,
September 30,
2003
2003
2004
Removing historical interest expense, net
$
17,397
$
13,579
$
29,806
Recording new interest expense, net
(45,269
)
(32,451
)
(32,453
)
$
(27,872
)
$
(18,872
)
$
(2,647
)
4.
Income Tax Expense
The assumed effective tax rate of the pro forma
adjustments related to the TXUCV acquisition and the related
financing is 38% for CCI Texas and 40% for CCI Illinois for the
periods presented.
IPO PRO FORMA ADJUSTMENTS FOR OFFERING AND
RELATED TRANSACTIONS
5.
Selling, General and Administrative
    Expenses
Selling, general and administrative expenses
prior to the offering for the year ended December 31, 2003
and for the nine months of 2003 and 2004 included $5,000,
$3,750, $3,750, respectively, in aggregate professional services
fees paid to Mr. Lumpkin, Providence Equity and Spectrum
Equity pursuant to the two professional services agreements.
Upon the closing of the offering, these professional service
agreements will be terminated. Entries have been made to the
accompanying unaudited pro forma condensed consolidated
statements of income to eliminate the payment of these fees.
6.
Interest Expense
The pro forma adjustments to interest expense,
net and the amortization of deferred financing costs are based
on the estimated net changes to outstanding debt and interest
expense as a result of the offering and the related
transactions, which are estimated to be (a) the reduction in net
debt from the amendment and restatement of the existing credit
facility (with the same expected interest rates), (b) the
redemption of $70.0 million in aggregate principal amount
of senior notes and (c) the elimination of the existing
amortization of, and the creation of new, deferred financing
costs relating to the amendment and restatement of the existing
credit facilities. A summary of these entries follows:
Twelve Months
Nine Months
Nine Months
Estimated
Estimated
Ended
Ended
Ended
Principal
Interest
December 31,
September 30,
September 30,
Outstanding
Rates
2003
2003
2004
(Amounts in thousands)
Interest Expense Adjustments
Existing Debt:
Elimination of pro forma interest expense prior
    to the offering including amortization of deferred financing
    costs
$
(45,269
)
$
(32,451
)
$
(32,453
)
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Table of Contents
CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
Twelve Months
Nine Months
Nine Months
Estimated
Estimated
Ended
Ended
Ended
Principal
Interest
December 31,
September 30,
September 30,
Outstanding
Rates
2003
2003
2004
(Amounts in thousands)
New Debt:
Term loan C
$
389,629
4.475
%
17,436
13,077
13,077
Senior notes
$
130,000
9.750
%
12,675
9,506
9,506
Capital leases
$
1,314
5.000
%
65
49
49
Revolver commitment fee
150
113
113
Net effect of interest rate hedges
2,728
2,048
2,056
Amortization of deferred financing costs
2,474
1,855
1,855
Total new interest expense
35,528
26,648
26,656
Net adjustment to interest expense
$
(9,741
)
$
(5,803
)
$
(5,797
)
As of September 30, 2004, we had a balance
of $18,867 for deferred financing costs relating to our existing
credit facilities and the senior notes. We will write off $2,097
and $1,335 of deferred financing costs associated with the
redemption of senior notes and the repayment of a portion of the
existing term loan A facility, respectively and we will
incur $1,881 of deferred financing costs to amend and restate
the existing credit facilities. CCI Holdings will amortize the
pro forma balance of $17,316 deferred financing costs over the
term of the respective debt agreements.
7.
Income Tax Expense
The blended effective tax rates applied for CCI
Illinois and CCI Texas pro forma adjustments by period are as
follows:
Twelve months ended December 31, 2003
43
%
Nine months ended September 30, 2003
43
%
Nine months ended September 30, 2004
42
%
Due to existing net operating loss carryforwards,
we paid no cash taxes in the twelve months ended
December 31, 2003 or the nine months ended
September 30, 2003 and 2004.
8.
Reorganization and Offering
Pro forma adjustments to cash are derived from
the effect of the reorganization and the offering.
To effect the reorganization, (a) Consolidated
Communications Texas Holdings, Inc. will merge with and into CCI
Holdings and (b) Homebase will merge with and into CCI Holdings,
in each case, with CCI Holdings being the company surviving the
merger. In connection with the mergers described in the
preceding sentence, our existing stockholders will receive
shares of common stock of CCI Holdings representing 100% of the
outstanding common stock of CCI Holdings.
In the offering, CCI Holdings expects to issue
$90.0 million of Class A common stock
or                      shares
in this offering. CCI Holdings will not receive any proceeds
from the sale by its existing equity investors
of                      shares
in this offering. Upon the consummation of this offering,
redeemable preferred shares of $201,126, which include a
preferred return on the holders' capital contributions at
the
P-11
Table of Contents
CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
rate of 9% per annum, will be converted
into                      shares
of Class A common stock. Entries have been made to the
accompanying unaudited pro forma condensed consolidated balance
sheet to reflect the adjustment to cash and to record the
following for the issuance of the new shares of Class A
common stock in this offering (amounts in thousands) as follows:
Class A common stock
$
—
Paid in capital
—
Subtotal:
90,000
Less transaction fees and expenses
(8,535
)
Net cash proceeds
$
81,465
Conversion of redeemable preferred shares
201,126
Paid in capital
$
282,591
9.
Amendment and Restatement of Existing Credit
    Facilities and Redemption of Senior Notes
Pro forma adjustments to cash are derived from
the effect of the amendment and restatement of the existing
credit facilities and the redemption of senior notes. We expect
that the amendment and restatement will consist of the following:
•
the use of $44,869 of cash on hand to repay a
    portion of the term loan A facility, which, in combination
    with the additional borrowings under the term loan C
    facilities and the repayment of the balance of the term
    loan A facility, each described below, results in a net
    repayment of $42,988;
•
additional borrowings of $75,679 under the term
    loan C facility with a maturity on October 14, 2011
    and an expected annual interest rate of LIBOR plus
    250 basis points;
•
the use of the $75,679 of additional borrowings
    under the term loan C facility to fully repay the remaining
    balance on the term loan A facility; and
•
the payment of $1,881 of deferred financing costs
    associated with the amended and restated credit facilities.
We will use $70,000 of the net proceeds of the
offering and related transactions to redeem $70,000 in aggregate
principal amount of senior notes and to pay the associated
$6,825 redemption premium.
Entries have been made in the accompanying
unaudited pro forma condensed consolidated financial statements
to reflect these transactions.
(amounts in thousands) as follows:
Payment of existing term loan A facility
$
(118,667
)
Increase in term loan C facility
75,679
Net repayment of existing term loan facilities
(42,988
)
Senior notes redemption
(70,000
)
Adjustment to long-term debt
(112,988
)
Redemption premium
(6,825
)
Deferred financing costs
(1,881
)
Net cash used
$
121,694
P-12
Table of Contents
CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
We anticipate that our amended and restated
credit facilities will require the borrowers to make nominal
amortization payments in respect of the increased term
loan C facility that are proportionate to the amortization
payments required by our existing term loan C facility.
Accordingly, $13,763 of term loan A amortization included
in the current portion of long term debt have been reclassified
as long-term debt.
10.
Deferred Financing Costs
We will write off $2,097 and $1,335 of deferred
financing costs associated with the redemption of senior notes
and the repayment of a portion of the existing term loan A,
respectively, and incur $1,881 of deferred financing costs to
amend and restate the existing credit facilities as described in
note 9. Entries have been made in the accompanying
unaudited pro forma condensed consolidated financial statements
to reflect these transactions:
Write-off of pro rata share of deferred financing
    costs associated with the redemption of senior notes
$
(2,097
)
Write-off of pro rata of deferred financing costs
    associated with repayment of a portion of term loan A
(1,335
)
Recording of new deferred financing costs
    associated with the amendment and restatement of existing credit
    facilities
1,881
$
(1,551
)
11.
Accumulated Deficit
The pro forma accumulated deficit reflects the
non-recurring charges as follows:
Expensing of the redemption premium on senior
    notes, net of tax
$
(3,985
)
Write-off of the pro rata share of the deferred
    financing costs associated with the redemption of senior notes,
    net of tax
(1,225
)
Write-off of the pro rata of deferred financing
    costs associated with repayment of a portion of term
    loan, A net of tax
(780
)
(5,990
)
12.
Other Assets
This pro forma adjustment reflects the tax
effect, using a 42% effective tax rate on the redemption premium
on the senior notes ($2,840), write-off of the pro-rata share of
the deferred financing costs associated with the redemption of
senior notes ($872) and write off of deferred financing costs
associated with the repayment of a portion of the term
loan A facility ($555).
P-13
Table of Contents
CONSOLIDATED COMMUNICATIONS HOLDINGS,
INC.
INDEX TO FINANCIAL STATEMENTS
Page
Audited Financial Statements
Consolidated Financial
    Statements — Homebase Acquisition, LLC
F-2
Report of Independent
    Registered Public Accounting Firm
F-3
Consolidated Balance Sheet
    as of December 31, 2003
F-4
Consolidated Statement of
    Income for the year ended December 31, 2003
F-5
Consolidated Statement of
    Changes in Common Members' Deficit for the year ended
    December 31, 2003
F-6
Consolidated Statements of
    Cash Flows for the year ended December 31, 2003
F-7
Notes to Consolidated
    Financial Statements
F-8
Combined Financial
    Statements — Illinois Consolidated Telephone Company
    and Related Business
F-22
Report of Independent
    Registered Public Accounting Firm
F-23
Combined Balance Sheets as
    of December 30, 2002 and December 31, 2001
F-24
Combined Statements of
    Income for the years ended December 30, 2002 and
    December 31, 2001
F-25
Combined Statements of
    Changes in Parent Company Investment for the years ended
    December 30, 2002 and December 31, 2001
F-26
Combined Statements of Cash
    Flows for the years ended December 30, 2002 and
    December 31, 2001
F-27
Notes to Combined Financial
    Statements
F-28
Consolidated Financial
    Statements — TXU Communications Ventures Company and
    Subsidiaries
F-45
Report of Independent
    Registered Public Accounting Firm
F-46
Consolidated Balance Sheets
    as of April 13, 2004, December 31, 2003 and 2002
F-47
Consolidated Statements of
    Operations and Comprehensive Income (Loss) for the period from
    January 1, 2004 to April 13, 2004 and for the years
    ended December 31, 2003, 2002 and 2001
F-49
Consolidated Statements of
    Shareholder's Equity for the period from January 1,
    2004 to April 13, 2004 and for the years ended
    December 31, 2003, 2002, and 2001
F-50
Consolidated Statements of
    Cash Flows for the period from January 1, 2004 to
    April 13, 2004 and for the years ended December 31,
    2003, 2002 and 2001
F-51
Notes to Consolidated
    Financial Statements — Consolidated Communications
    Holdings, Inc.
F-52
Unaudited Financial Statements
Condensed Consolidated
    Financial Statements — Homebase Acquisition, LLC
F-74
Unaudited Condensed
    Consolidated Balance Sheet as of September 30, 2004
F-75
Unaudited Condensed
    Consolidated Statements of Income for the nine months ended
    September 30, 2004 and 2003
F-76
Unaudited Condensed
    Consolidated Statements of Common Members' Deficit for the
    nine months ended September 30, 2004 and 2003
F-77
Unaudited Condensed
    Consolidated Statements of Cash Flows for the nine months ended
    September 30, 2004 and 2003
F-78
Notes to Unaudited Condensed
    Consolidated Financial Statements
F-79
F-1
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
FINANCIAL STATEMENTS FOR THE YEAR
ENDED
December 31, 2003
With Report of Independent Registered Public
Accounting Firm
F-2
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors
Homebase Acquisition, LLC
We have audited the accompanying consolidated
balance sheet of Homebase Acquisition, LLC (the Company) as of
December 31, 2003, and the related consolidated statements
of income, member's deficit, and cash flows for the year
then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company at
December 31, 2003, and the consolidated results of its
operations and its cash flows for the year then ended, in
conformity with U.S. generally accepted accounting
principles.
Chicago, Illinois
March 8, 2004
/S/ ERNST & YOUNG, LLP
F-3
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
CONSOLIDATED BALANCE SHEET
December 31, 2003
(Dollars in thousands, except share and per
amounts)
ASSETS
Current assets:
Cash and cash equivalents
$
10,142
Accounts receivable, net of allowance of $1,837
18,701
Inventories
2,277
Prepaid expenses
1,991
Income taxes receivable
2,002
Deferred charges
1,138
Deferred tax assets
2,868
Other current assets
512
Total current assets
39,631
Property, plant and equipment
251,952
Less: Accumulated depreciation
(151,569
)
Net property, plant and equipment
100,383
Intangibles and other assets:
Goodwill
99,554
Tradenames
15,863
Customer lists, net
53,559
Other intangibles, net
4,197
Deferred financing costs and other assets
4,408
Total assets
$
317,595
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Current portion of long-term debt
$
10,300
Accounts payable
5,518
Advance billings and customer deposits
6,368
Accrued expenses
12,642
Total current liabilities
34,828
Long-term debt less current maturities
170,100
Deferred income taxes
1,114
Pension and postretirement benefit obligations
12,595
Other liabilities
972
Commitments and contingencies
—
Total liabilities
219,609
Redeemable preferred shares:
Class A, redeemable preferred shares,
    $1,000 par value, 182,000 shares authorized, 93,000
    issued and outstanding, liquidation preference of $101,504
101,504
Common members' deficit:
Common shares, no par value,
    10,000,000 shares authorized, 9,975,000 issued and
    outstanding
—
Accumulated deficit
(3,003
)
Accumulated other comprehensive loss
(515
)
Total common members' deficit
(3,518
)
Total liabilities and members' equity
$
317,595
See accompanying notes
F-4
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 2003
(Dollars in thousands, except share and per
share amounts)
Revenues
$
132,330
Operating expenses:
Cost of services and products
30,061
Selling, general and administrative expenses
58,739
Depreciation and amortization
22,476
Total operating expenses
111,276
Income from operations
21,054
Other income (expense):
Interest income
154
Interest expense
(11,975
)
Other, net
(15
)
Income before income taxes
9,218
Income tax expense
3,717
Net income
5,501
Dividends on redeemable preferred shares
(8,504
)
Net loss applicable to common shareholders
$
(3,003
)
Net loss per common share — basic and
    diluted
$
(0.33
)
See accompanying notes
F-5
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
CONSOLIDATED STATEMENT OF CHANGES IN COMMON
MEMBERS' DEFICIT
Year Ended December 31, 2003
(Dollars in thousands)
Accumulated
Common Stock
Other
Accumulated
Comprehensive
Comprehensive
Shares
Amount
Deficit
Loss
Total
Income
Balance, December 31, 2002
—
$
—
$
—
$
—
$
—
Capital contributions
9,000,000
—
—
—
—
Shares issued under employee plan
975,000
—
—
—
—
Net income
—
—
5,501
—
5,501
$
5,501
Dividends on redeemable preferred shares
—
—
(8,504
)
—
(8,504
)
Change in fair value of cash flow hedges, net of
    tax
—
—
—
(515
)
(515
)
(515
)
Balance, December 31, 2003
9,975,000
$
—
$
(3,003
)
$
(515
)
$
(3,518
)
$
4,986
See accompanying notes
F-6
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31, 2003
(Dollars in Thousands)
Operating Activities
Net income
$
5,501
Adjustments to reconcile net income to cash
    provided by operating activities:
Depreciation and amortization
22,476
Deferred income tax
3,388
Other charges
616
Changes in operating assets and liabilities:
Accounts receivable and income taxes receivable
(6,387
)
Inventories
(73
)
Prepaid expenses
(592
)
Accounts payable
(2,267
)
Advance billings and customer deposits
1,061
Accrued liabilities
5,722
Other
(556
)
Net cash provided by operating activities
28,889
Investing Activities
Capital expenditures
(11,296
)
Payment for acquisition
(284,834
)
Other, net
(2
)
Net cash used in investing activities
(296,132
)
Financing Activities
Capital contributions from investors
93,000
Proceeds from long-term obligations
190,000
Payments made on long-term obligations
(10,193
)
Payment of deferred financing costs
(4,602
)
Proceeds from sale of building
9,180
Net cash provided by financing activities
277,385
Increase in cash and cash equivalents
10,142
Cash and cash equivalents at beginning of year
—
Cash and cash equivalents at end of year
$
10,142
Supplemental disclosures of cash flow information
Cash paid for:
Interest
$
11,463
Income taxes
$
2,000
See accompanying notes.
F-7
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the Year Ended December 31,
2003
(Dollars in thousand, except share and per
share amounts)
1.
Description of Business
Homebase Acquisition, LLC ("Homebase"
or the "Company"), is the parent company of a group of
telecommunications companies doing business primarily in
Illinois under the name Consolidated Communications.
Consolidated Communications, Inc.
("CCI"), is a direct, wholly owned subsidiary of
Consolidated Communications Holdings, Inc. or Illinois Holdings.
Illinois Holdings, in turn, is a direct, wholly owned subsidiary
of Homebase. Homebase is owned equally by Central Illinois
Telephone, Providence Equity Partners, and Spectrum Equity.
Homebase, a Delaware limited liability company
that was formed on June 26, 2002, entered into a sale and
purchase agreement with McLeodUSA, Inc. in July 2002 and the
transaction was concluded on December 31, 2002. CCI was
formed on August 6, 2002 to acquire the outstanding stock
and assets of certain lines of business from McLeodUSA, Inc. The
Company commenced operations on December 31, 2002
concurrent with the acquisition of this highly integrated group
of companies and lines of business. The businesses are now held
within separate wholly owned legal entities as follows:
Illinois Consolidated Telephone Company
("ICTC") provides a broad range of local exchange
telecommunications services including local dialtone and central
office based vertical services features, private line services,
data services (including DSL), intraLATA toll and carrier access
services. Operations are subject to regulation by the Illinois
Commerce Commission and the Federal Communications Commission.
Consolidated Communications Network Services,
Inc. ("CCNS") offers long distance, private line, and
data services to residential and business accounts, primarily in
ICTC's service territory. CCNS is the Internet Service
Provider for the vast majority of ICTC's DSL customers.
Consolidated Communications Operator Services,
Inc. ("CCOS") provides both live and automated local
and long distance assistance as well as national directory
assistance on a wholesale and retail basis. CCOS also provides
specialized message center services and corporate and
governmental attendant services.
Consolidated Communications Public Services, Inc.
("CCPS") primarily offers managed local and long
distance automated calling from county jails and state prison
facilities in Illinois. These inmate services include fraud
control, customer service, call management, and technical field
support.
Consolidated Communications Business Systems,
Inc. ("CCBS") sells and installs telecommunications
equipment, and performs cabling, wiring, and equipment
maintenance services to business and residential customers
within the ICTC service territory and to business customers in
adjacent markets.
Consolidated Communications Market Response, Inc.
("CMR") is a full service teleservices business
providing inbound and outbound telemarketing and backend
fulfillment services to corporate clients from diverse industry
segments.
Consolidated Communications Mobile Services, Inc.
("CCMS") provides one-way messaging service for both
personal and business accounts. The basic paging service has
been supplemented with complimentary mobile information services
including Internet, 800 service, info text and voice mail.
F-8
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars in thousand, except share and per
share amounts)
2.
Summary of Significant Accounting
    Policies
Principles of Consolidation
The consolidated financial statements include the
accounts of Homebase and its wholly owned subsidiaries,
Consolidated Communications Holdings, Inc., Consolidated
Communications, Inc., Illinois Consolidated Telephone Company,
Consolidated Communications Network Services, Inc., Consolidated
Communications Operator Services, Inc., Consolidated
Communications Public Services, Inc., Consolidated
Communications Business Services, Inc., Consolidated Market
Response, Inc. and Consolidated Communications Mobile Services,
Inc. All material intercompany balances and transactions have
been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual
results could differ from the estimates and assumptions used.
Regulatory Accounting
ICTC, an independent local exchange carrier,
follows the accounting for regulated enterprises prescribed by
Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of
Regulation" ("SFAS No 71") which permits
rates (tariffs) to be set at levels intended to recover
estimated costs of providing regulated services or products,
including capital costs. SFAS No. 71 requires ICTC to
depreciate wireline plant over the useful lives approved by the
regulators, which could be different than the useful lives that
would otherwise be determined by management.
SFAS No. 71 also requires deferral of certain costs
and obligations based upon approvals received from regulators to
permit recovery of such amounts in future years. Criteria that
would give rise to the discontinuance of SFAS No. 71
include (1) increasing competition restricting the wireline
business' ability to establish prices to recover specific
costs and (2) significant changes in the manner by which
rates are set by regulators from cost-based regulation to
another form of regulation.
Cash Equivalents
Cash equivalents consist of short-term, highly
liquid investments with an original maturity of three months or
less.
Accounts Receivable and Allowance for
    Doubtful Accounts
Accounts receivable consist primarily of amounts
due to the Company from normal activities. Accounts receivable
are determined to be past due when the amount is overdue based
on the payment terms with the customer. In certain
circumstances, the Company requires deposits from customers to
mitigate potential risk associated with receivables. The Company
maintains an allowance for doubtful accounts to reflect
management's best estimate of probable losses inherent in
the accounts receivable balance. Management determines the
allowance balance based on known troubled accounts, historical
experience and other currently available evidence. Accounts
receivable are charged to the allowance for doubtful accounts
when management of the Company determines that the receivable
will not be collected.
F-9
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars in thousand, except share and per
share amounts)
Inventory
Inventory consists mainly of copper and fiber
cable that will be used for ICTC network expansion and upgrades
and materials and equipment used in the maintenance and
installation of telephone systems. Inventory is stated at the
lower of average cost or market.
Goodwill and Other Intangible
    Assets
In accordance with Statement of Financial
Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), goodwill
and intangible assets that have indefinite useful lives are not
amortized but rather are tested annually for impairment.
SFAS 142 also provides that assets which have finite useful
lives be amortized over their useful lives. Tradenames have been
determined to have indefinite lives, thus they are not being
amortized. Software and customer lists are being amortized over
their useful lives of five and ten years, respectively.
Property, Plant, and
    Equipment
Property, plant and equipment are recorded at
cost. The cost of additions, replacements and major improvements
is capitalized, while repairs and maintenance are charged to
expense. When property, plant and equipment are retired from
ICTC, the original cost, net of salvage, is charged against
accumulated depreciation, with no gain or loss recognized in
accordance with the composite group remaining life methodology
used for regulated telephone plant assets. When property
applicable to non-regulated operations is sold or retired, the
assets and related accumulated depreciation are removed from the
accounts and the associated gain or loss is recognized.
The provision for depreciation of regulated
property and equipment is computed using rates and lives
approved by the Illinois Commerce Commission. The provision is
equivalent to an annual composite depreciation rate of 6.21% for
2003.
The provision for depreciation of nonregulated
property and equipment is recorded using the straight-line
method based upon the following useful lives:
Years
Buildings
15-20
Network and outside plant facilities
5-15
Furniture, fixtures, and equipment
3-10
Depreciation of assets recorded under capital
leases is included within depreciation and amortization expense.
Revenue Recognition
Wireline local access revenues are recognized
over the period that the service is provided. Nonrecurring
installation revenues are deferred upon service activation and
are recognized over the shorter of three to five years or the
determined useful life. The associated costs are recorded in the
period in which they are incurred. Revenues from other
telecommunications services, including network access charges,
custom calling feature revenues, billing and collection
services, long distance and private line services, Internet
service provider charges, operator services, and paging services
are recognized monthly as services are provided.
F-10
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars in thousand, except share and per
share amounts)
Telephone equipment revenues generated from
retail channels are recorded at the point of sale.
Telecommunications systems and structured cabling project
revenues are recognized upon completion and billing of the
project. Maintenance services are provided on both a contract
and time and material basis and are recorded when the service is
provided.
Teleservices revenues include both inbound and
outbound calling as well as fulfillment services. All revenues
are recorded as program activity is completed.
Advertising Costs
The costs of advertising are charged to expense
as incurred. Advertising expenses totaled $1,839 in 2003.
Deferred Income Taxes
Deferred tax assets and liabilities are
recognized for the expected tax consequences of temporary
differences between the tax bases of assets and liabilities and
their reported amounts.
Financial Instruments and
    Derivatives
As of December 31, 2003, the Company's
financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and long-term debt
obligations. At December 31, 2003 the carrying value of
these financial instruments approximated fair value.
Derivative instruments are accounted for in
accordance with Statement of Financial Accounting Standards
No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activity".
SFAS No. 133 provides comprehensive and consistent
standards for the recognition and measurement of derivative and
hedging activities. It requires that derivatives be recorded on
the consolidated balance sheet at fair value and establishes
criteria for hedges of changes in fair values of assets,
liabilities or firm commitments, hedges of variable cash flows
of forecasted transactions and hedges of foreign currency
exposures of net investments in foreign operations. To the
extent that the derivatives qualify as a cash flow hedge, the
gain or loss associated with the effective portion is recorded
as a component of Other Comprehensive Loss. Changes in the fair
value of derivatives that do not meet the criteria for hedges
are recognized in the consolidated statement of income. Upon
termination of interest rate swap agreements, any resulting gain
or loss is recognized over the shorter of the remaining original
term of the hedging instrument or the remaining life of the
underlying debt obligation. Since the Company's interest
swap agreements are with major financial institutions, the
Company does not anticipate any nonperformance by any
counterparty. The fair value of the Company's derivative
instruments, comprising interest rate swaps, amounted to a
liability of $859 at December 31, 2003.
Recent Accounting
    Pronouncements
In June 2001, the FASB issued Statement of
Financial Accounting Standards No. 143, "Accounting
for Asset Retirement Obligations" (SFAS 143).
SFAS 143 requires companies to record liabilities equal to
the fair value of their asset retirement legal obligations when
they are incurred. When the liability is initially recorded,
companies capitalize an equivalent amount as part of the cost of
the asset. The Company adopted SFAS 143 on January 1,
2003, and the adoption of this new standard did not have a
material effect on the 2003 consolidated financial statements.
F-11
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars in thousand, except share and per
share amounts)
In July 2002, the FASB issued SFAS 146,
"Accounting for Costs Associated with Exit or Disposal
Activities". Under SFAS 146, a liability for costs
associated with an exit or disposal activity should be
recognized when the liability is incurred. Previously, such a
liability was recognized at the date of commitment to an exit
plan. SFAS 146 also makes some changes to the timing of
recognizing severance pay costs where benefit arrangements
require employees to render future service beyond a minimum
retention period. SFAS 146 is effective for exit or
disposal activities that are initiated after December 31,
2002. The Company adopted SFAS 146 on January 1, 2003,
and the adoption of this new standard did not have a material
effect on the 2003 consolidated financial statements.
In November 2002, the FASB issued Interpretation
No. 45 (FIN 45), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others." FIN 45 requires
certain guarantees to be recorded at fair value, which differs
from the practice previously adopted, which was generally to
record a liability only when a loss is probable and reasonably
estimable. FIN 45 also requires a guarantor to make certain
new disclosures in the financial statements. The Company is
required to adopt the recognition and measurement provisions of
FIN 45 on a prospective basis with respect to guarantees
issued or modified after December 31, 2002. The Company
adopted FIN 45 on January 1, 2003, and the adoption
did not have a material effect on its consolidated financial
statements.
Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities", was
issued by the FASB in January 2003. FIN 46 requires a
company to consolidate a variable interest entity if the company
is subject to a majority of the risk of loss from the variable
interest entity's activities or is entitled to receive a
majority of the entity's residual returns. The
interpretation also requires disclosures about variable interest
entities that the company is not required to consolidate but in
which it has a significant variable interest. FIN 46 is
immediately effective for variable interest entities created on
or after January 31, 2003. For variable interest entities
created or acquired prior to February 1, 2003, the
provisions of FIN 46 will become effective for the periods
after March 15, 2004, except for Special Purpose Entities,
to which the provisions apply as of December 31, 2003. The
Company does not believe that the adoption of FIN 46 will
have a significant impact on its consolidated financial position
or results of operations.
3.
Acquisition
On December 31, 2002, the Company, through
its wholly owned subsidiary (CCI), acquired all of the
outstanding common stock of Illinois Consolidated Telephone
Company, McLeodUSA Public Services, Inc., and Consolidated
Market Response, Inc, as well as substantially all of the assets
of three other related telecom lines of business (or divisions)
which were all owned by McLeodUSA and its affiliates. The
purchase price for the businesses acquired totaled $284,834,
including acquisition costs, and was funded with proceeds from
the issuance of common stock and debt. The Company accounted for
the acquisition using the purchase method of accounting;
accordingly, the Company's financial statements reflect the
allocation of the total purchase price to the net tangible and
intangible assets acquired, based on their respective fair
values. The accompanying consolidated financial statements
include the results of operations of the acquired businesses
from the date of acquisition.
F-12
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars in thousand, except share and per
share amounts)
The allocation of the purchase price to the
assets acquired and liabilities assumed is as follows:
Current assets
$
25,802
Property, plant and equipment
112,811
Goodwill
99,554
Other intangible assets
80,626
Liabilities assumed
(33,959
)
Net purchase price
$
284,834
In accordance with SFAS No. 142, the
goodwill acquired will not be amortized but will be tested for
impairment at least annually. Goodwill is expected to be
deductible for income tax purposes.
4.
Property, plant and equipment
Property, plant and equipment, net consisted of
the following at December 31, 2003:
Property, plant and equipment:
Land and buildings
$
15,487
Network and outside plant facilities
204,681
Furniture, fixtures and equipment
29,145
Work in process
2,639
251,952
Less: Accumulated depreciation
(151,569
)
Net property, plant and equipment
$
100,383
5.
Goodwill and Other Intangible Assets
In accordance with SFAS 142, "Goodwill
and Other Intangible Assets", goodwill and tradenames are
not amortized but are subject to an annual impairment test, or
to more frequent testing if circumstances indicate that they may
be impaired. In 2003, the Company completed its annual
impairment test and determined that there was no impairment.
At December 31, 2003, the carrying amounts
of amortizable intangible assets and related accumulated
amortization are as follows:
Gross
Net
Carrying
Accumulated
Carrying
Amount
Amortization
Amount
Customer lists
$
59,517
$
(5,958
)
$
53,559
Software
5,246
(1,049
)
4,197
$
64,763
$
(7,007
)
$
57,756
During the year ended 2003, the aggregate
amortization expense was $7,007. The estimated amortization
expense for each of the next five years ended December 31
is as follows: 2004 — $7,007, 2005 — $7,007,
2006 — $7,007, 2007 — $7,007,
2008 — $5,958 .
F-13
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars in thousand, except share and per
share amounts)
6.
Affiliated Transactions
The Company, through its wholly owned subsidiary
(CCI), entered into agreements on December 30, 2002 with
its equity partners, Richard A. Lumpkin, Chairman of the
Company, and affiliates of Providence Equity and Spectrum
Equity, in which they will be compensated an annual fee of
$2,000, to be divided equally among them, for consulting,
advisory and other professional services provided. Pursuant to
these agreements, if the Company cannot pay the professional
services fee in cash, or if earnings fall below a certain level,
the professional service fees will be paid in the form of
additional Class A preferred shares, at a rate of one
Class A share for each $1 of the professional service fee
not paid in cash. During the fiscal year ended December 31,
2003, the Company paid an aggregate of $1,500 to the equity
partners. The remaining $500 of the annual fee was accrued for
at the end of the year and has subsequently been paid. These
fees are included in selling, general and administrative
expenses in the Consolidated Statement of Income.
Agracel, Inc., or Agracel, is a real estate
investment company of which Mr. Lumpkin, together with his
family, beneficially owns 49.7%. In addition, Mr. Lumpkin
is a director of Agracel. Agracel is the sole managing member
and 50% owner of LATEL LLC. Mr. Lumpkin directly owns the
remaining 50% of LATEL. Effective December 31, 2002, the
Company sold five of its buildings and associated land to LATEL,
LLC for the aggregate purchase price of $9,180, and then entered
into an agreement to leaseback the same facilities for general
office and warehouse functions. The initial term of the lease is
for a one-year term, with the option to extend for an additional
ten years in one-year increments. The lease is a triple net
lease that requires the Company to continue to pay substantially
all expenses associated with general maintenance and repair,
utilities, insurance and taxes. The Company paid approximately
$1,221 to LATEL during 2003 and has treated these payments as
operating lease expense. The Company has the right to cancel the
lease at any time by giving LATEL one-year prior written notice.
There is no lease payable balance outstanding at
December 31, 2003.
Agracel is the sole managing member and 66.7%
owner of MACC, LLC, or MACC. Mr. Lumpkin, together with his
family, owns the remainder of MACC. In 1997, CMR entered into a
lease agreement to rent office space for a period of five years.
The parties extended the lease for an additional five years
beginning October 14, 2002. CMR paid MACC annual rent
expense in the amount of $123 in 2003.
Mr. Lumpkin, together with members of his
family, beneficially owns 100% of SKL Investment Group, LLC or
SKL. SKL paid to the Company $74 in 2003 for use of office
space, computers, telephone service and for other office related
expenses.
Mr. Lumpkin also has an ownership interest
in First Mid-Illinois Bancshares, Inc. or First Mid-Illinois
which provides general banking services, including depository,
disbursement and payroll accounts, to the Company. The fees
charged to the Company are based upon First Mid-Illinois'
standard schedule for large customers. Total fees paid for
services provided totaled $2 in 2003. The Company provides
certain telecommunications products and services to First
Mid-Illinois. Those services, for which revenues totaled $437 in
2003, are based upon standard prices for strategic business
customers.
F-14
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars in thousand, except share and per
share amounts)
7.
Income Taxes
The components of the income tax provision
charged to expense are as follows:
Deferred:
Federal
$
3,252
State
465
Total deferred
3,717
Income tax expense
$
3,717
The following is a reconciliation between the
statutory federal income tax rate for the year ended
December 31, 2003 and the Company's overall effective
tax rate:
Statutory federal income tax rate
35.0
%
State income taxes, net of federal benefit
5.0
%
Other
0.3
%
40.3
%
Net deferred taxes consist of the following
components as of December 31, 2003:
Current deferred tax assets:
Reserve for uncollectible accounts
$
385
Accrued expenses
447
Deferred revenue and regulatory reserves
1,524
Accrued vacation pay deducted when paid
512
2,868
Noncurrent deferred tax assets:
Net operating loss carryforwards
2,253
Derivative instruments
344
Pension and early retirement obligations
3,691
6,288
Noncurrent deferred tax liabilities:
Goodwill and other intangibles
(1,641
)
Property, plant and equipment
(5,761
)
(7,402
)
Net noncurrent deferred tax liabilities
(1,114
)
Net deferred income tax assets
$
1,754
In 2003, the Company generated a net operating
loss carryforward approximating $5,634 that expires in 2023, if
not utilized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences and net
operating loss carryforwards become deductible or are utilized.
Management believes it is currently more likely than not
F-15
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars in thousand, except share and per
share amounts)
that the Company will realize the benefits of
these deductible differences and net operating loss
carryforwards. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward
period are reduced.
8.
Pension Costs and Other Postretirement
    Benefits
ICTC maintains a noncontributory defined pension
and death benefit plan covering substantially all of its hourly
employees. The pension benefit formula used in the determination
of pension cost is based on the highest five consecutive
calendar years' base earnings within the last ten calendar
years immediately preceding retirement or termination. It is
ICTC's policy to fund pension costs as they accrue subject
to any applicable Internal Revenue Code limitations. ICTC uses a
September 30 measurement date for its plan.
The change in pension benefit obligation for 2003
is as follows:
Projected benefit obligation, beginning of period
$
49,637
Service cost
770
Interest cost
3,207
Benefits paid
(3,403
)
Actuarial loss
5,317
Projected benefit obligation, end of period
$
55,528
Accumulated benefit obligation
$
51,070
The changes in plan assets for 2003 relate to the
following:
Fair value of plan assets, beginning of period
$
45,446
Actual return on plan assets
7,804
Other proceeds
857
Benefits paid
(3,403
)
Fair value of plan assets, end of period
$
50,704
The reconciliation of the funded status of the
pension plans as of December 31, 2003 is as follows:
Funded status
$
(4,824
)
Unrecognized net actuarial loss
162
Net amount recognized as accrued benefit cost
$
(4,662
)
The components of net periodic benefit cost for
2003 are as follows:
Service cost
$
770
Interest cost
3,207
Expected return on plan assets
(3,507
)
Net periodic benefit cost
$
470
Weighted-average actuarial assumptions used to
determine benefit obligations at December 31, are as
follows: Discount rate 6.00%, Rate of compensation increases
3.50%.
F-16
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars in thousand, except share and per
share amounts)
Weighted-average actuarial assumptions used to
determine the net periodic benefit cost for 2003 are as follows:
Discount rate 6.75%, Expected long-term rate of return on plan
assets 8.00%, Rate of compensation increases 3.50%.
The expected return on plan assets assumption
considered the categories of the assets as well as the past
return on the assets. The assets of the plan consist principally
of equity and fixed income securities. The Company's
pension plan weighted-average asset allocation by category is as
follows: Equity securities 65%, Debt securities 35%.
The Company's investment strategy at
December 31, 2003 was to target its asset allocation
percentage at 60% invested in equity funds and 40% invested in
fixed income funds.
The Company expects to contribute $915 to its
pension plan in 2004.
In addition to providing pension benefits, ICTC
provides an optional retiree medical program to its salaried and
union retirees and spouses under age 65 and life insurance
coverage for the salaried retirees. All retirees are required to
contribute to the cost of their medical coverage while the
salaried life insurance is provided at no cost to the retiree.
ICTC uses a September 30 measurement date for its plan. The
following postretirement benefit plan disclosures relate to ICTC
and certain other subsidiaries of the Company. The changes in
the postretirement benefit obligation for 2003 are as follows:
Projected benefit obligation, beginning of period
$
7,966
Service cost
165
Employer contributions
557
Plan participants' contributions
135
Plan amendments
454
Benefits paid
(692
)
Actuarial loss
366
Projected benefit obligation, end of period
$
8,951
The changes in plan assets for 2003 relate to the
following:
Fair value of plan assets, beginning of period
$
—
Employer contributions
557
Plan participants' contributions
135
Benefits paid
(692
)
Fair value of plan assets, end of period
$
—
The reconciliation of the funded status of the
postretirement benefit plan as of December 31, 2003 is as
follows:
Funded status
$
(8,951
)
Employer contributions after measurement date and
    before fiscal year end
$
194
Unrecognized prior service cost
$
952
Unrecognized net actuarial loss
(128
)
Net amount recognized as accrued benefit cost
$
(7,933
)
F-17
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars in thousand, except share and per
share amounts)
The components of postretirement benefit cost for
2003 are as follows:
Service cost
$
165
Interest cost
557
Amortization of prior service costs
(3
)
Recognized actuarial gain
(1
)
Net periodic benefit cost
$
718
The postretirement benefit obligation is
calculated assuming that health-care costs increased by 11.0% in
2003, and that the rate of increase thereafter (the health-care
cost trend rate) will decline to 5.0% in 2009 and subsequent
years. The health-care cost trend rate has a significant effect
on the amounts reported for costs each year as well as on the
accumulated postretirement benefit obligation. For example, a
one percentage point increase each year in the health-care cost
trend rate would increase the accumulated postretirement benefit
obligation as of December 31, 2003, by approximately $447
and the aggregate of the service and interest cost components of
the net periodic postretirement benefit cost by approximately
$50. A one percentage point decrease each year in the
health-care cost trend rate would decrease the accumulated
postretirement benefit obligation as of December 31, 2003,
by approximately $407 and the aggregate of the service and
interest cost components of the net periodic postretirement
benefit cost by approximately $44. The weighted-average discount
rate used in determining the benefit obligation was 6.0% in 2003.
9.
Employee Benefit Plan
The Company sponsors a 401(k) defined
contribution retirement savings plan made available to virtually
all employees. Each employee may elect to defer a portion of his
or her compensation, subject to certain limitations. During the
year ended December 31, 2003, the Company matched employee
contributions up to a maximum of 4% for hourly employees and
matched employee contributions up to 2% for salaried employees.
Total Company contributions to the plan were $496 in 2003.
10.                 Long-Term
Debt
Long-term debt consisted of the following at
December 31, 2003:
Revolving loan
$
—
Term loan A
110,400
Term loan B
70,000
180,400
Less: Current portion
(10,300
)
$
170,100
The Company, through its wholly owned subsidiary
(CCI), entered into a credit agreement, dated as of
December 31, 2002, with various financial institutions
which provides for aggregate borrowings of $195,000, consisting
of a $5,000 revolving credit facility, a $120,000 Term
Loan A facility and a $70,000 Term Loan B facility.
Borrowings under the credit agreement are secured by
substantially all of the assets of the Company.
F-18
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars in thousand, except share and per
share amounts)
The term loans are due in quarterly installments
which increase annually, with all borrowings under Term
Loan A and Term Loan B due June 30, 2011 and
September 30, 2012, respectively. Beginning June 30,
2009, the revolving credit facility is permanently reduced by
$1,666 annually, with the facility expiring on June 30,
2011. Within 120 days after the end of the Company's
fiscal year, commencing with December 31, 2003, the Company
shall be obligated to repay the loans in an amount equal to 50%
of the excess cash flow for such fiscal year, provided that
certain leverage ratios are maintained at the end of the fiscal
year. Excess cash flow is defined as EBITDA less fixed charges,
less net change in working capital.
At the Company's election, borrowings bear
interest at fluctuating interest rates based on (i) a
"base rate" (the higher of the prime rate or 0.5%
above the rate on overnight federal funds transactions) or
(ii) the London Interbank Offered Rate, or LIBOR, plus, in
either case, the applicable margin within the relevant range of
margins provided in our credit agreement. The applicable margin
is based upon the Company's total leverage ratio. As of
December 31, 2003, the margins for interest rates on LIBOR
based loans was 3.5% on the Term Loan A component and 3.75%
under the Term Loan B component. At December 31, 2003,
the average rate, including swaps (see Note 11), of
interest on our debt facilities was 6.05% per annum.
The credit agreement contains various provisions
and covenants which include, among other items, restrictions on
the ability to pay dividends, incur additional indebtedness, and
issuance of capital stock as well as limitations on future
capital expenditures. The Company has also agreed to maintain
certain financial ratios, including interest coverage, fixed
charge coverage, debt service coverage and leverage ratios (all
as defined in the credit agreement).
Future maturities of long-term debt as of
December 31, 2003 are as follows: 2004 — $10,300,
2005 — $11,600, 2006 — $15,900,
2007 — $17,900, 2008 — $21,200,
Thereafter — $103,500.
11.
Derivative Instruments
The Company entered into interest rate swap
agreements that effectively convert a portion of the
floating-rate debt to a fixed-rate basis, thus reducing the
impact of interest rate changes on future interest expense. At
December 31, 2003, the Company has interest rate swap
agreements covering $100.0 million in aggregate principal
amount of its variable rate debt at fixed LIBOR rates ranging
from 3.03% to 3.40%.
During 2003 there was no gain or loss related to
the ineffective portion of hedging instruments in our interest
expense. The accumulated loss on derivative instruments of $515,
net of tax, is included in Other Comprehensive Loss at
December 31, 2003.
12.
Redeemable Preferred Shares and Member's
    Equity
Preferred Shares
The Company has authorized 182,000 Class A
Preferred Shares of which 93,000 shares were issued and
outstanding at December 31, 2003. The preferred shares are
redeemable to the holders with a preferred return on their
capital contributions at the rate of 9% per annum. The
preferred return is cumulative and compounded annually in
arrears on December 31, of each year.
At any time on or after June 30, 2007
certain members have the right to require the Company to redeem
all of their Class A Preferred Shares and common shares.
Preferred shares are redeemable at a price equal to
$1,000 per share plus any accrued but unpaid preferred
return and common shares are redeemable based upon an appraised
value by a third party.
F-19
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars in thousand, except share and per
share amounts)
Common Shares
The Company has authorized 10,000,000 Common
Shares of which 9,975,000 shares were issued and
outstanding at December 31, 2003.
13.
Restricted Share Plan
In August 2003, the Company established the 2003
Restricted Share Plan which provides for the issuance of
1,000,000 common shares to key employees as an incentive to
enhance their long-term performance as well as an incentive to
join or remain with the Company. In November 2003, Homebase
granted 975,000 shares of its common stock to certain
Company executives under its 2003 Restricted Share Plan. 25% of
these shares will vest with the individuals every
December 31, beginning December 31, 2004 through
December 31, 2007.
14.
Environmental Remediation
    Liabilities
Environmental remediation liabilities were $931
at December 31, 2003. These liabilities relate to
anticipated remediation and monitoring costs in respect of two
sites and are undiscounted.
15.
Operating Leases
The Company has entered into several operating
lease agreements covering buildings and office space and office
equipment. The terms of these agreements generally range from
three to five years. Rent expense totaled $2,043 in 2003.
Future minimum lease payments under existing
agreements for each of the next five years ending
December 31 and thereafter are as follows: 2004 —
$1,709, 2005 — $419, 2006 — $364,
2007 — $312, 2008 — $88,
thereafter — $697.
16.
Net Loss per Common Share
The following table sets forth the computation of
net loss per common share:
Net loss applicable to common shareholders
$
(3,003
)
Weighted average number of common shares
    outstanding
9,000,000
Net loss per common share
$
(0.33
)
Shares issued pursuant to the Restricted Share
Plan (Note 13) are not included in the computation of net
loss per share as their effect was anti-dilutive.
17.
Business Segments
The Company is viewed and managed as two
separate, but highly integrated, reportable business segments,
"Illinois Telephone Operations" and "Other
Illinois Operations". Illinois Telephone Operations
consists of local telephone, long-distance and network access
services, and data and Internet products provided to both
residential and business customers, primarily in central
Illinois. ICTC and CCNS are included in Illinois Telephone
Operations during the period covered in these consolidated
financial statements. All other entities comprise "Other
Illinois Operations". Services include operator services
products, telecommunications services to state prison
facilities, equipment sales and maintenance,
F-20
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Dollars in thousand, except share and per
share amounts)
inbound/outbound telemarketing and fulfillment
services, and paging services. Management evaluates the
performance of these business segments based upon revenue, gross
margins, and net operating income.
The business segment reporting information as of
and for the year ended December 31, 2003 is as follows:
Illinois
Other
Telephone
Telephone
Operations
Operations
Total
Operating revenues
$
90,282
$
42,048
$
132,330
Cost of services and products
5,518
24,543
30,061
Gross margin
84,764
17,505
102,269
Operating expenses
49,231
9,508
58,739
Depreciation and amortization
16,488
5,988
22,476
Net operating income
$
19,045
$
2,009
$
21,054
Total assets
$
245,855
$
71,740
$
317,595
Goodwill
$
78,443
$
21,111
$
99,554
Capital expenditures
$
9,117
$
2,179
$
11,296
18.
Quarterly Financial Information
    (unaudited)
March 31
June 30
September 30
December 31
Revenues
$
31,772
$
33,224
$
33,741
$
33,593
Operating expenses:
Cost of services and products
7,226
7,574
7,762
7,499
Selling, general and administrative expenses
13,945
14,568
14,941
15,285
Depreciation and amortization
5,494
5,938
5,698
5,346
Total operating expenses
26,665
28,080
28,401
28,130
Income from operations
5,107
5,144
5,340
5,463
Other expenses, net
3,131
2,889
2,961
2,855
Income tax expense
790
902
952
1,073
Net income
$
1,186
$
1,353
$
1,427
$
1,535
F-21
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2002 and December 31,
2001
with Report of Independent Registered Public
Accounting Firm
F-22
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors
Consolidated Communications, Inc.
We have audited the accompanying combined balance
sheets as of December 30, 2002 and December 31, 2001,
of the corporations and lines of business listed in Note 1
(then owned by McLeodUSA Inc.), and the related combined
statements of income, changes in parent company investment, and
cash flows for each of the years then ended. These financial
statements are the responsibility of management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the combined financial statements
referred to above present fairly, in all material respects, the
combined financial position at December 30, 2002 and
December 31, 2001, of the corporations and lines of
business listed in Note 1, and the combined results of
their operations and their cash flows for the years then ended,
in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 3 to the combined
financial statements, effective January 1, 2002, the
corporations and lines of business listed in Note 1
discontinued the amortization of goodwill in accordance with
Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets".
Chicago, Illinois
March 8, 2004
/S/ ERNST & YOUNG LLP
F-23
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
COMBINED BALANCE SHEETS
December 30
December 31
2002
2001
(Amounts in thousands)
ASSETS
Current assets:
Cash and cash equivalents
$
1,089
$
3,253
Accounts receivable, net of allowances of $1,850
    and $1,142 at December 30, 2002 and December 31, 2001,
    respectively
14,107
13,447
Inventories
2,204
3,009
Prepaid expenses
1,399
1,294
Deferred directory costs and other charges
369
1,151
Deferred tax assets
2,914
3,143
Other current assets
1,122
1,375
Total current assets
23,204
26,672
Investments
18
3,416
Property, plant, and equipment:
Land and buildings
24,162
23,825
Network and outside plant facilities
200,481
187,100
Furniture, fixtures and equipment
32,614
32,074
Work in process
3,330
2,553
260,587
245,552
Less: Accumulated depreciation
155,526
145,046
Net property, plant, and equipment
105,061
100,506
Intangibles and other assets:
Goodwill
101,324
101,324
Other intangibles
6,463
16,603
Deferred charges and other assets
333
352
Total intangibles and other assets
108,120
118,279
Total assets
$
236,403
$
248,873
LIABILITIES AND PARENT COMPANY
    INVESTMENT
Current liabilities:
Current portion of capital lease obligations
$
479
$
329
Accounts payable
7,306
6,204
Accrued liabilities
6,725
10,329
Advance billings and customer deposits
5,307
4,854
Total current liabilities
19,817
21,716
Long-term liabilities:
Unamortized investment tax credits
320
585
Deferred income taxes
10,815
15,977
Pension benefit obligations and other
    postretirement obligations
9,471
8,965
Deferred compensation
—
2,178
Other long-term liabilities
903
500
Long-term debt, excluding current maturities
20,593
20,661
Long-term capital lease obligations
—
149
Commitments and contingencies
—
—
Total long-term liabilities
42,102
49,015
Parent company investment
174,484
178,142
Total liabilities and parent company investment
$
236,403
$
248,873
See accompanying notes.
F-24
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
COMBINED STATEMENTS OF INCOME
Years Ended December 30, 2002 and
December 31, 2001
2002
2001
(Amounts in
thousands)
Operating revenues
Illinois Telephone Operations
$
76,745
$
79,803
Other Illinois Operations
33,159
35,758
Total operating revenues
109,904
115,561
Operating expenses
Cost of services and products
17,840
19,713
Selling, general, and administrative
53,596
55,171
Depreciation and amortization
24,544
31,780
Total operating expenses
95,980
106,664
Income from operations
13,924
8,897
Other income (expense):
Interest income
6
50
Interest expense
(1,652
)
(1,821
)
Gain on sale of assets
—
5,208
Other, net
428
512
Total other income (expense)
(1,218
)
3,949
Income before income taxes
12,706
12,846
Income taxes
4,670
6,290
Net income
$
8,036
$
6,556
See accompanying notes.
F-25
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
COMBINED STATEMENTS OF CHANGES IN PARENT
COMPANY INVESTMENT
Years Ended December 30, 2002 and
December 31, 2001
(Amounts in thousands)
Balance at December 31, 2000
$
191,571
Net income
6,556
Net settlement with parent
(19,985
)
Balance at December 31, 2001
178,142
Net income
8,036
Net settlement with parent
(11,694
)
Balance at December 30, 2002
$
174,484
See accompanying notes.
F-26
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 30, 2002 and
December 31, 2001
2002
2001
(Amounts in thousands)
Cash flows from operating activities
Net income
$
8,036
$
6,556
Adjustments to reconcile net income to net cash
    provided by operating activities:
Depreciation and amortization
24,544
31,780
Deferred income taxes
(4,933
)
(4,160
)
Other deferred credits, net
1,864
(1,166
)
Changes in net operating assets and liabilities:
Accounts receivable
(660
)
4,212
Inventories
805
(595
)
Prepaid expenses
(105
)
(495
)
Accounts payable
1,102
(3,247
)
Advance billings and customer deposits
453
119
Accrued income taxes and liabilities
(3,604
)
2,586
Other
1,035
(1,336
)
Net cash provided by operating activities
28,537
34,254
Cash flows from investing activities
Property, plant, and equipment expenditures
(14,137
)
(13,057
)
Net cash used in investing activities
(14,137
)
(13,057
)
Cash flows from financing activities
Capital lease obligations
—
(239
)
Repayment of long-term debt
(68
)
(73
)
Deferred charges and other noncurrent assets
19
153
Settle intercompany receivables, net
(16,515
)
(18,727
)
Net cash used in financing activities
(16,564
)
(18,886
)
Net increase (decrease) in cash and cash
    equivalents
(2,164
)
2,311
Cash and cash equivalents at beginning of year
3,253
942
Cash and cash equivalents at end of year
$
1,089
$
3,253
Non-cash investing and financing
    activities
Property, plant and equipment additions
$
4,821
$
—
Supplemental disclosures of cash flow
    information
Cash paid for interest
$
1,643
$
1,765
See accompanying notes.
F-27
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS
December 30, 2002 and December 31,
2001
(Amounts in thousands)
1.
Nature of Business
Consolidated Communications, Inc., or CCI, is a
direct, wholly owned subsidiary of Consolidated Communications
Holdings, Inc. or Illinois Holdings. Illinois Holdings, in turn,
is a direct, wholly owned subsidiary of Homebase Acquisition,
LLC, or Homebase.
Homebase, a Delaware limited liability company
that was formed on June 26, 2002, entered into a sale and
purchase agreement with McLeodUSA, Inc. in July 2002 and the
transaction was concluded on December 31, 2002. CCI was
formed on August 6, 2002 to acquire a highly integrated
group of companies and lines of business as described below. The
accompanying combined financial statements include the accounts
of Illinois Consolidated Telephone Company and the Related
Businesses (the Business). During the periods covered by these
financial statements the Business operated under the ownership
of McLeodUSA, Inc., or McLeodUSA. The Business comprised of the
following entities and lines of business:
Illinois Consolidated Telephone Company
(ICTC) provides a broad range of local exchange
telecommunications services including local dialtone and central
office based vertical services features, private line services,
data services (including DSL), intraLATA toll and carrier access
services. Operations are subject to regulation by the Illinois
Commerce Commission and the Federal Communications Commission.
Consolidated Communications Operator Services
provides both live and automated local and long distance
assistance as well as national directory assistance on a
wholesale and retail basis. CCOS also provides specialized
message center services and corporate and governmental attendant
services.
McLeodUSA Public Services, Inc. primarily offers
managed local and long distance automated calling from county
jails and state prison facilities in Illinois. These inmate
services include fraud control, customer service, call
management, and technical field support.
Consolidated Communications Business Systems
sells and installs telecommunications equipment, and performs
cabling, wiring, and equipment maintenance services to business
and residential customers within the ICTC service territory and
to business customers in adjacent markets.
Consolidated Market Response, Inc. is a full
service teleservices business providing inbound and outbound
telemarketing and backend fulfillment services to corporate
clients from diverse industry segments.
Consolidated Communications Mobile Services
provides one-way messaging service for both personal and
business accounts. The basic paging service has been
supplemented with complimentary mobile information services
including Internet, 800 service, info text and voice mail.
The Business has two reportable segments,
Illinois Telephone Operations and Other Illinois Operations (see
note 14, Business Segments). ICTC is represented in
Illinois Telephone Operations while all other entities and lines
of business are reflected in Other Illinois Operations.
2.
Basis of Preparation
These combined financial statements present, on a
historical cost basis, the combined assets, liabilities,
revenues and expenses related to the entities and businesses as
if the Business had existed as an entity separate from
McLeodUSA. The historical cost basis includes the allocation of
goodwill and other intangible assets resulting from
McLeodUSA's purchase of the Business in 1997. As such, the
accompanying combined financial statements are not intended to
be a complete representation of the
F-28
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
assets, liabilities or the results of operations
of the Business on a stand-alone basis. All material
transactions between businesses included in these financial
statements have been eliminated. Comprehensive income is
equivalent to net income for all periods presented.
3.
Summary of Significant Accounting
    Policies
Regulatory Accounting
ICTC, an independent local exchange carrier,
follows the accounting for regulated enterprises prescribed by
Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation" which permits rates
(tariffs) to be set at levels intended to recover estimated
costs of providing regulated services or products, including
capital costs. SFAS No. 71 requires ICTC to depreciate
wireline plant over the useful lives approved by the regulators,
which could be different than the useful lives that would
otherwise be determined by management. SFAS No. 71
also requires deferral of certain costs and obligations based
upon approvals received from regulators to permit recovery of
such amounts in future years. Criteria that would give rise to
the discontinuance of SFAS No. 71 include
(1) increasing competition restricting the wireline
business' ability to establish prices to recover specific
costs and (2) significant changes in the manner by which
rates are set by regulators from cost-based regulation to
another form of regulation.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual
results could differ from the estimates and assumptions used.
Cash Equivalents
Cash equivalents consist of short-term, highly
liquid investments with an original maturity of three months or
less.
Accounts Receivable and Allowance for
    Doubtful Accounts
Accounts receivable consist primarily of amounts
due to the Business from normal activities. Accounts receivable
are determined to be past due when the amount is overdue based
on the payment terms with the customer. In certain
circumstances, the Business requires deposits from customers to
mitigate potential risk associated with receivables. The
Business maintains an allowance for doubtful accounts to reflect
management's best estimate of probable losses inherent in
the accounts receivable balance. Management determines the
allowance balance based on known troubled accounts, historical
experience and other currently available evidence. Accounts
receivable are charged to the allowance for doubtful accounts
when we have determined that the receivable will not be
collected.
Inventory
Inventory consists mainly of copper and fiber
cable that will be used for ICTC network expansion and upgrades
as well as materials and equipment used in the maintenance and
installation of telephone systems. All inventory is stated at
the lower of average cost or market.
F-29
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
Investments
Investments primarily consist of the net cash
surrender value of variable whole life insurance policies to
cover deferred compensation liabilities for certain executives.
These investments are carried at fair value. The deferred
compensation arrangement was terminated in January 2002, and
accordingly, proceeds received from the insurance policies were
used to pay the deferred compensation obligations.
Intangible Assets and
    Goodwill
Goodwill is stated at cost and was amortized
using the straight-line method over thirty years. Effective
January 1, 2002, the Business adopted
SFAS No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142), at which time amortization ceased.
Intangible assets are stated at cost and consist of customer
relationships, tradenames, and software and are being amortized
over their useful lives which range from five to ten years.
The following table shows the Business' net
income for 2001, adjusted for the impact of SFAS 142:
2001
Net income as reported
$
6,556
Add: Amortization of goodwill prior to the
    adoption of SFAS 142
4,541
Net income, as adjusted
$
11,097
Property, Plant, and
    Equipment
Property, plant and equipment are recorded at
cost. The cost of additions, replacements and major improvements
is capitalized, while repairs and maintenance are charged to
expense. When property, plant and equipment are retired from
ICTC, the original cost, net of salvage, is charged against
accumulated depreciation, with no gain or loss recognized in
accordance with the composite group remaining life methodology
used for regulated telephone plant assets. When property
applicable to non-regulated operations is sold or retired, the
assets and related accumulated depreciation are removed from the
accounts and the associated gain or loss is recognized.
The provision for depreciation of regulated
property and equipment is computed using rates and lives
approved by the Illinois Commerce Commission. The provision is
equivalent to annual composite depreciation rates of 5.59% and
6.00% for 2002 and 2001, respectively.
The provision for depreciation of nonregulated
property and equipment is recorded using the straight-line
method based upon the following estimated useful lives:
Years
Buildings
15-20
Telecommunications networks
5-15
Furniture, fixtures, and equipment
3-10
Depreciation of assets recorded under capital
leases is included within depreciation and amortization expense.
Revenue Recognition
Wireline local access revenues are recognized
over the period that the service is provided. Nonrecurring
installation revenues are deferred upon service activation and
are recognized over the shorter of three to five years or the
determined useful life. The associated costs are recorded in the
period in
F-30
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
which they are incurred. Revenues from other
telecommunications services, including network access charges,
custom calling feature revenues, billing and collection
services, long distance and private line services, Internet
service provider charges, operator services, and paging services
are recognized monthly as services are provided.
Telephone equipment revenues generated from
retail channels are recorded at the point of sale.
Telecommunications systems and structured cabling project
revenues are recognized upon completion and billing of the
project. Maintenance services are provided on both a contract
and time and material basis and are recorded when the service is
provided.
Teleservices revenues include both inbound and
outbound calling as well as fulfillment services. All revenues
are recorded as program activity is completed.
Advertising Costs
The costs of advertising are charged to expense
as incurred. Advertising expenses totaled $1,758 and $865 in
2002 and 2001 respectively.
Financial Instruments
At December 30, 2002 and December 31,
2001, the Business' financial instruments consist of cash
and cash equivalents, accounts receivable and payable, long-term
debt and capital lease obligations. The fair values of the
financial instruments were not materially different from their
carrying value except for long-term debt. The aggregate fair
value of the Business' long-term debt (including current
maturities) was approximately $24,212 and $24,427 at
December 30, 2002 and December 31, 2001, respectively.
Fair values for the long-term debt were determined using
discounted cash flow analyses based on the Business'
current incremental interest rates for similar instruments.
Deferred Income Taxes
Deferred tax assets and liabilities are
recognized for the expected tax consequences of temporary
differences between the tax bases of assets and liabilities and
their reported amounts.
Stock-Based Compensation
The Business follows the provisions of Accounting
Principle Board Opinion No. 25, "Accounting for Stocks
Issued to Employees" (APB No. 25) and related
interpretations in accounting for its employee stock options.
In September 1997, McLeodUSA granted 837,245
stock options to the Business' employees at an exercise
price of $24.50 per share. The aggregate intrinsic value of
these options at the date of grant exceeded the aggregate
exercise price by approximately $9,000. As a result, the
Business has amortized the stock compensation expense over the
four-year vesting period of the options. Compensation cost of
$1,351 has been charged to income for the year-ended
December 31, 2001, using the intrinsic value based method
as prescribed by APB No. 25. There is no charge for
stock-based compensation in 2002.
Pro forma information regarding net income is
required by FASB Statement No. 123, "Accounting for
Stock-based Compensation" (SFAS No. 123), as
amended by FASB Statement No. 148, "Accounting for
Stock-based Compensation — Transition and
Disclosure" (SFAS No. 148). Had compensation cost
F-31
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
been determined based on the grant date fair
value of awards granted during 2001, as prescribed by
SFAS No. 123, reported net income would have been as
follows:
2001
Net income as reported
$
6,556
Add stock based compensation expense included in
    the determination of net income as reported, net of tax
838
Less stock-based compensation expense that would
    have been included in the determination of net income if the
    fair value method had been applied to awards, net of tax
1,331
Pro forma net income
$
6,063
Recent Accounting
    Pronouncements
In June 2001, the FASB issued Statement of
Financial Accounting Standards No. 143, "Accounting
for Asset Retirement Obligations" (SFAS 143).
SFAS 143 requires companies to record liabilities equal to
the fair value of their asset retirement obligations when they
are incurred. When the liability is initially recorded,
companies capitalize an equivalent amount as part of the cost of
the asset. The Business is required to adopt SFAS 143 on
January 1, 2003, and it does not believe that the adoption
of this new standard will have a material effect on the 2003
consolidated financial statements.
In August 2001, the Financial Accounting
Standards Board issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144
retains the requirement to recognize an impairment loss only
where the carrying value of a long-lived asset is not
recoverable from its undiscounted cash flows and to measure such
loss as the difference between the carrying amount and fair
value of the asset. SFAS 144, among other things, changes
the criteria that have to be met in order to classify an asset
held-for-sale and requires that operating losses from
discontinued operations be recognized in the period that the
losses are incurred rather than as of the measurement date.
SFAS 144 was adopted for the Business' 2002 accounting
period and did not have a material impact on the combined
financial statements.
In July 2002, the FASB issued SFAS 146,
"Accounting for Costs Associated with Exit or Disposal
Activities." Under SFAS 146, a liability for costs
associated with an exit or disposal activity should be
recognized when the liability is incurred. Previously, such a
liability was recognized at the date of commitment to an exit
plan. SFAS 146 also makes some changes to the timing of
recognizing severance pay costs where benefit arrangements
require employees to render future service beyond a minimum
retention period. SFAS 146 is effective for exit or
disposal activities that are initiated after December 31,
2002. The Business is required to adopt SFAS 146 on
January 1, 2003, and it does not believe that the adoption
of this new standard will have a material effect on the 2003
consolidated financial statements.
In November 2002, the FASB issued Interpretation
No. 45 (FIN 45), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others." FIN 45 requires
certain guarantees to be recorded at fair value, which is
different from current practice, which is generally to record a
liability only when a loss is probable and reasonably estimable.
FIN 45 also requires a guarantor to make certain new
disclosures in the financial statements; these disclosure
requirements are effective for the Business' 2002 reporting
period. The Business is required to adopt the recognition and
measurement provisions of FIN 45 on a prospective basis
with respect to guarantees issued or modified after
December 31, 2002. The Business does not believe the
adoption of FIN 45 will have a material effect on its 2003
consolidated financial statements.
F-32
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities", was
issued by the FASB in January 2003. FIN 46 requires a
company to consolidate a variable interest entity if the company
is subject to a majority of the risk of loss from the variable
interest entity's activities or is entitled to receive a
majority of the entity's residual returns. The
interpretation also requires disclosures about variable interest
entities that the company is not required to consolidate but in
which it has a significant variable interest. FIN 46 is
immediately effective for variable interest entities created on
or after January 31, 2003. For variable interest entities
created or acquired prior to February 1, 2003, the
provisions of FIN 46 will become effective for the periods
after March 15, 2004, except for Special Purpose Entities,
to which the provisions apply as of December 31, 2003. The
Business has not yet determined the effect of adopting
FIN 46, if any, on its statement of income or financial
position.
4.
Affiliated Transactions
McLeodUSA provided corporate communications,
human resources, treasury and other general and administrative
services that are charged at levels consistent with the cost
allocation manual filed with the ICC. Allocations of the costs
incurred were charged to ICTC and amounted to $910 and $2,003 in
2002 and 2001 respectively, which have been recorded in general
and administrative expense.
5.
Gain on Sale of Assets
ICTC sold approximately 2,750 local access lines
in September 2001 to Fairpoint Communications. These two,
non-contiguous geographically, high maintenance properties were
non-strategic to our ongoing operations. Net proceeds of the
sale amounted to $7,200 and the pre-tax gain recognized as a
result of this asset disposition was $5,208.
6.
Goodwill and Intangible Assets
Goodwill, for acquisitions completed prior to
June 30, 2001, was amortized using the straight-line method
over 30 years. Amortization expense for 2001 related to
goodwill was $4,541. Effective January 1, 2002, the
Business adopted SFAS 142. Accordingly, goodwill and other
indefinite lived intangibles are no longer amortized but are
subject to an annual impairment test. Other intangible assets
will continue to be amortized over their useful lives. We have
determined that software and customer lists have a useful life
of five years. The Business' tradenames have an estimated
useful life of ten years. Amortization of tradenames will
continue for the next five years. The amortization expense will
be $1,360 during each of the next four years through 2006, and
$1,022 in 2007.
7.
Income Taxes
For federal income tax purposes, the Business was
included in a consolidated tax return along with other companies
in the McLeodUSA group during 2001 and 2002. For the purpose of
these combined financial statements, the provision for income
taxes has been computed on a stand-alone basis as if the
Business had filed a separate return for the periods presented
and was not a member of a group. However, due to the fact that
the McLeodUSA group had a consolidated net operating loss, the
Business did not make any cash payments for income taxes during
2002 and 2001. Therefore, income taxes that would be payable on
a stand-alone basis have been settled as an increase in parent
company investment.
F-33
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
The components of the income tax provision
charged to expense are as follows:
2002
2001
Current:
Federal
$
8,628
$
9,372
State
1,240
1,343
Total Current
9,868
10,715
Deferred:
Federal
(4,297
)
(3,619
)
State
(636
)
(541
)
Total Deferred
(4,933
)
(4,160
)
Investment tax credit amortized
(265
)
(265
)
Total income tax expense
$
4,670
$
6,290
The following is a reconciliation between the
statutory federal income tax rate for each of the past two
periods and the Business' overall effective tax rate:
2002
2001
Statutory federal income tax rate
34.0
%
34.0
%
State income taxes, net of federal benefit
4.8
6.2
Goodwill amortization for stock purchases
—
10.4
Other
(2.0
)
(1.6
)
Effective overall income tax rate
36.8
%
49.0
%
F-34
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
The temporary differences which give rise to
significant portions of the net deferred tax liability at
December 30, 2002 and December 31, 2001, are as
follows:
2002
2001
Current deferred income tax assets:
Accrued vacation
$
582
$
408
Reserve for uncollectible accounts
541
339
Accrued expenses
365
632
Deferred revenue and regulatory reserves
1,426
1,764
Total current deferred income tax assets
2,914
3,143
Noncurrent deferred income tax assets:
Pension and post retirement expense
3,771
3,659
Deferred compensation
—
1,316
Other
320
585
Total noncurrent deferred income tax assets
4,091
5,561
Noncurrent deferred income tax liabilities:
Depreciable property
(11,740
)
(14,444
)
Intangibles
(2,685
)
(6,613
)
Regulatory liabilities
(481
)
(481
)
Total noncurrent deferred income tax liability
(14,906
)
(21,538
)
Net noncurrent deferred income tax liability
(10,815
)
(15,977
)
Total net deferred tax liability
$
(7,401
)
$
(12,834
)
8.
Pension Costs and Other Postretirement
    Benefits
ICTC maintains a noncontributory defined pension
and death benefit plan covering substantially all of its hourly
employees. The pension benefit formula used in the determination
of pension cost is based on the highest five consecutive
calendar years' base earnings within the last ten calendar
years immediately preceding retirement or termination. It is
ICTC's policy to fund pension costs as they accrue subject
to any applicable Internal Revenue Code limitations.
The changes in benefit obligation for 2002 and
2001 are as follows:
2002
2001
Projected benefit obligation at beginning of
    period
$
47,379
$
42,547
Service cost
807
749
Interest cost
3,240
3,191
Benefits paid
(3,374
)
(3,224
)
Actuarial loss
1,585
4,116
Projected benefit obligation at end of period
$
49,637
$
47,379
F-35
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
The changes in plan assets for 2002 and 2001
relate to the following:
2002
2001
Fair value of plan assets at beginning of period
$
50,769
$
54,018
Actual return on plan assets
(1,949
)
(25
)
Benefits paid
(3,374
)
(3,224
)
Fair value of plan assets at end of period
$
45,446
$
50,769
The reconciliations of the funded status of the
pension plans as of December 30, 2002 and December 31,
2001, are as follows:
2002
2001
Funded status
$
(4,191
)
$
3,390
Unrecognized net actuarial gain
(220
)
(8,183
)
Unrecognized prior service cost
2,536
3,018
Net amount recognized at period-end
$
(1,875
)
$
(1,775
)
The components of net periodic benefit cost for
2002 and 2001 are as follows:
2002
2001
Service cost
$
807
$
749
Interest cost
3,240
3,191
Expected return on plan assets
(3,940
)
(4,203
)
Amortization of prior service costs
482
482
Amortization of transitional (asset) or obligation
—
(39
)
Immediate recognition of voluntary early
    retirement offer
—
525
Recognized actuarial gain
(223
)
(725
)
Net periodic benefit cost/(income)
$
366
$
(20
)
The assets of the plan consist principally of
equity and fixed income securities. Actuarial assumptions used
to calculate the projected benefit obligation included a
discount rate of 6.75% and 7.0% for 2002 and 2001, respectively.
Future compensation level increases were estimated to be 4.0%
and 5.0% in 2002 and 2001, respectively. The assumed long-term
rate of return on plan assets was 8.0% for 2002 and 2001,
respectively.
In addition to providing pension benefits, ICTC
provides an optional retiree medical program to its salaried and
union retirees and spouses under age 65 and life insurance
coverage for the salaried retirees. All retirees are required to
contribute to the cost of their medical coverage while the
salaried life insurance is provided at no cost to the retiree.
F-36
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
The following postretirement benefit plan
disclosures relate to ICTC and Related Businesses. The changes
in the postretirement benefit obligation for 2002 and 2001 are
as follows:
2002
2001
Benefit obligation at beginning of period
$
7,710
$
5,553
Service cost
143
117
Interest cost
520
424
Benefits paid
(393
)
(180
)
Actuarial (gain) or loss
(14
)
1,796
Benefit obligation at end of period
$
7,966
$
7,710
The changes in plan assets for 2002 and 2001
relate to the following:
2002
2001
Fair value of plan assets at beginning of period
$
—
$
—
Employer contributions
393
180
Benefits paid
(393
)
(180
)
Fair value of plan assets at end of period
$
—
$
—
The reconciliations of the funded status of the
postretirement benefit plan as of December 30, 2002 and
December 31, 2001, are as follows:
2002
2001
Funded status
$
(7,966
)
$
(7,710
)
Contributions made after measurement date and
    before fiscal year end
111
60
Unrecognized net actuarial gain
(1,018
)
(1,030
)
Unrecognized transition obligation
2,796
3,184
Unrecognized prior service cost
(1,519
)
(1,694
)
Net amount recognized at period-end
$
(7,596
)
$
(7,190
)
The components of postretirement benefit cost for
2002 and 2001 are as follows:
2002
2001
Service cost
$
143
$
117
Interest cost
520
424
Amortization of prior service costs
(174
)
(174
)
Amortization of transitional obligation
388
388
Recognized actuarial gain
(26
)
(176
)
Net periodic benefit cost
$
851
$
579
The postretirement benefit obligation is
calculated assuming that health-care costs increased by 12.0% in
2002 and 7.5% in 2001, and that the rate of increase thereafter
(the health-care cost trend rate) will decline to 6.0% in 2008
and subsequent years. The health-care cost trend rate has a
significant effect on the amounts reported for costs each year
as well as on the accumulated postretirement benefit obligation.
For example, a one percentage point increase each year in the
health-care cost trend rate would increase the accumulated
postretirement benefit obligation as of December 30, 2002,
by approximately $643 and
F-37
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost by
approximately $62. A one percentage point decrease each
year in the health-care cost trend rate would decrease the
accumulated postretirement benefit obligation as of
December 30, 2002, by approximately $529 and the aggregate
of the service and interest cost components of the net periodic
postretirement benefit cost by approximately $50. The
weighted-average discount rate used in determining the benefit
obligation was 6.75% in 2002 and 7.0% in 2001.
9.
Employee Benefit Plan
The Business provides a 401(k) defined
contribution retirement savings plan made available to virtually
all employees. Each employee may elect to defer a portion of his
or her compensation subject to certain limitations. During the
periods covered in this report, for all hourly employees
participating in the plan, the Business matched employee
contributions up to a maximum of 4%. For salaried employees
during the same periods, McLeodUSA contributed a matching amount
in McLeodUSA company stock. The Business' contributions
towards the hourly plan totaled $329 in 2002 and $341 in 2001.
10.
Long-Term Debt
ICTC's first mortgage bonds are
collateralized by substantially all real and personal property.
The Series K Bonds and Series L Bonds provide for
early redemption by payment of the principal amount to be
redeemed, any accrued interest and a make-whole amount as
described in the indenture. As a result of the Series K
Bond and Series L Bond issues, ICTC is restricted from
declaring or paying any dividends or distributions, subject to
certain exceptions, that would reduce the retained earnings
balance below $915.
CMR entered into a $1,250 mortgage on their
building in Charleston, Illinois, on March 18, 1994. A
floating interest rate was set at 100 basis points above
the Harris Bank prime with a floor and cap of 5% and 9%,
respectively. The note matures on March 18, 2004.
Long-term debt consisted of the following at
December 31:
2002
2001
ICTC First mortgage bonds:
Series K, 8.620%, due September 1, 2022
$
10,000
$
10,000
Series L, 7.050%, due October 1, 2013
10,000
10,000
CMR mortgage bond
593
661
$
20,593
$
20,661
As disclosed in Note 15 below, the long-term
debt balances were settled immediately following the acquisition
of the Business by Homebase Acquisition LLC on December 31,
2002.
11.
Environmental Remediation
    Liabilities
Environmental remediation liabilities are $931
and $500 at December 30, 2002 and December 31, 2001,
respectively. These liabilities relate to anticipated
remediation and monitoring costs in respect of two sites and are
undiscounted.
12.
Operating Leases
The Business has operating lease agreements
covering buildings and office space and office equipment. The
terms of these agreements generally range from three to five
years. Rent expense totaled $1,195 and $1,538 in 2002 and 2001,
respectively.
F-38
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
Future minimum lease payments under existing
agreements for each of the next five years ending
December 31 and thereafter are as follows:
Lease
Year
Payments
2003
$
675
2004
457
2005
419
2006
364
2007
312
2008 and thereafter
815
Total
$
3,042
13.
Capital Leases
The Business has capital lease agreements for
desktop computing equipment. The terms of these agreements range
from 20 months to 39 months, with the remaining open
leases expiring in 2003. The gross amount of assets recorded
under capital leases was $605 and $1,298 at December 30,
2002 and December 31, 2001. The related accumulated
amortization at December 30, 2002 and December 31,
2001, was $458 and $821, respectively. Lease payments related to
these obligations totaled $357 during 2002. The minimum lease
payments in 2003 under these existing agreements totaled $153.
14.
Business Segments
The Business is viewed and managed as two
separate, but highly integrated, reportable business segments,
"Illinois Telephone Operations" and "Other
Illinois Operations". Illinois Telephone Operations
consists of local telephone, long-distance and network access
services, and data products provided to both residential and
business customers in central Illinois. ICTC is included in
Telephone Operations during the periods covered in these
combined financial statements. All other entities and lines of
business comprise "Other Illinois Operations".
Services include operator services products, telecommunications
services to state prison facilities, equipment sales and
maintenance, inbound/outbound telemarketing and fulfillment
services, and paging services. Management evaluates the
performance of these business segments based
F-39
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
upon revenue, gross margins, and net operating
income. The business segment reporting information is as follows:
2002
Illinois
Other
Telephone
Illinois
Operations
Operations
Total
Operating revenues
$
76,745
$
33,159
$
109,904
Cost of services and products
—
17,840
17,840
Gross margin
76,745
15,319
92,064
Operating expenses
46,947
6,649
53,596
Depreciation and amortization
20,074
4,470
24,544
Net operating income
$
9,724
$
4,200
$
13,924
Total assets
$
222,380
$
14,023
$
236,403
Goodwill
81,059
20,265
101,324
Capital expenditures
12,005
2,132
14,137
2001
Illinois
Other
Telephone
Illinois
Operations
Operations
Total
Operating revenues
$
79,803
$
35,758
$
115,561
Cost of services and products
—
19,713
19,713
Gross margin
79,803
16,045
95,848
Operating expenses
47,776
7,395
55,171
Depreciation and amortization
25,013
6,767
31,780
Net operating income
$
7,014
$
1,883
$
8,897
Total assets
$
229,619
$
19,254
$
248,873
Goodwill
81,059
20,265
101,324
Capital expenditures
10,737
2,320
13,057
15.
Condensed Combining Financial
    Information
Payments under the Company's senior notes
are unconditionally guaranteed, jointly and severally, by all of
the Company's wholly owned subsidiaries excluding ICTC, the
regulated business (collectively the "Guarantors").
Financial information concerning the Guarantors as of and for
the years ended December 31, 2002 and 2001 is presented
below for purpose of complying with the reporting requirements
of the Guarantor Subsidiaries. The financial information
concerning the Guarantors is being presented through condensed
consolidating financial statements. Separate Guarantor financial
statements have not been presented because management does not
believe that such financials are material to investors.
F-40
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
A condensed combining balance sheet as of
December 30, 2002 follows:
Guarantor
ICTC
Subsidiaries
(Non-Guarantor)
Eliminations
Combined
ASSETS
Cash and cash equivalents
$
—
$
1,089
$
—
$
1,089
Other current assets
8,185
17,475
(3,545
)
22,115
Total current assets
8,185
18,564
(3,545
)
23,204
Property, plant & equipment, net
7,280
97,781
—
105,061
Goodwill
20,265
81,059
—
101,324
Other assets
1,857
4,957
—
6,814
Total assets
$
37,587
$
202,361
$
(3,545
)
$
236,403
LIABILITIES AND SHAREHOLDERS'
    EQUITY
Current portion of long-term debt
$
—
$
479
$
—
$
479
Other current liabilities
6,383
16,500
(3,545
)
19,338
Total current liabilities
6,383
16,979
(3,545
)
19,817
Long-term debt, excluding current maturities
593
20,000
—
20,593
Other liabilities
634
20,875
—
21,509
Total shareholders' equity
29,977
144,507
—
174,484
Total liabilities and shareholders' equity
$
37,587
$
202,361
$
(3,545
)
$
236,403
A condensed combining statement of income for the
year ened December 30, 2002 follows:
Guarantor
ICTC
Subsidiaries
(Non-Guarantor)
Combined
Revenues
$
33,159
$
76,745
$
109,904
Operating expenses
25,541
70,439
95,980
Income from operations
7,618
6,306
13,924
Other income (expense)
60
(1,278
)
(1,218
)
Income (loss) before income taxes
7,678
5,028
12,706
Income taxes (benefit)
2,820
1,850
4,670
Net income
$
4,858
$
3,178
$
8,036
F-41
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
A condensed combining statement of cash flows for
the year ened December 30, 2002 follows:
Guarantor
ICTC
Subsidiaries
(Non-Guarantor)
Combined
Net cash provided by operating activities
$
9,244
$
19,293
$
28,537
Cash flows from investing activities
Capital expenditures
(737
)
(13,400
)
(14,137
)
Net cash used in investing activities
(737
)
(13,400
)
(14,137
)
Cash flows from financing activities
Repayment of long-term debt
(68
)
—
(68
)
Other, net
(10,562
)
(5,934
)
(16,496
)
Net cash used in financing activities
(10,630
)
(5,934
)
(16,564
)
Net decrease in cash and cash equivalents
$
(2,123
)
$
(41
)
$
(2,164
)
16.
Quarterly Financial Information
    (unaudited)
2002
March 31
June 30
September 30
December 31
Operating revenues
$
27,155
$
27,998
$
27,610
$
27,141
Cost of services and products
4,240
4,378
4,731
4,491
Gross margin
22,915
23,620
22,879
22,650
Operating expenses
13,330
12,592
12,539
15,135
Depreciation and amortization
6,135
6,136
6,136
6,137
Net operating income
3,450
4,892
4,204
1,378
Other expenses
(252
)
(305
)
(320
)
(341
)
Income taxes
1,183
2,127
1,639
1,316
Net income
$
2,015
$
2,460
$
2,245
$
(279
)
2001
March 31
June 30
September 30
December 31
Operating revenues
$
27,582
$
29,074
$
29,514
$
29,391
Cost of services and products
4,764
4,961
5,068
4,920
Gross margin
22,818
24,113
24,446
24,471
Operating expenses
13,141
13,855
14,857
13,318
Depreciation and amortization
7,866
7,847
7,808
8,259
Net operating income
1,811
2,411
1,781
2,894
Other income(expense), net
(338
)
(324
)
(310
)
4,921
Income taxes
114
629
112
5,435
Net income
$
1,359
$
1,458
$
1,359
$
2,380
F-42
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
17.
Subsequent Event
Effective December 31, 2002, Homebase
purchased the entities and lines of business that comprise the
Business for a total consideration of $271,200 (excluding
acquisition-related expenses) from McLeodUSA. As a result of the
acquisition, the Business' long-term debt of approximately
$20,593 was immediately extinguished. These financial statements
do not include any adjustments that would be required to reflect
this acquisition transaction in the Business' combined
balance sheet.
A condensed combining balance sheet as of
December 31, 2001 follows:
Guarantor
ICTC
Subsidiaries
(Non-Guarantor)
Eliminations
Combined
ASSETS
Cash and cash equivalents
$
2,123
$
1,130
$
—
$
3,253
Other current assets
8,240
16,527
(1,348
)
23,419
Total current assets
10,363
17,657
(1,348
)
26,672
Property, plant & equipment, net
5,541
94,965
—
100,506
Goodwill
20,265
81,059
—
101,324
Other assets
4,941
15,430
—
20,371
Total assets
$
41,110
$
209,111
$
(1,348
)
$
248,873
LIABILITIES AND SHAREHOLDERS'
    EQUITY
Current portion of long-term debt
—
329
—
329
Other current liabilities
5,046
17,689
(1,348
)
21,387
Total current liabilities
5,046
18,018
(1,348
)
21,716
Long-term debt, excluding current maturities
661
20,000
—
20,661
Other liabilities
6,334
22,020
—
28,354
Total shareholders' equity
29,069
149,073
—
178,142
Total liabilities and shareholders' equity
$
41,110
$
209,111
$
(1,348
)
$
248,873
A condensed combining statement of income for the
year ended December 31, 2001 follows:
Guarantor
ICTC
Subsidiaries
(Non-Guarantor)
Combined
Revenues
$
35,758
$
79,803
$
115,561
Operating expenses
29,043
77,621
106,664
Income from operations
6,715
2,182
8,897
Other income (expense)
70
3,879
3,949
Income (loss) before income taxes
6,785
6,061
12,846
Income taxes (benefit)
3,323
2,967
6,290
Net income
$
3,462
$
3,094
$
6,556
F-43
Table of Contents
ILLINOIS CONSOLIDATED TELEPHONE COMPANY AND
RELATED BUSINESSES
NOTES TO COMBINED FINANCIAL
STATEMENTS — (Continued)
December 30, 2002 and December 31,
2001
A condensed combining statement of cash flows for
the year ended December 31, 2001 follows:
Guarantor
ICTC
Subsidiaries
(Non-Guarantor)
Combined
Net cash provided by operating activities
$
18,254
$
16,000
$
34,254
Cash flows from investing activities
Capital expenditures
(2,320
)
(10,737
)
(13,057
)
Net cash used in investing activities
(2,320
)
(10,737
)
(13,057
)
Cash flows from financing activities
Repayment of long-term debt
(73
)
(239
)
(312
)
Other, net
(13,891
)
(4,683
)
(18,574
)
Net cash provided by financing activities
(13,964
)
(4,922
)
(18,886
)
Net increase in cash and cash equivalents
$
1,970
$
341
$
2,311
F-44
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
Dallas, Texas
CONSOLIDATED FINANCIAL STATEMENTS
with Report of Independent Registered Public
Accounting Firm
F-45
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholder of
TXU Communications Ventures Company
Irving, TX
We have audited the accompanying consolidated
balance sheets of TXU Communications Ventures Company and
subsidiaries (the "Company") as of April 13,
2004, December 31, 2003 and 2002, and the related
consolidated statements of operations and comprehensive income
(loss), shareholder's equity, and cash flows for the period
from January 1, 2004 to April 13, 2004 and each of the
three years in the period ended December 31, 2003. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of the Company at April 13, 2004,
December 31, 2003 and 2002, and the results of its
operations and its cash flows for the period from
January 1, 2004 to April 13, 2004 and each of the
three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note N to the consolidated
financial statements, effective January 1, 2002, the
Company changed its method of accounting for goodwill and other
intangible assets to conform to Statement of Financial
Accounting Standards No. 142, "Goodwill and Other
Intangible Assets".
DELOITTE & TOUCHE LLP
Dallas, Texas
October 15, 2004
F-46
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 13,
December 31,
2004
2003
2002
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents
$
9,897
$
11,464
$
12,427
Accounts Receivable — net of allowance
    of $1,316 in 2004, $1,501 in 2003 and $5,021 in 2002
17,555
15,778
18,825
Short-Term Investments
117
125
125
Prepaid Federal Income Taxes
45
—
6,615
Materials and Supplies
1,003
1,102
2,379
Deferred Income Taxes
3,974
2,527
34,145
Assets Held for Sale
—
—
8,030
Other Current Assets
4,467
3,519
3,814
TOTAL CURRENT ASSETS
37,058
34,515
86,360
NONCURRENT ASSETS
Investments
36,862
36,118
35,260
Goodwill
304,336
304,336
317,536
Prepaid Pension Cost
—
997
3,669
Deferred Income Taxes
16,033
39,525
15,709
Other
831
961
771
TOTAL NONCURRENT ASSETS
358,062
381,937
372,945
PROPERTY, PLANT & EQUIPMENT
Plant in Service
341,238
333,607
326,243
Plant Under Construction
7,147
8,595
5,249
TOTAL PROPERTY, PLANT & EQUIPMENT
348,385
342,202
331,492
Less: Accumulated Depreciation
118,343
110,795
90,700
TOTAL PROPERTY, PLANT &
    EQUIPMENT — NET
230,042
231,407
240,792
TOTAL ASSETS
$
625,162
$
647,859
$
700,097
The accompanying notes are an integral part of
the consolidated financial statements.
F-47
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS —
(Continued)
December 31,
April 13,
2004
2003
2002
(Dollars in thousands)
LIABILITIES AND SHAREHOLDER'S
    EQUITY
CURRENT LIABILITIES
Accounts Payable
$
7,712
$
9,223
$
14,043
Accounts Payable — Affiliates
35
2,314
352
Advance Billing and Payments
4,163
2,954
3,438
Customer Deposits
752
739
788
Current Maturities of Long-Term Debt
2,847
98,247
2,999
Accrued Expenses
12,105
18,518
18,234
Liabilities Related to Assets Held for Sale
—
—
2,661
Other Current Liabilities
3,485
4,594
4,078
TOTAL CURRENT LIABILITIES
31,099
136,589
46,593
LONG-TERM DEBT, LESS CURRENT MATURITIES
—
2,136
163,203
OTHER LIABILITIES AND DEFERRED CREDITS
Accrued Postretirement and Pension Benefits
31,173
27,669
28,072
Deferred Income Taxes
33,513
54,486
39,458
Other Deferred Credits and Liabilities
5,868
5,856
5,145
Regulatory Liabilities
8,283
8,405
8,807
TOTAL OTHER LIABILITIES AND DEFERRED CREDITS
78,837
96,416
81,482
TOTAL LIABILITIES
109,936
235,141
291,278
MINORITY INTEREST
1,964
1,858
1,224
SHAREHOLDER'S EQUITY
Common Stock — No par value,
    1,000 shares authorized, 1,000 shares issued and
    outstanding
—
—
—
Paid-In Capital
636,868
534,749
530,459
Accumulated Deficit
(117,463
)
(119,246
)
(116,905
)
Accumulated Other Comprehensive Loss
(6,143
)
(4,643
)
(5,959
)
TOTAL SHAREHOLDER'S EQUITY
513,262
410,860
407,595
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY
$
625,162
$
647,859
$
700,097
The accompanying notes are an integral part of
the consolidated financial statements.
F-48
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
Period From
Year Ended December 31,
January 1, 2004
To April 13, 2004
2003
2002
2001
(Dollars in thousands)
OPERATING REVENUES
$
53,855
$
194,818
$
214,709
$
207,451
OPERATING EXPENSES
Network Operating Costs
15,296
58,415
76,891
95,663
Selling, General and Administrative
24,138
75,365
109,401
88,671
Depreciation and Amortization
8,124
32,875
40,990
50,177
Restructuring, Asset Impairment and Other Charges
(12
)
248
101,390
—
Goodwill Impairment Charges
—
13,200
18,000
—
TOTAL OPERATING EXPENSES
47,546
180,103
346,672
234,511
OPERATING INCOME (LOSS)
6,309
14,715
(131,963
)
(27,060
)
OTHER INCOME (EXPENSE):
Pre-payment Penalty on Extinguishment of Debt
(1,914
)
—
—
Interest Expense
(1,275
)
(5,422
)
(7,669
)
(11,625
)
(Loss)/Gain on Sale of Property and Investments
(19
)
(101
)
558
6,158
Allowance for Funds Used During Construction
31
81
179
572
Partnership Income
1,174
2,693
2,332
3,151
Minority Interest
(106
)
(872
)
8,048
507
Other
56
(980
)
489
101
TOTAL (EXPENSE) OTHER INCOME
(2,053
)
(4,601
)
3,937
(1,136
)
INCOME (LOSS) BEFORE INCOME TAXES
4,256
10,114
(128,026
)
(28,196
)
Income Tax Expense (Benefit)
2,473
12,455
(38,261
)
(6,304
)
NET INCOME (LOSS)
1,783
(2,341
)
(89,765
)
(21,892
)
OTHER COMPREHENSIVE INCOME (LOSS)
Minimum Pension Liability Adjustment, Net of Tax
(1,494
)
1,316
(6,028
)
—
Unrealized (Loss) Gain on Marketable Securities,
    Net of Tax
(6
)
—
(136
)
169
COMPREHENSIVE INCOME (LOSS)
$
283
$
(1,025
)
$
(95,929
)
$
(21,723
)
The accompanying notes are an integral part of
the consolidated financial statements.
F-49
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S
EQUITY
Accumulated
Common Stock
Other
Paid In
Accumulated
Comprehensive
Shares
Amount
Capital
Deficit
Loss
(Dollars in thousands)
Balance, January 1, 2001
1,000
—
$
495,701
$
(5,248
)
$
36
Net Loss
(21,892
)
Capital Contributions
27,784
Unrecognized Gain on Marketable Securities, Net
    of Tax
169
Balance, December 31, 2001
1,000
—
523,485
(27,140
)
205
Net Loss
(89,765
)
Capital Contributions
6,974
Minimum Pension Liability Adjustment, Net of Tax
(6,028
)
Unrealized Loss on Marketable Securities, Net of
    Tax
(136
)
Balance, December 31, 2002
1,000
—
530,459
(116,905
)
(5,959
)
Net Loss
(2,341
)
Capital Contributions
4,290
Minimum Pension Liability Adjustment, Net of Tax
1,316
Balance, December 31, 2003
1,000
—
534,749
(119,246
)
(4,643
)
Net Income
1,783
Capital Contributions
102,119
Minimum Pension Liability Adjustment, Net of Tax
(1,494
)
Unrealized Loss on Marketable Securities, Net of
    Tax
(6
)
Balance, April 13, 2004
1,000
—
$
636,868
$
(117,463
)
$
(6,143
)
The accompanying notes are an integral part of
the consolidated financial statements.
F-50
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
Period from
January 1,
2004
Year Ended December 31,
to April 13,
2004
2003
2002
2001
(Dollars in thousands)
OPERATING ACTIVITIES
Net Income (Loss)
$
1,783
$
(2,341
)
$
(89,765
)
$
(21,892
)
Adjustments to Reconcile Net Income (Loss) to
    Cash Provided by Operating Activities:
Pre-payment Penalty on Extinguishment of Debt
1,914
—
—
—
Deferred Income Tax
950
22,428
(38,908
)
(9,368
)
Depreciation and Amortization
8,124
32,875
40,990
50,177
Provision for Postretirement Benefits
3,007
3,583
9,160
838
Loss/(Gain) on Disposition of Property and
    Investments
19
101
(558
)
(6,158
)
Restructuring, Asset Impairment and Other Charges
(12
)
248
101,390
—
Goodwill Impairment
—
13,200
18,000
—
Partnership Income
(1,174
)
(2,693
)
(2,332
)
(3,151
)
Allowance for Funds Used During Construction
(31
)
(81
)
(179
)
(572
)
Minority Interest
106
872
(8,048
)
(507
)
Provision for Bad Debt Losses
542
(804
)
10,200
3,981
Changes in Operating Assets and Liabilities:
Accounts Receivable
(2,319
)
3,851
1,349
(7,287
)
Materials and Supplies
99
1,277
2,520
3,048
Prepaid Federal Income Tax
(45
)
6,615
(4,664
)
12,299
Other Assets
(1,164
)
105
(2,075
)
2,688
Accounts Payable
(1,051
)
(2,858
)
(15,003
)
(14,520
)
Accrued Expenses and Other Liabilities
(5,429
)
(1,323
)
12,637
(2,772
)
Net Cash Provided by Operating Activities
5,319
75,055
34,714
6,804
INVESTING ACTIVITIES
Capital Expenditures
(6,735
)
(18,189
)
(27,374
)
(66,976
)
Business Assets Purchased
(2,467
)
Proceeds From Sale-Leaseback Transactions
—
—
4,814
—
Proceeds From Investments
432
1,837
998
188
Proceeds From Sale of Assets
—
2,101
290
9,309
Net Cash Used in Investing Activities
(6,303
)
(14,251
)
(21,272
)
(59,946
)
FINANCING ACTIVITIES
Other Paid-In Capital
—
—
—
2,479
Proceeds From TXU Investment Company
—
4,290
6,974
27,784
Proceeds From Long-Term Obligations
18,000
5,895
23,319
40,620
Minority Interest Equity Distribution
—
(238
)
—
—
Pre-payment Penalty on Extinguishment of Debt
(1,914
)
—
—
Payments Made on Long-Term Obligations
(16,669
)
(71,714
)
(34,724
)
(24,619
)
Net Cash (Used in) Provided by Financing
    Activities
(583
)
(61,767
)
(4,431
)
46,264
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(1,567
)
(963
)
9,011
(6,878
)
CASH AND CASH EQUIVALENTS — BEGINNING
11,464
12,427
3,416
10,294
CASH AND CASH EQUIVALENTS — ENDING
$
9,897
$
11,464
$
12,427
$
3,416
SUPPLEMENTAL CASH FLOW INFORMATION:
Debt for Equity Swap with TXU Investment
    Co.
$
102,119
$
—
$
—
$
—
Interest Paid
$
1,045
$
6,045
$
7,500
$
11,820
Taxes Paid (Refunds) Received
$
73
$
(16,329
)
$
(153
)
$
(1,333
)
Capital Leases
$
—
$
—
$
4,761
$
—
The accompanying notes are an integral part of
the consolidated financial statements.
F-51
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note A — Summary of Significant
Accounting Policies
TXU Communications Ventures Company
("TXUCV") is a direct, wholly owned subsidiary of
Pinnacle One Partners, L.P. ("Pinnacle One"). TXU
Corp. owns a 100% voting interest in Pinnacle One. In May 2003,
TXU Corp. acquired, for $150 million in cash, its joint
venture partner's interest in Pinnacle One under a put/call
agreement that was executed in February, 2003. Also in May 2003,
TXU Corp. finalized a formal plan to dispose of TXUCV by sale.
On January 15, 2004, Consolidated Communications
Acquisition Texas Corp. ("Texas Acquisition"), a
subsidiary of Homebase Acquisition, LLC, and Pinnacle One, an
indirect, wholly owned subsidiary of TXU Corp., entered into a
stock purchase agreement providing for the purchase by Texas
Acquisition of all of the capital stock of TXUCV. Texas
Acquisition is a Delaware corporation formed solely for the
purpose of entering into the stock purchase agreement and
closing the transactions contemplated in the agreement. The
purchase transaction closed on April 14, 2004. By acquiring
all the capital stock of TXUCV, Texas Acquisition acquired
substantially all of TXU Corp's telecommunications
business, for a cash price of $527 million, subject to
certain upward or downward adjustments (see
Note O — Sale of TXUCV).
Principles of Consolidation —
The consolidated financial
statements include the accounts of TXUCV and its wholly owned
subsidiaries, TXU Communications Services Company ("TXU
Services"), TXU Communications Telephone Company
("TXUCV Telephone"), TXU Communications Telecom
Services Company ("TXUCV Telecom"), TXU Communications
Transport Company ("Transport Services"),
Fort Bend Telephone Company ("Fort Bend
Telephone"), Fort Bend Long Distance Company
("Fort Bend LD"), Fort Bend Wireless Company
("Fort Bend Wireless"), Telcon, Inc.
("Telcon") and FBCIP, Inc. ("FBCIP").
Transport Services include East Texas Fiber Line, Inc.
("ETFL"), a 63%-owned affiliate. Fort Bend
Telephone includes Fort Bend Cellular, Inc.
("Fort Bend Cellular"), a wholly owned
subsidiary. All material intercompany balances and transactions
have been eliminated in consolidation.
Description of Business —
TXUCV is the parent company to TXU
Services, TXUCV Telephone (now known as Consolidated
Communications of Texas Company), TXUCV Telecom, Transport
Services, Fort Bend Telephone (now known as Consolidated
Communications of Fort Bend Company), Fort Bend LD,
Fort Bend Wireless, Telcon and FBCIP.
TXUCV is a rural local exchange company that
provides communications services to residential and business
customers in east Texas and rural and suburban areas surrounding
Houston. As of April 13, 2004, TXUCV was the 18th largest
local telephone company in the United States, based on industry
sources, with approximately 171,000 local access lines and
11,000 digital subscriber lines, or DSL lines, in service.
TXUCV's main sources of revenue are its local telephone
businesses in Texas, which offer an array of services, including
local dial tone, custom calling features, private line services,
long distance, dial-up and high-speed Internet access and
carrier access services, including access charges for the use of
its network and its billing and collection system.
Each of the subsidiaries through which TXUCV
operates its local telephone businesses is classified as a Rural
Local Exchange Carrier, commonly referred to as an RLEC, under
the Telecommunications Act of 1996. These subsidiaries are
Fort Bend Telephone and TXUCV Telephone. For ease of
reference, we refer to these subsidiaries as the Texas RLECs.
TXUCV also sells directory advertising and
publishes yellow and white pages directories in and around our
Texas RLECs' service areas and provides connectivity to
customers within Texas over a fiber optic transport network
consisting of approximately 2,500 route-miles of fiber. This
transport network supports TXUCV's long distance, Internet
access and data services and provides bandwidth on a wholesale
basis to third party customers, including national long distance
and wireless carriers. The transport network includes fiber
owned by Transport Services, a wholly owned subsidiary of TXUCV,
ETFL, a corporation in
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TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
which TXUCV owns a 63% equity interest, and
Fort Bend Fibernet, a partnership in which Transport
Services is the managing partner and owns a 39% equity interest.
In addition, TXUCV holds equity interests in the
following two cellular partnerships:
•
GTE Mobilnet of South Texas, which serves the
    greater Houston metropolitan area. TXUCV owns 2% of the equity
    of this partnership.
•
GTE Mobilnet of Texas RSA #17, which serves
    rural areas in and around Conroe, Texas. TXUCV owns 17% of the
    equity of this partnership.
San Antonio MTA, L.P., a wholly owned
partnership of Cellco Partnership (doing business as Verizon
Wireless), is the general partner for both partnerships.
Telcon and TXU Services provide information
management, human resources, accounting, executive and other
administrative services to TXUCV affiliate companies.
Fort Bend Cellular, Fort Bend Wireless,
and FBCIP had no significant activity during the period from
January 1, 2004 to April 13, 2004 and the years ended
December 31, 2003, 2002 and 2001.
Use of Estimates —
The preparation of the TXUCV
consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America
("GAAP") requires management to make estimates and
assumptions that affect the reported amounts disclosed in the
consolidated financial statements. Due to the prospective nature
of estimates, actual results could differ.
Accounting and Regulatory
Guidelines —
TXUCV
Telephone and Fort Bend Telephone follow the accounting for
regulated enterprises prescribed by SFAS No. 71,
Accounting for the Effects of Certain Types of Regulation, which
permits rates (or tariffs) to be set to levels intended to
recover estimated costs of providing regulated services or
products, including capital costs. SFAS 71 requires our
Texas RLECs to depreciate wireline plant over the useful lives
approved by the regulators, which could be different than the
useful lives that would otherwise be determined by management.
SFAS 71 also requires deferral of certain costs and
obligations based upon approvals received from regulators to
permit recovery of such amounts in future years. Criteria that
would give rise to the discontinuance of SFAS 71 include
(1) increasing competition restricting the wireline
business' ability to establish prices to recover specific
costs and (2) significant changes in the manner in which
rates are set by regulators from cost-based regulation to
another form of regulation. Management believes the company is
consistent in the application of these provisions and does not
foresee regulatory, economic, or competitive changes in the near
future that would necessitate a change in its method of
accounting. In analyzing the effects of discontinuing the
application of SFAS 71, management has determined that the
useful lives of plant assets used for regulatory and financial
reporting purposes are consistent with accounting principles
generally accepted in the United States and, therefore, any
adjustments to telecommunications plant would be immaterial, as
would be the write-off of regulatory assets and liabilities.
There are two different forms of incentive
regulation designated by the Texas Public Utility Regulatory
Act: Chapter 58 and Chapter 59. Generally under either
election, the access rates an ILEC may charge for basic local
services cannot be increased from the amounts on the date of
election without PUCT approval. Even with PUCT approval,
increases can only occur in very specific situations. Pricing
flexibility under Chapter 59 is extremely limited. In
contrast, Chapter 58 allows greater pricing flexibility on
non-basic network services, customer specific contracts and new
services.
Initially, both Texas RLECs elected incentive
regulation under Chapter 59 and fulfilled the applicable
infrastructure requirements to maintain their election status.
TXUCV Telephone made its election on August 17, 1997.
Fort Bend Telephone made its election on May 12, 2000.
On March 25, 2003, both
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TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Texas RLECs changed their election status from
Chapter 59 to Chapter 58. The rate freezes for basic
services with respect to the current Chapter 58 elections
are due to expire on March 24, 2007.
In connection with the 2003 election by each of
our Texas RLECs to be governed under an incentive network access
rate regime, our Texas RLECs were obligated to fulfill certain
infrastructure requirements. While our Texas RLECs have met the
current infrastructure requirements, the PUCT could impose
additional or other restrictions of this type in the future.
The FCC regulates levels of interstate network
access charges by imposing price caps on Regional Bell Operating
Companies and large Incumbent Local Exchange Companies
("ILECs"). These price caps can be adjusted based on
various formulae, such as inflation and productivity, and
otherwise through regulatory proceedings. Small ILECs may elect
to base network access charges on price caps, but are not
required to do so. Our Texas RLECs elected not to apply federal
price caps. Instead, our RLECs employ rate-of-return regulation
for their network interstate access charges, whereby they earn a
fixed return on their investment over and above operating costs.
The FCC determines the profits our RLECs can earn by setting the
rate-of-return on their allowable investment base, which is
currently 11.25%.
Our Texas RLECs also receive federal and state
subsidy payments designed to preserve and advance widely
available, quality telephone service at affordable prices in
rural areas
Property, Plant, Equipment and
Depreciation —
Property,
plant and equipment are stated at historical cost. Allowance for
funds used during construction ("AFUDC") is a cost
accounting concept whereby amounts based upon interest charges
on borrowed funds and a return on equity capital used to finance
construction are added to telecommunications plant cost.
Depreciation is generally computed on the straight-line method.
Cash and Cash Equivalents —
Cash equivalents are short-term,
highly liquid investments readily convertible to known amounts
of cash and which are so near maturity, generally 30 days,
that there is no significant risk of changes in value resulting
from changes in market interest rates.
Investments —
Investments in equity securities
that have readily determinable fair values are categorized as
available-for-sale securities and are carried at fair value. The
unrealized gains or losses on securities classified as
available-for-sale are included as a separate component of
shareholder's equity. TXUCV uses the equity method of
accounting for investments where the ability to exercise
significant influence over such entities exists.
Goodwill —
Amounts paid for assets of other
companies in excess of fair value are charged to goodwill. Prior
to January 1, 2002, goodwill was amortized over its useful
life, normally 15 to 40 years. In June 2001, the Financial
Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142
("SFAS No. 142"), "Goodwill and Other
Intangible Assets," which is effective for fiscal years
beginning after December 15, 2001. SFAS No. 142
addresses how intangible assets that are acquired individually
or with a group of other assets should be accounted for in the
financial statements upon their acquisition and after they have
been initially recognized in the financial statements.
SFAS No. 142 requires that goodwill and intangible
assets that have indefinite useful lives not be amortized but
rather be tested at least annually for impairment, and
intangible assets that have finite useful lives be amortized
over their useful lives. SFAS No. 142 provides
specific guidance for testing goodwill and intangible assets
that will not be amortized for impairment. In addition,
SFAS No. 142 expands the disclosure requirements about
goodwill and other intangible assets in the years subsequent to
their acquisition. TXUCV adopted this standard as of
January 1, 2002 and recognized no impairment as of the
adoption date. TXUCV conducted impairment tests on
October 1, 2003 and October 1, 2002 and, as a result
of TXU Corp.'s decision in 2003 to sell TXUCV for a known
price and TXUCV's decision to exit the CLEC and Transport
businesses, recognized on its consolidated financial statements,
impairment losses of $13.2 million and $18 million,
respectively for the years ended December 31, 2003 and 2002
(see
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TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Note N — Goodwill and Other
Intangible Assets). No impairment tests were required for the
period from January 1, 2004 to April 13, 2004, and
consequently no impairment charges were recorded.
Impairment or Disposal of Long-Lived
Assets —
In August 2001,
the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS No. 144"),
"Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment of long-lived assets
and for long-lived assets to be disposed of. The provisions of
SFAS No. 144 are generally effective for financial
statements issued for fiscal years beginning after
December 15, 2001. TXUCV adopted this standard as of
January 1, 2002 and recognized no impairment as of the
adoption date. TXUCV conducted an impairment test on
October 1, 2002, as a result of TXUCV's decision to
exit certain businesses, and recognized on its consolidated
financial statements, an impairment loss of $99.3 million
for the year ended December 31, 2002 (see
Note M — Restructuring and Impairment Charges).
Impairment tests are conducted whenever events or changes in
circumstances pertaining to TXUCV or its assets indicate that
the carrying amount of TXUCV's long-lived assets is not
recoverable. No test was required during 2003 and for the period
ended April 13, 2004.
Materials and Supplies —
Inventories of materials and
supplies are valued at the lower of cost or market. Cost is
determined by a moving weighted average method.
Indefeasible Rights of Use
("IRU") —
TXUCV entered into several
agreements that entitle it to a long-term lease, or an IRU, of
local and long-haul dark fiber of another company. Generally,
each agreement required TXUCV to pay an aggregate price
consisting of an initial payment, followed by installments
during the construction period based upon achieving certain
milestones (e.g., commencement of construction, conduit
installation and fiber installation). The final payment for each
segment was made at the time of acceptance of the fiber for use
by TXUCV.
Additionally, TXUCV entered into several
agreements that entitle another party to a long-term lease, or
an IRU, of certain local and long-haul dark fiber of TXUCV. In
some cases, the agreement was classified as a service agreement,
in which case revenue is recognized ratably over the life of the
lease. In other cases an exchange of similar fiber was deemed to
have occurred with another transport provider with similar
fiber. In this case, no gain or loss was recognized on the
exchange.
Pension and Postretirement
Benefits —
Pension
benefits are provided for substantially all employees of TXUCV.
TXUCV generally funds the pension plan to the extent that
contributions are deductible for federal income tax purposes.
TXUCV also has deferred compensation agreements with the former
board of directors and certain key employees. Postretirement
benefits expense is accrued on a current basis using actuarially
determined cost estimates. In addition, employees may become
eligible for certain health care and life insurance benefits
after retirement.
Federal Income Taxes and Deferred
Credits —
TXUCV and its
subsidiaries file a consolidated federal income tax return. ETFL
files a separate federal income tax return. Federal income tax
expense or benefit is allocated to each subsidiary based on
separately determined taxable income or loss.
Income taxes are provided based on taxable income
or loss as reported for financial statement purposes. The
provision for income taxes differs from the amounts currently
payable because of temporary differences in the recognition of
certain income and expense items for financial reporting and tax
reporting purposes. Investment tax credits ("ITC")
used to offset income tax for tax reporting purposes are
deferred and amortized over the lives of the related assets for
financial reporting.
Deferred federal income taxes are provided for
the temporary differences between assets and liabilities
recognized for financial reporting purposes and such amounts
recognized for tax purposes. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. TXUCV
records a
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TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
valuation allowance related to its deferred
income tax assets when, in the opinion of management, it is more
likely than not that deferred tax assets would not be realized.
TXUCV has recorded a regulatory liability to
recognize the cumulative effects of anticipated ratemaking
activities. For financial statement purposes, deferred ITC and
excess deferred federal income taxes related to depreciation of
regulated assets are being amortized as a reduction of the
provision for income taxes over the estimated useful or
remaining lives of the related property, plant and equipment.
ETFL had no current or deferred federal income
taxes at April 13, 2004 and December 31, 2003 and 2002.
Revenue Recognition —
Revenues are generally recognized
and earned when evidence of an arrangement exists, service has
been rendered and collectibility is reasonably assured. Local
telephone service revenue is recorded based on tariffed rates.
Telephone network access and long distance service revenues are
derived from access and toll charges and settlement
arrangements. Revenues on billings to customers for services in
advance of providing such services are deferred and recognized
when earned.
Operating Segments —
SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information, requires that public business enterprises report
certain information about operating segments in complete sets of
financial statements of the enterprise. SFAS No. 131
defines an operating segment as a component of the organization
(1) that engages in business activities from which it may
earn revenues and incur expenses (2) whose operating
results are regularly reviewed by the enterprise's chief
operating decision maker to make decisions about performance and
resource allocation; and (3) for which discrete financial
information is available. Notwithstanding this definition,
SFAS No. 131 provides the criteria for aggregating
segments with similar economic characteristics such as the
nature of product and services, the nature of production
processes, the type or class of customers, the distribution
method for products or services, and the nature of regulatory
environment. TXUCV identified two operating segments —
ILEC and Transport Operations; however, Transport does not meet
the quantitative threshold for separately reportable business
segments.
Guarantees —
In November 2002, the FASB issued
Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Interpretation
No. 45 requires that at the time a company issues a
guarantee, the company must recognize an initial liability for
the fair value, or market value, of the obligations it assumes
under that guarantee. This interpretation is applicable on a
prospective basis to guarantees issued or modified after
December 31, 2002. While TXUCV has various guarantees
included in contracts in the normal course of business,
primarily in the form of indemnities, these guarantees do not
represent significant commitments or contingent liabilities
related to the indebtedness of others.
Recent Accounting
Pronouncements —
In
January 2003, the FASB issued Interpretation No. 46
("FIN No. 46") "Consolidation of Variable
Interest Entities." Until this interpretation, a company
generally included another entity in its consolidated financial
statements only if it controlled the entity through voting
interests. FIN No. 46 requires a variable interest entity
to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of
the entity's residual returns. In December 2003, the FASB
revised and re-released FIN No. 46 as "FIN
No. 46®". The provisions of FIN No. 46®
were effective for TXUCV beginning in the first quarter of 2004
and the related disclosure requirements were previously
effective immediately. The impact of this interpretation did not
have a material effect on the financial condition or results of
operations of TXUCV.
In December 2003, the U.S. Congress enacted
the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 ("Act") that will provide a prescription
drug subsidy, beginning in 2006, to companies that sponsor
postretirement health care plans that provide drug benefits.
Additional legislation is
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TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
anticipated that will clarify whether a company
is eligible for the subsidy, the amount of the subsidy available
and the procedures to be followed in obtaining the subsidy. In
May 2004, the FASB issued Staff Position 106-2 "Accounting
and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003" that
provides guidance on the accounting and disclosure for the
effects of the Act. The Company has determined that its
postretirement prescription drug plan is actuarially equivalent
and will begin reflecting the impact on July 1, 2004.
Note B — Property, Plant and
Equipment
Property, plant and equipment are summarized as
follows:
April 13,
December 31,
Estimated
2004
2003
2002
Useful Life
(Dollars in thousands)
Land
$
4,228
$
4,280
$
4,433
Buildings
25,209
24,922
24,938
15-35 years
Telephone Plant
264,352
258,000
242,934
5-30 years
Furniture and Office Equipment
41,455
40,327
45,420
5-17 years
Automotive and Other Equipment
5,994
6,078
8,518
3-7 years
Construction in Progress
7,147
8,595
5,249
348,385
342,202
331,492
Less: Accumulated Depreciation
118,343
110,795
90,700
$
230,042
$
231,407
$
240,792
Depreciation expense was $8.1 million,
$32.8 million, $40.8 million and $36.5 million
for the period from January 1, 2004 to April 13, 2004
and for the years ended December 31, 2003, 2002, and 2001,
respectively.
Note C — Long-Term Debt
Long-term debt consisted of the following:
April 13,
December 31,
2004
2003
2002
(Dollars in thousands)
TXU Corp. Revolving Credit Facility
$
—
$
80,867
$
144,066
CoBank Mortgage Notes
—
16,429
18,071
Capital Leases
2,847
3,087
4,009
Debentures Payable
—
—
56
2,847
100,383
166,202
Less: Current Maturities
2,847
98,247
2,999
TOTAL LONG-TERM DEBT
$
—
$
2,136
$
163,203
After the 2000 formation of Pinnacle One, TXU
Corp. provided a $200 million revolving credit facility
(the "Revolver") to TXUCV with a term of four years.
Interest is payable by TXUCV at a rate equal to the London
Interbank Offering Rate ("LIBOR") plus 1.5%, in effect
as of the beginning of each credit facility advance. The
interest rate of each advance is calculated for one, two, three,
or six-month periods, as elected by TXUCV, at the end of which
the interest rate is reset to the current LIBOR rate plus 1.5%.
The principal balance was effectively paid off on April 13,
2004 through TXU Corp.'s
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TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
conversion of amounts outstanding under this
arrangement into paid-in-capital and the credit facility was
terminated as called for in the stock purchase agreement
referenced in Note A above.
TXUCV was required to repay all of its
outstanding indebtedness at or prior to the closing of the
transactions, other than capital leases that are subject to
purchase price adjustments and inter-company indebtedness
relating to contracts that will continue following the closing
of the transactions. As a consequence, all of the remaining
CoBank notes were retired in April 2004 and a pre-payment
penalty of $1.9 million was incurred.
The Capital Lease amount results from the two
Master Lease Agreements with General Electric Capital
Corporation ("GECC"), which are described below (see
Note G — Capital Leases).
Scheduled principal maturities on long-term debt
for the five years subsequent to April 13, 2004 are as
follows (dollars in thousands):
2004
$
711
2005
952
2006
1,010
2007
174
TOTAL
$
2,847
Note D — Income Taxes
The provision (benefit) for income taxes consists
of the following:
Period From
Year Ended December 31,
January 1, 2004
To April 13, 2004
2003
2002
2001
(Dollars in thousands)
Current:
U.S. Federal
$
28
$
(9,704
)
$
(3,018
)
$
(1,951
)
State
455
324
(214
)
83
Deferred:
U.S. Federal
1,833
21,435
(31,819
)
(3,610
)
State
157
610
(2,766
)
(311
)
Amortization of Investment Tax Credit
—
(210
)
(231
)
(301
)
Amortization of Excess Deferred Taxes
—
—
(213
)
(214
)
INCOME TAX EXPENSE (BENEFIT)
$
2,473
$
12,455
$
(38,261
)
$
(6,304
)
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TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The income tax expense (benefit) differs from
amounts computed at statutory rates primarily because of basis
adjustments and nondeductible change in the valuation reserve.
The following is a reconciliation of the income tax expense
(benefit) reported on the consolidated statements of operations:
Period From
Year Ended December 31,
January 1, 2004
To April 13, 2004
2003
2002
2001
(Dollars in thousands)
Income Tax Expense (Benefit) at U.S. Federal
    Statutory Rate
$
1,488
$
3,540
$
(44,809
)
$
(10,101
)
State Income Tax Expense (Benefit)
239
934
(3,841
)
(355
)
State Income Tax Refunds
—
—
(866
)
—
Goodwill Amortization
—
—
—
4,752
Goodwill Impairment
(1
)
4,704
6,300
—
Minority Interest
37
305
(2,817
)
(177
)
Amortization of Investment Tax Credit
—
(210
)
(231
)
(301
)
Amortization of Excess Deferred Taxes
—
—
(214
)
(214
)
Increase in Valuation Reserve
157
3,084
9,080
(270
)
Other
480
33
(929
)
—
Other Permanent Differences
73
65
66
362
INCOME TAX EXPENSE (BENEFIT)
$
2,473
$
12,455
$
(38,261
)
$
(6,304
)
Deferred income taxes reflect the net tax effects
of deductible temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The tax effects of
significant items comprising TXUCV's net deferred income
taxes consist of the following:
December 31,
April 13,
2004
2003
2002
(Dollars in thousands)
Deferred Tax Assets
Net Operating Losses
$
8,649
$
9,625
$
19,437
Allowance for Uncollectible Accounts Receivable
500
570
1,831
Accrued Vacation
2,127
873
939
Postretirement Benefits
14,833
13,164
12,496
Deferred Franchise Tax
4,183
3,918
1,666
Prior Year Minimum Tax Credit
699
527
—
Other
1,347
1,084
129
TOTAL DEFERRED ASSETS
$
32,338
$
29,761
$
67,873
Deferred Tax Liabilities
Franchise Tax
$
—
$
—
$
(3,600
)
Partnership Investment
(2,212
)
(1,698
)
(1,151
)
Basis in Investment
(1,632
)
(1,632
)
(1,632
)
Depreciation
(29,669
)
(26,691
)
(42,004
)
TOTAL DEFERRED LIABILITIES
(33,513
)
(30,021
)
(48,387
)
VALUATION ALLOWANCE
(12,331
)
(12,174
)
(9,090
)
NET DEFERRED TAX (LIABILITY) ASSET
$
(13,506
)
$
(12,434
)
$
10,396
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TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
TXUCV has established a valuation allowance
relating to ETFL, Telcon, Fort Bend LD and TXUCV.
Telecom for net operating losses
("NOL") and franchise taxes not expected to be
realized in the future. TXUCV has determined that certain state
net operating losses are not likely to be realized; therefore,
TXUCV has established a valuation allowance against the expected
future tax benefit of these certain state net operating losses.
The net deferred tax liability is classified on
the balance sheet as follows:
December 31,
April 13,
2004
2003
2002
(Dollars in thousands)
Current Deferred Income Tax Asset
$
3,974
$
2,527
$
34,145
Noncurrent Deferred Income Tax Asset
16,033
39,525
15,709
Noncurrent Deferred Income Tax Liability
(33,513
)
(54,486
)
(39,458
)
NET DEFERRED TAX LIABILITY (ASSET)
$
(13,506
)
$
(12,434
)
$
10,396
ETFL, a nonconsolidated subsidiary for federal
income tax return purposes, has NOL carryforwards of
approximately $8.7 million to offset against future taxable
income. The NOLs expire from 2007 to 2024.
TXUCV and its subsidiaries, which file a
consolidated federal income tax return, have NOL carryforwards
of approximately $16.0 million to offset against future
taxable income. The NOL may be carried forward for 20 years
and will expire from 2022 to 2024, if not utilized.
Note E — Postretirement Benefit
Plans
Pension Plan
TXUCV provides pension benefits through the TXU
Communications Retirement Plan ("Retirement Plan"),
the TXU Communications Supplemental Retirement Plan
("Supplemental Plan") and the TXU Deferred
Compensation Plan for Emerging Businesses ("Deferred
Compensation Plan").
The Retirement Plan is a noncontributory defined
benefit plan that provides benefits to substantially all
employees. Benefit provisions are subject to collective
bargaining. TXUCV's funding policy for this plan is to
contribute amounts sufficient to meet minimum funding
requirements as set forth in employee benefit and tax laws.
Employees who became participants prior to January 1, 2002
earn benefits based on their length of service and final average
pay. Employees who become participants on or after
January 1, 2002 earn cumulative benefits based on their age
and a percentage of their monthly pay.
Telcon, Fort Bend Telephone and
Fort Bend LD elected to participate in the Retirement Plan
effective January 1, 2002. Employees who became
participants on or after January 1, 2002 earn cumulative
benefits based on their age and a percentage of their monthly
pay.
The Supplemental Plan is a noncontributory
pay-as-you-go plan providing supplementary retirement benefits
primarily to higher-level employees.
The Deferred Compensation Plan is a contributory
salary deferral plan offered on a voluntary participation basis
primarily to higher-level employees.
Changes to the projected benefit obligation, the
fair value of assets and the underlying actuarial assumptions
for the Retirement Plan and Supplemental Plan are shown below.
F-60
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Health Care and Life Insurance Benefits: TXUCV
Services, TXUCV Telephone, TXUCV Telecom and Transport
Services
TXUCV provides certain postretirement health care
and life insurance benefits for employees who retire from TXUCV
after reaching age 55 and accruing at least 15 years
of service. Retirees share in the cost of health care benefits.
Benefit provisions are subject to collective bargaining. Funding
policy for retiree health benefits is generally to pay covered
expenses as they are incurred. Postretirement life insurance
benefits are fully insured.
Historically, TXUCV used a December 31
measurement date for its plans; however, due to the sale of
TXUCV, the Company additionally measured its plans at
April 13, 2004.
Obligations and Funded Status are reflected as
follows:
Pension Benefits
Other Benefits
Dec. 31,
Dec. 31,
April 13,
April 13,
2004
2003
2002
2004
2003
2002
(Dollars in thousands)
Change in benefit obligation
Benefit obligation at beginning of period
$
56,966
$
51,534
$
45,838
$
24,320
$
18,701
$
14,240
Service cost
928
2,973
3,321
400
1,205
1,129
Interest cost
1,125
3,480
3,232
472
1,486
1,002
Plan participants' contributions
—
—
—
47
94
97
Amendments
—
—
407
—
—
—
Benefit vesting due to partial plan termination
2,105
—
—
—
—
—
Actuarial loss
736
4,624
3,672
1,701
5,743
4,561
Curtailment
—
(3,250
)
(2,388
)
—
(1,933
)
(1,606
)
Assumption change
—
62
5
—
—
—
Benefits paid
(768
)
(2,115
)
(2,191
)
(311
)
(976
)
(722
)
Administrative expenses paid
(108
)
(342
)
(363
)
—
—
—
Benefit obligation at end of period
60,984
56,966
51,533
26,629
24,320
18,701
Change in plan assets
Fair value of plan assets at beginning of period
40,399
35,468
41,397
—
—
—
Actual return on plan assets
1,105
5,667
(3,375
)
—
—
—
Employer contribution
—
1,705
—
264
882
626
Plan participants' contributions
—
—
—
47
94
97
Benefits paid
(763
)
(2,099
)
(2,191
)
(311
)
(976
)
(723
)
Administrative expenses paid
(108
)
(342
)
(363
)
—
—
—
Fair value of plan assets at end of period
40,633
40,399
35,468
—
—
—
Funded status
(20,351
)
(16,567
)
(16,065
)
(26,629
)
(24,320
)
(18,701
)
Unrecognized net actuarial loss
19,687
17,255
19,291
9,251
7,665
4,153
Unrecognized prior service cost
302
309
443
—
—
—
Net amount recognized
$
(362
)
$
997
$
3,669
$
(17,378
)
$
(16,655
)
$
(14,548
)
F-61
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Amounts recognized in the statement of financial
position consist of:
Pension Benefits
Other Benefits
Dec. 31,
Dec. 31,
April 13,
April 13,
2004
2003
2002
2004
2003
2002
(Dollars in thousands)
(Accrued) Prepaid benefit cost
$
(362
)
$
997
$
3,669
$
—
$
—
$
—
Accrued benefit liability
(10,324
)
(7,921
)
(10,176
)
(17,378
)
(16,655
)
(14,548
)
Intangible assets
311
318
453
—
—
—
Accumulated other comprehensive income
10,013
7,603
9,723
—
—
—
Net amount recognized
$
(362
)
$
997
$
3,669
$
(17,378
)
$
(16,655
)
$
(14,548
)
Information for pension plans with an accumulated
benefit obligation in excess of plan assets:
Dec. 31,
April 13,
2004
2003
2002
Projected benefit obligation
$
60,984
$
56,966
$
51,533
Accumulated benefit obligation
51,197
47,323
41,975
Fair value of plan assets
40,633
40,399
35,468
Components of Net Periodic Benefit Cost:
Pension Benefits
Other Benefits
Period from
Period from
Jan. 1, 2004
Dec. 31,
Jan. 1, 2004
Dec. 31,
to April 13,
to April 13,
2004
2003
2002
2004
2003
2002
(Dollars in thousands)
Service cost
$
928
$
2,973
$
3,321
$
400
$
1,205
$
1,129
Interest cost
1,125
3,480
3,232
472
1,486
1,002
Expected return on plan assets
(994
)
(3,066
)
(3,478
)
—
—
—
Amortization of prior service cost
7
28
41
—
—
—
Net actuarial loss recognition
298
873
289
116
298
—
Net periodic benefit cost
$
1,364
$
4,288
$
3,405
$
988
$
2,989
$
2,131
SFAS No. 87, "Employers'
Accounting for Pensions," required TXUCV to record an
additional minimum pension liability of $10.3, $7.9 million
and $10.2 million at April 13, 2004 and
December 31, 2003 and 2002, respectively. This liability
represents the amount by which the accumulated benefit
obligation exceeded the sum of the fair market value of plan
assets and accrued amounts previously recorded. The additional
minimum pension liability was offset by $0.3 million,
$0.3 million and $0.5 million of intangible assets at
April 13, 2004 and December 31, 2003 and 2002,
respectively, and resulted in a $1.5 million charge, a
$1.3 million credit, and a $6.0 million charge to
comprehensive income, net of related tax benefit of
$0.9 million, tax expense of $0.8 million and tax
benefit of $3.7 million for the period from January 1,
2004 to April 13, 2004 and the years ended
December 31, 2003 and 2002, respectively. The intangible
assets are included in other noncurrent assets in TXUCV's
consolidated balance sheet at April 13, 2004 and
December 31, 2003 and 2002.
TXUCV recorded a reduction in earnings of
$106,000 in 2003 and a credit to earnings of $243,000 in 2002
for pension and postretirement termination benefits due to a
large reduction in workforce. There was no similar event for the
period from January 1, 2004 to April 13, 2004. The
2003 reduction to earnings
F-62
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
was due to a curtailment loss resulting from
recognition of prior service costs for pension benefits. The
December 31, 2002 credit was the net of a $494,000
curtailment gain recognized for postretirement healthcare and
life insurance benefits offset by a $251,000 curtailment loss
due to the recognition of prior service costs related to pension
benefits.
Weighted-average assumptions used to determine
benefit obligations at April 13, 2004 and December 31,
2003 and 2002 are as follows:
Pension Benefits
Other Benefits
Dec. 31,
Dec. 31,
April 13,
April 13,
2004
2003
2002
2004
2003
2002
Discount rate
6.25
%
6.25
%
6.75
%
6.25
%
6.25
%
6.75
%
Rate of compensation increase
4.30
%
4.30
%
4.30
%
—
—
—
Weighted-average assumptions used to determine
net periodic benefit cost for the period ended April 13,
2004 and the year ended December 31, 2003 and 2002 are as
follows:
Pension Benefits
Other Benefits
Dec. 31,
Dec. 31,
April 13,
April 13,
2004
2003
2002
2004
2003
2002
Discount rate
6.25
%
6.75%/6.50%
*
7.25
%
6.25
%
6.75
%
7.25
%
Expected long-term return on plan assets
8.50
%
8.50%
8.50
%
—
—
—
Rate of compensation increase
4.30
%
4.30%
4.30
%
—
—
—
*
6.75% from 1/1/2003 - 8/1/2003
6.5% from 8/1/2003 - 12/31/2004
for qualified plan only
The expected return on plan assets assumption was
based on the categories of the assets and the past history of
the return on the assets.
Assumed health care cost trend rates at
April 13, 2004 and December 31, 2003 and 2002:
Dec. 31,
April 13,
2004
2003
2002
Health care cost trend rate assumed for next year
10.00
%
10.00
%
11.00
%
Rate to which the cost trend rate is assumed to
    decline (the ultimate trend rate)
5.00
%
5.00
%
5.00
%
Year that the rate reaches the ultimate trend rate
2009
2009
2009
Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care
plan. A one-percentage-point change in assumed health care cost
trend rates would have the following effects:
1-Percentage-
1-Percentage-
Point Increase
Point Decrease
(Dollars in thousands)
Effect on total of service and interest cost
$
176
$
(135
)
Effect on postretirement benefit obligation
$
4,061
$
(3,215
)
F-63
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Plan Assets
The Company's pension plan weighted-average
asset allocations by asset category are as follows:
Plan Assets
Dec. 31,
April 13,
2004
2003
2002
Asset Category
Equity securities
55%
55%
49%
Debt securities
40%
40%
47%
Other
5%
5%
4%
Total
100%
100%
100%
The Company's investment strategy at
April 13, 2004 was to target its allocation percentage at
50% equity funds and 50% fixed income funds.
The Company expects to contribute
$2.9 million to its pension plan and $0.9 million to
its other postretirement plan from April 14, 2004 through
December 31, 2004.
The following benefit payments, which reflect
expected future service, as appropriate, are expected to be paid:
Pension
Other
Benefits
Benefits
(Dollars in
thousands)
4/14 — 12/31/2004
$
1,452
$
647
2005
2,182
983
2006
2,353
1,095
2007
2,594
1,139
2008
2,790
1,239
Years 2009-2013
18,759
7,357
Deferred Compensation Agreements: TXUCV
Services, TXUCV Telephone, TXUCV Telecom and Transport
Services
TXUCV has deferred compensation agreements with
the former board of directors of TXUCV's predecessor
company, Lufkin-Conroe Communications, and certain former
employees. The benefits are payable for up to 15 years and
may begin as early as age 65 or upon the death of the
participant.
TXUCV has purchased life insurance policies on
certain former directors and key employees. The excess of the
cash surrender value of life insurance policies over the notes
payable balances related to these policies is reflected in
TXUCV's financial statements. These plans do not qualify
under the Internal Revenue Code ("the Code") and
therefore, federal income tax deductions are allowed only when
benefits are paid.
Payments relating to deferred compensation
agreements were $0.1 million for the period from
January 1, 2004 to April 13, 2004 and
$0.4 million for the years ended December 31, 2003,
2002 and 2001. Accrued costs were $0.2 million for the
period from January 1, 2004 to April 13, 2004 and
$0.5 million for the years ended December 31, 2003 and
2002 and $0.1 million for the year ended December 31,
2001. Accrued liability amounted to $3.5 million at
April 13, 2004, $3.4 million at December 31, 2003
and $3.3 million at December 31, 2002.
F-64
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
401(k) Plans
Nonbargaining: TXUCV Services, TXUCV
    Telephone, TXUCV Telecom, Transport Services, Telcon,
    Fort Bend Telephone and Fort Bend LD
TXUCV sponsors a 401(k) plan for all
nonbargaining employees ("Nonbargaining TXUCV Plan")
who have completed 90 days of full-time service (or at
least 1,000 hours of service in any year) and are
age 21 or older. On December 31, 2001, the
nonbargaining 401(k) plan covering Telcon, Fort Bend
Telephone and Fort Bend LD was merged into this plan. The
plan allows participants to contribute up to 15% of their
eligible annual compensation to the plan, up to the maximum
permitted by the Code. TXUCV matches 100% of the first 3% of
employee contributions. TXUCV's matching contributions to
the plan amounted to $0.3 million for the period from
January 1, 2004 to April 13, 2004 and
$0.5 million, $0.6 million and $0.6 million for
2003, 2002 and 2001, respectively. TXUCV recognized a
$0.5 million loss in 2003 resulting from a partial plan
termination of the 401(k) plan in which affected participants
became fully vested in accrued benefits.
Bargaining: TXUCV Services, TXUCV
    Telephone, TXUCV Telecom and Transport Services
TXUCV sponsors a 401(k) plan for all bargaining
employees ("Bargaining TXUV Plan") who have completed
one year of full-time service (or at least 1,000 hours of
service in any year) and are age 21 or older. For the
period from January 1, 2004 to April 13, 2004 and
years 2003 and 2002, the plan allowed participants to contribute
up to 15% of their eligible annual compensation to the plan, up
to the maximum permitted by the Code. Beginning in 2002, TXUCV
matched 50% of the first 3% of employee contributions, in
accordance with the terms of the collective bargaining
agreement. In 2001, TXUCV matched 40% of the first 3% of
employee contributions. TXUCV's matching contributions to
the plan amounted to $30,000 for the period from January 1,
2004 to April 13, 2004 and $0.1 million for years
2003, 2002 and 2001.
Nonbargaining: Telcon, Fort Bend
    Telephone and Fort Bend LD
TXUCV sponsored a 401(k) plan for all employees
who had completed at least one month of full-time service and
who were at least 21 years of age. Effective
December 31, 2001, the plan was merged into the 401(k)
savings plan for nonbargaining employees of TXUCV.
Participants' accounts and participation eligibility were
transferred to the TXUCV plan effective January 1, 2002.
Employees who became eligible on or after January 1, 2002
participated in the Nonbargaining TXUCV plan. The plan allowed
participants to contribute up to 8% of their eligible annual
compensation to the plan, up to the maximum permitted by the
Code. TXUCV matched 50% of the first 8% of eligible employee
contributions. TXUCV's matching contributions to the plan
amounted to $0.7 million for 2001.
The plan provided for discretionary TXUCV-paid
profit sharing contributions of up to 15% of each eligible
employee's total compensation. Discretionary profit sharing
contributions to the plan, which were accrued during the year
and paid following the close of the year, amounted to
$0.2 million for 2001.
On December 8, 2003, President Bush signed
into law the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 ("The Act"). The Act
expanded Medicare to include, for the first time, coverage for
prescription drugs. TXUCV sponsors retiree medical programs for
certain of its locations. In May 2004, the FASB issued guidance
for the accounting and disclosure effects of the Act. TXUCV has
determined that its postretirement prescription drug plan is
actuarially equivalent and will begin reflecting the impact on
July 1, 2004.
F-65
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Note F — Operating Leases
TXUCV is the lessor of fiber optic systems,
agreements to lease capacity to customers over fiber optic
lines. The leases, accounted for as operating leases, provide
for minimum future rentals to be received for the remainder of
the lease period and in the aggregate as follows:
Fiber Optic
As of April 13, 2004
Systems
(Dollars in
thousands)
4/14-12/31/2004
$
827
2005
1,131
2006
1,103
2007
1,103
2008
1,103
$
5,267
Following is a summary of property on lease:
December 31,
April 13,
2004
2003
2002
(Dollars in thousands)
Fiber Optic System
$
222
$
222
$
245
Less: Accumulated Depreciation
10
6
—
$
212
$
216
$
245
Note G — Capital Leases
TXUCV leases certain furniture, fixtures,
equipment and leasehold improvements at its current corporate
headquarters in Irving pursuant to two Master Lease Agreements
with between TXUCV and GECC.
The leasehold improvement lease had an initial
term of 30 months that ended on October 1, 2004. At
the termination of the initial term of this lease, TXUCV elected
to purchase the scheduled leasehold improvement for
$1.1 million.
At the termination of the initial term of the
second lease for furniture, fixtures and equipment, TXUCV
elected to extend the term of the agreement until April 1,
2007, at which time the company will have an option to purchase
the equipment for its then fair market value.
During the period from January 1, 2004 to
April 13, 2004, TXUCV paid a total of $0.2 million to
GECC pursuant to these capital leases. As of April 13, 2004
the outstanding principal amount of these capital leases was
$2.8 million. These leases require Texas Acquisition to
maintain a specified debt rating. Texas Acquisition is not in
compliance with this covenant, although we are not aware of the
delivery of any notice of default. Upon a default under these
leases, GECC may take possession of the scheduled equipment and
require TXUCV to pay certain stipulated loss amounts. These
capital lease obligations have been classified as current
liabilities on the balance sheet.
F-66
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Note H — Investments in
Nonaffiliated Companies
Marketable equity securities have been
categorized as available for sale and, as a result, are stated
at fair value. Unrealized gains and losses are included as a
component of accumulated other comprehensive income until
realized.
For the purpose of determining gross unrealized
gains and losses, marketable securities include the following at
April 13, 2004 and December 31, 2003 and 2002:
Cost
Fair Value
Unrealized Gain
Realized Gain
4/13/04
2003
2002
4/13/04
2003
2002
4/13/04
2003
2002
4/13/04
2003
2002
(Dollars in thousands)
Other Marketable Equity Securities
$
11
$
11
$
11
$
117
$
125
$
125
$
106
$
114
$
114
$
—
$
—
$
230
The following investments are accounted for using
the equity method:
Percentage Owned
Investment Amount
December 31,
December 31,
April 13,
April 13,
2004
2003
2002
2004
2003
2002
(Dollars in thousands)
GTE Mobilnet of South Texas Limited Partnership
2.34
%
2.34
%
2.34
%
$
24,045
$
23,384
$
22,332
GTE Mobilnet of Texas RSA #17 Limited
    Partnership
17.02
%
17.02
%
17.02
%
$
3,731
$
3,794
$
3,629
Fort Bend Fibernet Limited Partnership
39.06
%
39.06
%
39.06
%
$
187
$
139
$
731
The following investments are accounted for using
the cost method:
December 31,
April 13,
2004
2003
2002
(Dollars in thousands)
CoBank, ACB Stock
$
1,452
$
1,347
$
1,230
Rural Telephone Bank Stock
$
5,921
$
5,921
$
5,921
The CoBank stock represents purchases of CoBank
stock as required by the CoBank loan agreement and patronage
distributions from CoBank in the form of stock. Although there
is no CoBank loan balance outstanding at April 13, 2004,
TXUCV will begin receiving annual refunds of a portion of this
stock only when its stock balance reaches 11.5% of the five-year
moving average of CoBank loan balance. The CoBank stock is owned
by TXUCV, now known as Consolidated Communications Ventures
Company.
Fort Bend Telephone owns 5,921 shares
of $1,000 par value Class C Rural Telephone Bank,
which is stated at original cost plus a gain recognized at
conversion of Class B to Class C stock.
Note I — Minority Interest
During 1990, Transport Services, in a joint
venture with Eastex Celco ("ETC"), formed ETFL.
Transport Services and ETC own 63% and 37%, respectively, of the
outstanding stock of ETFL.
F-67
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Note J — Transactions with Related
Parties
Following is a summary of transactions with
related parties:
December 31,
April 13,
2004
2003
2002
2001
(Dollars in thousands)
Prepaid to Oncor for Transmission Fees
$
886
$
—
$
—
Accounts Payable — TXU
$
35
$
2,314
$
352
Accounts Payable — Oncor
$
—
$
245
$
117
Long-Term Debt Payable — TXU
$
—
$
80,867
$
144,066
Capital Contributions — Pinnacle
$
102,119
$
4,290
$
6,974
$
27,784
Interest Expense Paid to TXU
$
636
$
3,597
$
5,059
$
8,501
Billings From Oncor for Transmission Line Fees
$
1,139
$
1,458
$
1,324
$
1,184
Billings From TXU for Management Fees
$
2,350
$
2,647
$
3,331
$
5,594
Billings From TXU for Services
$
660
$
1,487
$
2,427
$
1,885
Note K — Commitments and
Contingencies
TXUCV and its subsidiaries are subject to various
claims and lawsuits, including property damage claims, which
arise from time to time in the normal course of business. It is
the opinion of management and counsel that the disposition or
ultimate determination of such claims and lawsuits will not have
a material effect on the financial position, results of
operations or liquidity of TXUCV, since TXUCV has insurance to
cover such claims.
On November 25, 2002, TXUCV entered into a
60-month High-Capacity Term Payment Plan agreement with
Southwestern Bell ("SWB"). The agreement requires
TXUCV to make monthly purchases of at least $33,000 from SWB on
a take-or-pay basis. The agreement also provides for an early
termination charge of 45% of the monthly minimum commitment
multiplied by the number of months remaining through the
expiration date of November 25, 2007. As of April 13,
2004, the potential early termination charge is approximately
$0.6 million.
TXUCV is also a party to another take-or-pay
agreement with Grande Communications to provide certain
directory assistance-related services to the TXUCV. The
agreement which was entered into on August 28, 2001, for an
initial 12-month term, has an automatic 12-month renewal
provision with a minimum monthly commitment of $8,950. This
agreement is still in effect at April 13, 2004.
TXUCV has executed various building space leases,
with terms ranging from 36 to 84 months and monthly
payments ranging from $0.1 million to $0.3 million.
All but one of the leases contains provisions for escalation of
the monthly payments. TXUCV's consolidated financial
statements for the period from January 1, 2004 to
April 13, 2004 and the years ended December 31, 2003
and 2002 include $0 million, $0.6 million, and
$0.3 million of charges, respectively, representing
obligations on leased facilities that were sublet to unrelated
parties for amounts less than the related obligations. TXUCV
also has executed several equipment leases with varying terms up
to 36 months and monthly payments totaling approximately
$0.1 million.
F-68
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The future minimum payments required by capital
and operating leases for the next five years are as follows
(dollars in thousands):
4/14 - 12/31/2004
$
2,827
2005
$
3,451
2006
$
2,747
2007
$
1,546
2008
$
1,368
Thereafter
$
3,038
Rent expense on operating leases was
$1.0 million for the period from January 1, 2004 to
April 13, 2004, $4.1 million for the year ended
December 31, 2003, $3.6 million for the year ended
December 31, 2002 and $2.3 million for the year ended
December 31, 2002.
Note L — Fair Value of Financial
Instruments
The following methods and assumptions were used
to estimate the fair value of each of the material financial
instruments for which it is practicable to estimate the value:
Cash, Cash Equivalents and Short-Term
Investments
— Cash, cash
equivalents and short-term investments are valued at their
carrying amounts, which are reasonable estimates of their fair
value because of the short maturity of those instruments.
Long-Term Investments —
The fair value of investments is
estimated based on the quoted market price for that investment.
Other investments for which there are no quoted market prices
because the stocks are not publicly traded are carried at cost
since reasonable estimates of fair value could not be made
without incurring excessive costs. These investments include
$1.5 million of CoBank stock and $5.9 million of Rural
Telephone Bank stock.
Long-Term Debt —
The fair value of TXUCV's
long-term debt, including current maturities, is estimated based
on the current rates offered to TXUCV for debt of the same
remaining maturities.
The carrying amounts and estimated fair values of
TXUCV's material financial instruments are as follows:
Carrying Amount
Fair Value
Dec. 31,
Dec. 31,
April 13,
April 13,
2004
2003
2002
2004
2003
2002
(Dollars in thousands)
Long-Term Investments For Which It Is Not
    Practicable To Estimate Fair Value
$
36,862
$
34,585
$
33,884
$
36,862
$
34,585
$
33,884
Debt
$
2,847
$
100,383
$
166,202
$
2,663
$
102,077
$
166,202
Cash Surrender Value of Life Insurance Policies
$
1,526
$
1,533
$
1,376
$
1,526
$
1,533
$
1,376
Note M — Restructuring and
Impairment Charges
Beginning in 1999, TXUCV began operating a CLEC
in a number of local markets within Texas. In late 2001, TXUCV
decided to refocus its business strategy on the Texas RLECs. In
December 2002, TXUCV made a decision to hold its CLEC and
Transport assets for sale. TXUCV examined the value of the
assets held for sale based on third party sale negotiations and
similar recent sales transactions and recorded an impairment
charge of $90.9 million ($56.6 million after taxes and
minority interest). In
F-69
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
addition, TXUCV recorded restructuring charges of
$2.1 million under the provisions of Emerging Issues Task
Force Abstract 94-3.
Impairment Charges
CLEC
Transport
Total
(Dollars in thousands)
PPE Net Book Value
$
27,512
$
70,831
$
98,343
Estimated Cost of Sale
232
360
592
27,744
71,191
98,935
Less: Estimated FMV
947
7,083
8,030
Assets Held For Sale Impairment Charges
$
26,797
64,108
$
90,905
Restructuring Charges
Employee Separations
$
736
Facility Closure Costs
916
Other Contractual Commitments
417
Total
$
2,069
Employee separation restructuring charges relate
to 55 affected employees. These restructuring costs were all
paid in 2003.
Earlier in 2002, TXUCV recorded impairment
charges of $8.4 million related to certain CLEC information
technology and collocation assets. The evaluation occurred in
conjunction with exiting certain unprofitable activities and
decommissioning non-strategic collocation sites. The information
technology assets were fully written-off and taken out of
service. The collocation assets were valued at fair market value
based on third party pricing. This impairment occurred prior to
the decision to hold those assets for sale.
Assets Held for Sale
In late 2001, TXUCV decided to refocus its
business strategy on the Texas RLECs. During the subsequent
18 months, TXUCV systematically exited certain less
profitable CLEC markets, ceased service to residential customers
and focused solely on business customers within limited
geographic markets. In December 2002, TXUCV decided to exit the
CLEC business entirely and placed its CLEC assets and customer
base for sale. In March 2003, TXUCV sold the majority of its
remaining CLEC assets and customer base to Texas-based Grande
Communications for $1.2 million. TXUCV also anticipated
selling its Transport Services activities in the near term and
as a result, the assets and liabilities related to the CLEC and
Transport assets held for sale were presented separately in the
assets and liabilities sections of the consolidated balance
sheets at December 31, 2002. The assets held for sale
consisted of $8.0 million of property, plant and equipment
recorded at fair market value based on the estimated sales
price. The liabilities represented estimated costs to sell of
$0.6 million and restructuring charges of $2.1 million.
In June 2003, in light of the decision to sell
the entire company, TXUCV decided that it would no longer
attempt to sell the transport network separately. Consequently,
in accordance with the provisions of SFAS No. 144,
these assets were reclassified from assets held for sale to
assets held and used and are reported on the consolidated
balance sheet at the lower of fair market value or adjusted
carrying amount. The resulting $0.3 million loss on
long-lived assets converted to held and used is reflected in
TXUCV's results of operations for the year ended
December 31, 2003.
F-70
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Note N — Goodwill and Other
Intangible Assets
Amounts paid for assets of other companies in
excess of fair value are recorded as goodwill. Goodwill was
amortized over its useful life, normally 15 to 40 years
through December 31, 2001.
SFAS No. 142 became effective for TXUCV
on January 1, 2002. SFAS No. 142 requires, among
other things, the allocation of goodwill to reporting units
based upon the current fair value of the reporting units, and
the discontinuance of goodwill amortization. The amortization of
TXUCV goodwill ($13.6 million in 2001) ceased effective
January 1, 2002.
In addition, SFAS No. 142 required
completion of a transitional goodwill impairment test within six
months from the date of adoption. It established a new method of
testing goodwill for impairment on an annual basis, or on an
interim basis if an event occurs or circumstances change that
would reduce the fair value of a reporting unit below its
carrying value. TXUCV completed the transitional impairment test
in the second quarter of 2002, the results of which indicated no
impairment of goodwill at that time. In conjunction with
TXUCV's decision to exit the CLEC and Transport businesses,
additional evaluations were performed as of October 1, 2003
and 2002, TXUCV's annual impairment test date. The testing,
utilizing the discounted cash flow methodology, resulted in an
impairment charge of $13.2 million and $18 million for
the years ended December 31, 2003 and 2002, respectively.
There were no impairment charges for the period from
January 1, 2004 to April 13, 2004.
There were no changes in the carrying amount of
goodwill for the period from January 1, 2004 to
April 13, 2004. Changes in the carrying amount of goodwill
for the years ended December 31, 2003 and 2002 is
summarized as follows (in thousands):
2003
2002
Balance, January 1
$
317,536
$
335,536
Less impairment
13,200
18,000
Balance, December 31
$
304,336
$
317,536
The table below reflects what reported net income
would have been in the 2001 period, exclusive of goodwill
amortization expense recognized for consolidated entities in
those periods compared to the period from January 1, 2004
to April 13, 2004, 2003, 2002 and 2001:
December 31,
April 13,
2004
2003
2002
2001
(Dollars in thousands)
Reported Net Income (Loss)
$
1,783
$
(2,341
)
$
(89,765
)
$
(21,892
)
Add: Goodwill Amortization
—
—
—
8,419
Proforma Net Income (Loss)
$
1,783
$
(2,341
)
$
(89,765
)
$
(13,473
)
Note O — Sale of TXUCV
On January 15, 2004, Consolidated
Communications Acquisition Texas Corp. ("Texas
Acquisition"), a subsidiary of Homebase Acquisition, LLC,
and Pinnacle One, an indirect, wholly owned subsidiary of TXU
Corp., entered into a stock purchase agreement providing for the
purchase by Texas Acquisition of all of the capital stock of
TXUCV. Texas Acquisition is a Delaware corporation formed solely
for the purpose of entering into the stock purchase agreement
and closing the transactions contemplated by that
F-71
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
agreement. By acquiring the capital stock of
TXUCV, Texas Acquisition acquired substantially all of TXU
Corp.'s telecommunications business, which includes the
following:
•
Fort Bend Telephone (now known as
    Consolidated Communications of Fort Bend Company) and TXUCV
    Telephone (now known as Consolidated Communications of Texas
    Company), two RLECs, which together serve markets in Conroe,
    Katy and Lufkin, Texas;
•
TXUCV's investments in the cellular
    partnership (see Note H — Investments in
    Nonaffiliated Companies);
•
a telephone directory publishing
    business; and
•
a transport services business.
The cash purchase price for the sale of
TXUCV's capital stock was $527.0 million, subject to
the following adjustments:
The purchase price was reduced by
$2.8 million, the outstanding principal amount of the
capital lease obligations between TXUCV and GECC.
The purchase price assumed $4.6 million of
cash on the balance sheet of TXUCV at closing and was adjustable
upward (or downward) by the amount cash on the balance sheet at
closing greater than (or less than) $4.6 million.
The purchase price was also adjustable upward (or
downward) to the extent that TXUCV's working capital was
greater than (or less than) negative $2.8 million. At
April 13, 2004, TXUCV's adjusted working capital (as
defined in the stock purchase agreement) was negative
$3.9 million. As a result of differences in assumed working
capital (including cash) and other balances and related actual
balances at April 13, 2004, Homebase Acquisition, LLC made
an additional cash payment to TXU Corp. of $5.1 million.
TXUCV was required to repay all of its
outstanding indebtedness at or prior to the closing of the
transactions, other than capital leases that were subject to the
purchase price adjustment described above and affiliate
indebtedness relating to contracts that continued following the
closing of the transaction. Accordingly, all indebtedness deemed
to be affected by the stock purchase agreement was reflected in
the current liabilities section of TXUCV's balance sheet as
of December 31, 2003 and subsequently extinguished prior to
or as of April 13. 2004. In addition, Pinnacle One was to
bear the first $5.1 million of any severance and similar
expenses associated with work force reductions occurring between
the date of the signing of the stock purchase agreement on
January 15, 2004 and the closing of the transactions.
The stock purchase agreement contained customary
representations and warranties, covenants and indemnification
provisions. Most representations and warranties expire on the
later of the first anniversary of the closing of the
transactions and April 30, 2005.
TXU Corp. agreed to guarantee the payment
obligations of Pinnacle One for up to the purchase price and
further agreed to guarantee certain tax indemnification
obligations up to, and in excess of, the purchase price.
The stock purchase agreement further provided
that certain agreements and arrangements between TXU Corp. and
TXUCV and its subsidiaries, and all the related liabilities and
obligations of TXUCV and its subsidiaries automatically
terminate in their entirety effective as of the closing without
any further actions by the parties and thereby be deemed voided,
cancelled and discharged in their entirety.
F-72
Table of Contents
TXU COMMUNICATIONS VENTURES COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Note P — Subsequent Events
The sale of TXUCV to Texas Acquisition closed on
April 14, 2004. In association with the close of the sale,
Texas Acquisition and other subsidiaries of Homebase
Acquisition, LLC issued $200 million of Senior Notes and
entered into a new $437 million credit facility.
The initial terms of the two GECC leases expired
on October 1, 2004. As provided under the terms of the
lease agreements, TXUCV, now known as Consolidated
Communications Ventures Company, elected to purchase the
leasehold improvements under one lease for $1.1 million and
extend the term of the furniture, fixtures and equipment under
the second lease through April 1, 2007.
F-73
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September 30, 2004
F-74
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share and per
share amounts)
(Unaudited)
September 30,
2004
ASSETS
Current assets:
Cash and cash equivalents
$
55,229
Accounts receivable, net
29,489
Inventories
2,720
Prepaid expenses and other assets
17,312
Total current assets
104,750
Property, plant and equipment, net
350,291
Intangibles and other assets:
Investments
35,856
Goodwill
341,706
Customer lists, net
150,054
Other intangibles, net
26,471
Deferred financing costs
18,867
Other assets
23,723
Total assets
$
1,051,718
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Current portion of long-term debt
$
18,362
Accounts payable
13,044
Accrued expenses
48,160
Total current liabilities
79,566
Long-term debt less current maturities
615,569
Deferred income taxes
94,588
Other liabilities
67,753
Total Liabilities
857,476
Minority interests
2,254
Redeemable preferred shares:
Class A, redeemable preferred shares,
    $1,000 par value, 182,000 shares authorized, issued
    and outstanding; liquidation preference of $201,126
201,126
Common members' deficit:
Common shares, no par value,
    10,000,000 shares authorized, issued and outstanding
—
Paid in capital
58
Accumulated deficit
(8,482
)
Accumulated other comprehensive loss
(714
)
Total common members' deficit
(9,138
)
Total liabilities and members' equity
$
1,051,718
See accompanying notes
F-75
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
(Dollars in thousands, except share and per
share amounts)
(Unaudited)
Nine Months Ended
September 30,
2004
2003
Revenues
$
191,010
$
98,738
Operating expenses:
Cost of services and products
43,858
22,562
Selling, general and administrative expenses
74,938
43,455
Depreciation and amortization
37,484
17,229
Income from operations
34,730
15,492
Other income (expense):
Interest income
430
73
Interest expense
(28,522
)
(9,083
)
Partnership income
2,027
—
Minority interest
(290
)
—
Other, net
431
29
Income before income taxes
8,806
6,511
Income tax expense
3,662
2,647
Net income
5,144
3,864
Dividends on redeemable preferred shares
(10,623
)
(6,356
)
Net loss applicable to common shareholders
$
(5,479
)
$
(2,492
)
Net loss per common share
$
(0.61
)
$
(0.28
)
See accompanying notes.
F-76
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
CONDENSED CONSOLIDATED STATEMENTS OF COMMON
MEMBERS' DEFICIT
For the Nine Months Ended September 30,
2004
(Dollars in thousands)
(Unaudited)
Accumulated
Common Shares
Other
Accumulated
Comprehensive
Comprehensive
Shares
Amount
Paid in Capital
Deficit
Loss
Total
Income
Balance, January 1, 2004
9,975
$
—
$
—
$
(3,003
)
$
(515
)
$
(3,518
)
Capital contributions
25
—
58
—
—
58
Dividends on redeemable preferred shares
—
—
—
(10,623
)
—
(10,623
)
Net income
—
—
—
5,144
—
5,144
$
5,144
Unrealized loss on marketable securities, net of
    tax
—
—
—
—
(49
)
(49
)
(49
)
Change in fair value of cash flow hedges, net of
    tax
—
—
—
—
(150
)
(150
)
(150
)
Balance, September 30, 2004
10,000
$
—
$
58
$
(8,482
)
$
(714
)
$
(9,138
)
$
4,945
See accompanying notes.
F-77
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
2004
2003
OPERATING ACTIVITIES
Net income
$
5,144
$
3,864
Adjustments to reconcile net income to cash
    provided by operating activities:
Depreciation and amortization
37,484
17,229
Provision for bad debt losses
3,440
—
Deferred income tax
1,994
(1,577
)
Provision for postretirement benefits
3,480
—
Partnership income
502
—
Minority interest in net income of subsidiary
290
—
Other charges
(1,670
)
(233
)
Changes in operating assets and liabilities:
Accounts receivable
3,327
(5,354
)
Inventories
560
324
Other assets
5,863
(435
)
Accounts payable
(4,269
)
(2,630
)
Accrued expenses and other liabilities
4,145
7,192
Net cash provided by operating activities
60,290
18,380
INVESTING ACTIVITIES
Capital expenditures
(17,272
)
(8,938
)
Acquisition, net of cash acquired
(523,944
)
(284,834
)
Other, net
(80
)
505
Net cash used in investing activities
(541,296
)
(293,267
)
FINANCING ACTIVITIES
Capital contributions from investors
152,458
93,000
Distributions to investors
(63,400
)
—
Proceeds from long-term obligations
637,000
190,000
Payments made on long-term obligations
(186,316
)
(7,200
)
Payment of deferred financing costs
(12,311
)
—
Proceeds from sale of building
—
9,180
Other, net
(1,338
)
751
Net cash provided by financing activities
526,093
285,731
Net increase in cash and cash equivalents
45,087
10,844
Cash and cash equivalents at beginning of period
10,142
—
Cash and cash equivalents at end of period
$
55,229
$
10,844
See accompanying notes.
F-78
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS
Nine months ended September 30, 2004 and
2003
(Dollars in thousands, except share and per
share amounts)
1.
Description of Business
Homebase Acquisition, LLC, a Delaware limited
liability company ("Homebase" or "the
Company"), was formed on June 26, 2002, and commenced
operations in Illinois on December 31, 2002 with its
acquisition of Illinois Consolidated Telephone Company and the
related businesses (collectively, "ICTC") and in Texas
on April 14, 2004 with its acquisition of TXU
Communications Ventures Company ("TXUCV"). Homebase is
a holding company with no income from operations or assets
except for the capital stock of Consolidated Communications
Illinois Holdings, Inc. ("Illinois Holdings") and
Consolidated Communications Texas Holdings, Inc. ("Texas
Holdings"). Homebase and its wholly owned subsidiaries
operate under the name Consolidated Communications.
Illinois Holdings is a holding company with no
income from operations or assets except for the capital stock of
Consolidated Communications, Inc. ("CCI"). Illinois
Holdings operates its business through, and receives all of its
income from, CCI and its subsidiaries. CCI was formed for the
sole purpose of acquiring ICTC. Texas Holdings is a holding
company with no income from operations or assets except for the
capital stock of Consolidated Communications Texas, Inc.
("Texas Acquisition"). Texas Holdings and Texas
Acquisition were formed for the sole purpose of acquiring TXUCV,
which was subsequently renamed Consolidated Communications
Ventures Company ("CCV"). Texas Holdings operates its
business through, and receives all of its income from, CCV and
its subsidiaries.
For purposes of these interim financial
statements, our financial results include CCV and its
subsidiaries from April 14, 2004, the date of the TXUCV
acquisition, through September 30, 2004. As a result,
period to period comparisons of our financial results as of and
for the nine months ended September 30, 2004 and 2003 are
not necessarily meaningful.
2.
Presentation of Interim Financial
    Statements
These unaudited interim condensed consolidated
financial statements include the accounts of Homebase and all
majority owned subsidiaries ("the Company"). All
significant intercompany accounts and transactions have been
eliminated. These interim statements have been prepared in
accordance with Securities and Exchange Commission
("SEC") guidelines and do not include all of the
information and footnotes required by generally accepted
accounting principles ("GAAP") for complete financial
statements. These interim financial statements reflect all
adjustments which are, in the opinion of management, necessary
for a fair presentation of its financial position and results of
operations for the interim periods. Interim results are not
necessarily indicative of the results that may be expected for
the entire year. These interim financial statements should be
read in conjunction with the financial statements and related
notes for the year ended December 31, 2003, which are
included as part of this prospectus.
3.
Recent Accounting Pronouncements
In January 2003, the Financial Accounting
Standards Board ("FASB") issued Interpretation
No. 46 Consolidation of Variable Interest Entities
("FIN 46"). The primary objective of FIN 46
is to provide guidance on the identification of entities for
which control is achieved through means other than voting
rights, defined as variable interest entities, and to determine
when and which business enterprise should consolidate the
variable interest entity as the "primary beneficiary".
This new model applies when either (1) the equity
investors, if any, do not have a controlling financial interest
or (2) the entity investment at risk is insufficient to
finance that entity's activities without additional
financial support. In addition,
F-79
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except share and per
share amounts)
FIN 46 requires additional disclosures. The
adoption of this interpretation had no effect on the financial
condition or results of operations of the Company.
In December 2003, the U.S. Congress enacted
the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 ("the Medicare Act") that will provide a
prescription drug subsidy beginning in 2006 to companies that
sponsor post-retirement health care plans that provide drug
benefits. Additional legislation is anticipated that will
clarify whether a company is eligible for the subsidy, the
amount of the subsidy available and the procedures to be
following in obtaining the subsidy. In May 2004, the FASB issued
Staff Position 106-2, Accounting Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (SAP 106-2), that provides
guidance on the accounting and disclosure for the effects of the
Medicare Act. Our post-retirement prescription drug plans are
actuarially equivalent and accordingly began reflecting the
Medicare Act's impact on July 1, 2004 without a
material adverse effect on the financial condition or results of
operations of the Company.
4.
Acquisition
On April 14, 2004 Homebase, through its
wholly owned subsidiary Texas Acquisition, acquired all of the
capital stock of TXUCV from Pinnacle One Partners L.P.
("Pinnacle One"). By acquiring all of the capital
stock of TXUCV , Homebase acquired substantially all of the
telecommunications assets of TXU Corp., including two rural
local exchange carriers ("RLECs"), that together serve
markets in Conroe, Katy and Lufkin, Texas, a directory
publishing business, a transport services business that provides
connectivity within Texas and minority interests in cellular
partnerships.
In connection with the closing of the TXUCV
acquisition, the Company, through its wholly owned subsidiaries,
issued $200,000 in the aggregate principal amount of
9 3/4% Senior Notes due 2012. The Company, through its
wholly owned subsidiaries, also entered into a new $437,000 bank
credit facility, repaid its old credit facility and entered into
certain related transactions. The indenture governing the notes
and the existing credit facility contain covenants, events of
default and other provisions (see Note 7).
The Company accounted for the TXUCV acquisition
using the purchase method of accounting; accordingly, the
financial statements reflect the allocation of the total
purchase price to the net tangible and intangible assets
acquired based on their respective fair values. The purchase
price, including acquisition costs and net $9,897 of cash
acquired, was allocated to assets acquired and liabilities
assumed as follows:
Current assets
$
45,547
Property, plant and equipment
260,554
Goodwill
242,153
Other assets
152,226
Liabilities assumed
(176,536
)
Net purchase price
$
523,944
In accordance with the provisions of Statement of
Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"), the $242,153 in
goodwill recorded as part of the TXUCV acquisition will not be
amortized and will be tested for impairment at least annually.
The goodwill is not deductible for tax purposes.
F-80
Table of Contents
HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except share and per
share amounts)
The Company's consolidated financial
statements include the results of operations for the TXUCV
acquisition since the April 14, 2004 acquisition date.
Unaudited pro forma results of operations data for the nine
month periods ended September 30, 2004 and 2003 as if the
Acquisition had occurred at the beginning of each period
presented are as follows:
Nine Months Ended
September 30,
2004
2003
Total revenues
$
244,865
$
248,864
Income from operations
$
37,289
$
31,831
Proforma net income (loss)
$
2,908
$
649
Net income per share — basic
.32
.07
The above pro forma amounts may not be
representative of future periods.
5.
Property, Plant and Equipment
Property, plant and equipment, net consisted of
the following at September 30, 2004:
Land and buildings
$
44,830
Network and outside plant facilities
469,650
Furniture, fixtures and equipment
76,412
Work in process
20,086
610,978
Less: accumulated depreciation
(260,687
)
$
350,291
6.
Goodwill and Other Intangible Assets
In accordance with SFAS 142, Goodwill and
Other Intangible Assets, goodwill and tradenames are not
amortized but are subject to an annual impairment test, or to
more frequent testing if circumstances indicate that they may be
impaired.
At September 30, 2004, the carrying amounts
of other intangible assets and related accumulated amortization
are as follows:
Gross
Carrying
Accumulated
Net Carrying
Amount
Amortization
Amout
Customer lists
$
164,217
$
(14,163
)
$
150,054
Software
13,388
(2,780
)
10,608
Tradenames
15,863
15,863
For the nine months ended September 30,
2004 the aggregate amortization of customer lists and software
totaled $9,935 and was recorded in depreciation and amortization
expense. The estimated
F-81
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HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except share and per
share amounts)
amortization expense of customer lists and
software for the remainder of 2004 and future periods is as
follows:
October 1 - December 31, 2004
$
4,275
Calendar year 2005
17,832
Calendar year 2006
17,832
Calendar year 2007
17,832
Calendar year 2008
15,328
Thereafter
87,563
$
160,662
7.
Long-Term Debt
Long-term debt consisted of the following at
September 30, 2004:
Senior Secured Credit Facility
Revolving loan
$
—
Term loan A
118,667
Term loan B
313,950
Senior Notes
200,000
Capital leases
1,314
633,931
Less: current portion
18,362
$
615,569
Senior Secured Credit Facility
The Company, through its wholly-owned
subsidiaries, entered into a credit agreement dated
April 14, 2004 with various financial institutions, which
provides for aggregate borrowings of $467,000 consisting of a
$122,000 term loan A facility, a $315,000 term loan B
facility and a $30,000 revolving credit facility. Borrowings
under the credit facility are secured by substantially all of
the assets of CCI and Texas Acquisition, other than ICTC. A
security interest in ICTC's assets is contingent upon
obtaining the consent of the Illinois Commerce Commission
(ICC) for ICTC to guarantee $195,000 of total borrowings
under the credit facility.
The term loans are due in quarterly installments,
which increase annually, with all borrowings under term
loan A and term loan B due April 14, 2010 and
October 14, 2011, respectively. The revolving credit
facility matures on April 14, 2010. Within 90 days
after the end of the Company's fiscal year, commencing on
December 31, 2004, the Company shall be obligated to repay
the loans in an amount equal to 50% of the excess cash flow for
such fiscal year, provided that certain leverage ratios are
maintained at the end of the fiscal year. In addition, subject
to certain exceptions, the Company is required to prepay the
outstanding term loans with 100% of the net proceeds of all
non-ordinary course of business asset sales and any insurance or
condemnation proceeds not reinvested within a required time
period, 100% of the net
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HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except share and per
share amounts)
proceeds of certain occurrences of indebtedness
and 50% of the net proceeds from certain issuances of equity.
At the Company's election, borrowings bear
interest at fluctuating interest rates based on: (a) a base
rate (the highest of the administrative agent's base rate
in effect on such day, 0.5% per annum above the latest
three week moving average of secondary market morning
offering rates in the United States for three month
certificates of deposit or 0.5% above the Federal Funds rate);
or (b) the London Interbank Offered Rate, or LIBOR plus, in
either case, an applicable margin within the relevant range of
margins (0.75% to 2.50%) provided for in the credit agreement.
The applicable margin is based upon the Company's total
leverage ratio. As of September 30, 2004, the margins for
interest rates on LIBOR based loans was 2.5% on the term
loan A facility and 2.75% under the term loan B
facility. At September 30, 2004 the weighted average rate,
including swaps, of interest on the Company's term debt
facilities was 4.74% per annum. Interest is payable at
least quarterly.
The credit agreement contains various provisions
and covenants, which include, among other items, restrictions on
the ability to pay dividends, incur additional indebtedness, and
issue capital stock, as well as, limitations on future capital
expenditures. The Company has also agreed to maintain certain
financial ratios, including interest coverage, fixed charge
coverage and leverage ratios, all as defined in the credit
agreement.
Senior Notes
On April 14, 2004, the Company, through its
wholly owned subsidiaries, issued $200,000 of
9 3/4% Senior Notes due on April 1, 2012. The
senior notes pay interest semi-annually on April 1 and
October 1. The senior notes may be redeemed on or prior to
October 6, 2005 using all or a portion of the proceeds of a
qualified income depository security offering. The redemption
price plus accrued interest will be, as a percentage of the
principal amount, 107.313% through April 10, 2004 and
109.75% between April 1, 2005 and October 6, 2005.
Up to 35% of the senior notes may be redeemed
using the proceeds of certain equity offerings completed on or
prior to April 1, 2007. Some or all of the senior notes may
be redeemed on or after April 1, 2008. The redemption price
plus accrued interest will be, as a percentage of the principal
amount, 104.875% in 2008, 102.438% in 2009 and 100% in 2010 and
thereafter. In addition, holders may require the repurchase of
the notes upon a change in control, as such term is defined in
the indenture governing the senior notes. The indenture contains
certain provisions and covenants, which include, among other
items, restrictions on the ability to issue certain types of
stock, incur additional indebtedness, make restricted payments,
pay dividends and enter other lines of business.
F-83
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HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except share and per
share amounts)
Future maturities of long-term debt as of
September 30, 2004 are as follows:
October 1 - December 31, 2004
$
4,510
Calendar year 2005
18,523
Calendar year 2006
22,463
Calendar year 2007
23,247
Calendar year 2008
26,900
Thereafter
538,288
$
633,931
8.
Derivative Instruments
The Company entered into interest rate swap
agreements that effectively convert a portion of the
floating-rate debt to a fixed-rate basis, thus reducing the
impact of interest rate changes on future interest expense. At
September 30, 2004 the Company has interest rate swap
agreements covering $220,000 in aggregate principal amount of
its variable rate debt at fixed LIBOR rates ranging from 2.99%
to 3.35%. The swap agreements expire on December 31, 2006,
May 19, 2007 and December 31, 2007.
During the nine months ended September 30,
2004, there is no significant gain or loss related to the
ineffective portion of hedging instruments in our interest
expense.
9.
Other liabilities
Other long-term liabilities consisted of the
following at September 30, 2004:
Pension and posts retirement benefit obligations
$
61,022
Other long-term liabilities
6,731
$
67,753
10.
Pension Costs and Other Postretirement
    Benefits
Components of the defined pension net periodic
cost for the nine months ended September 30 are as follows:
Nine Months Ended
September 30,
Pension Plan
2004
2003
Service cost
$
1,780
$
578
Interest cost
3,787
2,405
Expected return on plan assets
(3,875
)
(2,630
)
Net periodic benefit cost
$
1,692
$
353
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HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except share and per
share amounts)
Components of the postretirement periodic cost
for the nine months ended September 30 are as follows:
Nine Months
Ended
September 30,
Postretirement Plan
2004
2003
Service cost
$
632
$
124
Interest cost
1,052
418
Amortization of prior service costs
(2
)
(2
)
Recognized actuarial gain
(6
)
(1
)
Net periodic benefit cost
$
1,676
$
539
11.
Redeemable Preferred Shares
The Company has authorized 182,000 Class A
Preferred Shares, all of which were issued and outstanding at
September 30, 2004. The preferred shares are redeemable to
the holders with a preferred return on their capital
contributions at the rate of 9% per annum. The preferred
return is cumulative and compounded annually in arrears on
December 31 of each year. At any time on or after
June 30, 2007 certain members have the right to require the
Company to redeem all of their Class A Preferred Shares and
common shares. Preferred shares are redeemable at a price equal
to $1,000 per share plus any accrued but unpaid preferred
return and common shares are redeemable based upon an appraised
value by a third party.
12.
Restricted Share Plan
In August 2003, the Company established the 2003
Restricted Share Plan ("the Plan") to award certain
employees of the Company restricted common shares of the Company
as an incentive to enhance their long-term performance as well
as an incentive to join or remain with the Company.
In November 2003, the Company granted
975,000 shares of its common shares to certain Company
executives under the Plan. These shares vest at the rate of 25%
every December 31, beginning December 31, 2004 through
December 31, 2007. These consolidated financial statements
do not include any expense relating to the grant of these shares
and none of these shares are vested as of September 30,
2004.
In April 2004, 25,000 shares of common
shares were issued to certain Company executives at
$2.32 per share.
F-85
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HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except share and per
share amounts)
13.
Net Loss per Common Share
The following table sets forth the computation of
income per common share
Nine Months Ended
September 30,
2004
2003
Net loss applicable to common shareholders
$
(5,479
)
$
(2,492
)
Weighted average number of common shares
    outstanding
9,000,000
9,000,000
Net loss per common share — basic and
    diluted
$
(0.61
)
$
(0.28
)
Shares issued pursuant to the Restricted Share
Plan (Note 13) are not included in the computation of net
loss per share as their effective was anti-dilutive.
14.
Business Segments
Business segment reporting information is as
follows:
Telephone
Other
Operations
Operations
Total
Nine months ended September 30,
    2004:
Operating revenues
$
161,155
$
29,855
$
191,010
Cost of services and products
25,721
18,137
43,858
Gross margin
135,434
11,718
147,152
Operating expenses
66,893
8,045
74,938
Depreciation and amortization
33,453
4,031
37,484
Net operating income
$
35,088
$
(358
)
$
34,730
Capital expenditures
$
15,366
$
1,906
$
17,272
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HOMEBASE ACQUISITION, LLC
Doing Business as
CONSOLIDATED COMMUNICATIONS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except share and per
share amounts)
Telephone
Other
Operations
Operations
Total
Nine months ended September 30,
    2003:
Operating revenues
$
67,535
$
31,203
$
98,738
Cost of services and products
3,813
18,749
22,562
Gross margin
63,722
12,454
76,176
Operating expenses
37,983
5,472
43,455
Depreciation and amortization
15,520
1,709
17,229
Net operating income
$
10,219
$
5,273
$
15,492
Capital expenditures
$
7,026
$
1,912
$
8,938
As of September 30, 2004:
Goodwill
$
320,716
$
20,990
$
341,706
Total assets
$
984,580
$
67,138
$
1,051,718
15.
Subsequent event
On                     ,
2005, Homebase merged its wholly owned subsidiary Consolidated
Communications Texas Holdings, Inc. into Communications Illinois
Holdings, Inc ("CCI Holdings"). Homebase subsequently
contributed all of its preferred and common shares to CCI
Holdings in exchange for all of the outstanding shares of CCI
Holdings.
F-87
Table of Contents
Table of Contents
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13.
Other Expenses of Issuance and
    Distribution.
The following table sets forth the costs and
expenses, other than underwriting discounts and commissions,
payable by us in connection with the offer and sale of the
securities being registered:
Amount to be Paid(1)
SEC Registration Fee
$
50,680
New York Stock Exchange Listing Fee
200,000
NASD Filing Fee
30,500
Legal Fees and Expenses
1,000,000
Printing and Engraving Expenses
200,000
Accounting Fees and Expenses
500,000
Transfer Agent's Fees and Expenses
5,000
Miscellaneous Expenses
248,820
Total
$
2,235,000
(1)
All amounts are estimates except the SEC
    registration fee, the NASD filing fee and the New York Stock
    Exchange listing fee.
Item 14.
Indemnification of Directors and
    Officers.
The Registrant is incorporated under the laws of
the State of Delaware. Section 145
("Section 145") of the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be
amended (the "DGCL"), provides that a Delaware
corporation may indemnify any persons who were, are or are
threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such
person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe that his conduct was illegal. A Delaware corporation may
indemnify any persons who are, were or are threatened to be
made, a party to any threatened, pending or completed action or
suit by or in the right of the corporation by reasons of the
fact that such person was a director, officer, employee or agent
of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or
settlement of such action or suit, provided such person acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, provided
that no indemnification is permitted without judicial approval
if the officer, director, employee or agent is adjudged to be
liable to the corporation. Where an officer, director, employee
or agent is successful on the merits or otherwise in the defense
of any action referred to above, the corporation must indemnify
him against the expenses which such officer or director has
actually and reasonably incurred.
Section 145 further authorizes a corporation
to purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation or enterprise,
II-1
Table of Contents
against any liability asserted against him and
incurred by him in any such capacity, arising out of his status
as such, whether or not the corporation would otherwise have the
power to indemnify him under Section 145.
Section 102(b)(7) of the DGCL permits a
corporation to include in its certificate of incorporation a
provision eliminating or limiting the personal liability of a
director of a corporation to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the
liability of a director (i) for any breach of the
directors' duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL (relating
to unlawful payment of dividends and unlawful stock purchase and
redemption) or (iv) for any transaction from which the
director derived an improper personal benefit.
The registrant's amended and restated
certificate of incorporation provides that to the fullest extent
permitted by the DGCL and except as otherwise provided in its
bylaws, none of the registrant's directors shall be liable
to it or its stockholders for monetary damages for a breach of
fiduciary duty. In addition, the registrant's amended and
restated certificate of incorporation provides for
indemnification of any person who was or is made or threatened
to be made a party to any action, suit or other proceeding,
whether criminal, civil, administrative or investigative,
because of his or her status as a director or officer of the
registrant, or service as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or
other enterprise at the request of the registrant to the fullest
extent authorized under the DGCL against all expenses,
liabilities and losses reasonably incurred by such person.
Further, all of the directors and officers of the registrant are
covered by insurance policies maintained and held in effect by
the registrants against certain liabilities for actions taken in
their capacities as such, including liabilities under the
Securities Act.
Item 15.
Recent Sales of Unregistered
    Securities.
On April 14, 2004, the registrant issued
$200,000,000 of 9 3/4% Senior Notes due 2012 (the
"Senior Notes"). The initial purchasers of the Senior
Notes and the principal amount purchased by each such purchaser
are listed in the table below.
Name of Purchaser
Principal Amount
Credit Suisse First Boston LLC
$
85,000,000
Citigroup Global Markets Inc.
$
85,000,000
Deutsche Bank Securities Inc.
$
30,000,000
Total
$
200,000,000
The issuance of the Senior Notes to the initial
purchasers was made in reliance on Section 4(2) under the
Securities Act and the Senior Notes were subsequently resold by
the initial purchasers pursuant to Rule 144A promulgated
thereunder. The sale of the Senior Notes was made without
general solicitation or advertising.
Item 16.
Exhibits and Financial Statement
    Schedules.
(a)
Exhibits.
A list of exhibits filed with this registration
statement is in the Exhibit Index that immediately precedes
such exhibits and is incorporated by reference herein.
(b)
Financial Statement
    Schedules.
II-2
Table of Contents
Report of Independent Registered Public
Accounting Firm
Homebase Acquisition, LLC
The Board of Directors
Homebase Acquisition, LLC
We have audited the consolidated financial
statements of Homebase Acquisition, LLC as of December 31,
2003 for year then ended and of the combined financial
statements of Illinois Consolidated Telephone Company and
Related Businesses (as predecessor company to Homebase
Acquisition, LLC) as of and for the years ended
December 30, 2002 and 2001, and have issued our reports
thereon dated March 8, 2004 (included elsewhere in this
Registration Statement). Our audits also included the financial
statement schedules listed in Item 16(b) of Form S-1
of this Registration Statement. This schedule is the
responsibility of the Company's and its predecessor's
management. Our responsibility is to express an opinion based on
our audits.
In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
March 8, 2004
Table of Contents
SCHEDULE II-VALUATION RESERVES
Uncollectible
Accounts and
Inventory
Write Offs,
Net of
Collection of
Balance at the
Charged to
Accounts
Beginning of
Costs and
Previously
Balance at the
Description
Period
Expenses
Written Off
End of Period
Homebase Acquisition, LLC
Year ending December 31, 2003
Allowance for doubtful accounts (shown as a
    deduction from Accounts receivable in the consolidated balance
    sheet)
$
1,850
$
3,412
$
3,425
$
1,837
Inventory valuation reserve (included in
    Inventories in the consolidated balance sheet)
$
150
$
—
$
7
$
143
Predecessor (Illinois Consolidated Telephone
    Company and Related Businesses)
Year ending December 30, 2002
Allowance for doubtful accounts (shown as a
    deduction from Accounts receivable in the combined balance
    sheets)
$
1,142
$
2,527
$
1,819
$
1,850
Inventory valuation reserve (included in
    Inventories in the combined balance sheets)
$
121
$
177
$
148
$
150
Predecessor (Illinois Consolidated Telephone
    Company and Related Businesses)
Year ending December 30, 2001
Allowance for doubtful accounts (shown as a
    deduction from Accounts receivable in the combined balance
    sheets)
$
831
$
1,195
$
884
$
1,142
Inventory valuation reserve (included in
    Inventories in the combined balance sheets)
$
76
$
45
$
—
$
121
Item 17.
Undertakings.
(a) The undersigned registrant hereby
undertakes to provide to the underwriters at the closing
specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the provisions described under Item 14 above,
or otherwise, the registrant has been advised that in the
opinion of the SEC such indemnification is against public policy
as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby
undertakes that:
(1) For purposes of determining any
    liability under the Securities Act, the information omitted from
    the form of prospectus filed as part of this registration
    statement in reliance upon Rule 430A
Table of Contents
and contained in a form of prospectus filed by
    the registrant pursuant to Rule 424(b)(1) or (4) or
    497(h) under the Securities Act shall be deemed to be part of
    this registration statement as of the time it was declared
    effective.
(2) For the purpose of determining any
    liability under the Securities Act, each post-effective
    amendment that contains a form of prospectus shall be deemed to
    be a new registration statement relating to the securities
    offered therein, and this offering of such securities at that
    time shall be deemed to be the initial bona fide offering
    thereof.
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this registration
statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mattoon,
State of Illinois, on the 8th day of December, 2004.
CONSOLIDATED COMMUNICATIONS ILLINOIS
    HOLDINGS, INC.
By:
/s/ ROBERT J. CURREY
Name: Robert J. Currey
Title:   President and Chief
    Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints and
hereby authorizes each of Robert J. Currey and Steven L.
Childers his true and lawful attorney-in-fact, acting alone,
with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign
on such person's behalf, individually and in each capacity
stated below, any and all amendments (including any
post-effective amendments and supplements) to this registration
statement, and any additional registration statements filed
pursuant to Rule 462(b), and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the SEC, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully and to all
intents and purposes such person might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact
and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities
Act of 1933, this registration statement on Form S-1 has
been signed by the following persons in the capacities and on
the date indicated.
Signature
Title
Date
/s/ ROBERT J. CURREY
Robert J. Currey
Director Chief Executive Officer
(Principal Executive Officer)
December 8, 2004
/s/ STEVEN L. CHILDERS
Steven L. Childers
Chief Financial Officer (Principal
Financial and Accounting Officer)
December 8, 2004
/s/ RICHARD A. LUMPKIN
Richard A. Lumpkin
Chairman of the Board of Directors
December 8, 2004
/s/ KEVIN J. MARONI
Kevin J. Maroni
Director
December 8, 2004
/s/ MARK A. PELSON
Mark A. Pelson
Director
December 8, 2004
Table of Contents
EXHIBIT INDEX
Exhibit
No.
Description
1
.1**
Form of Underwriting Agreement
2
.1*
Stock Purchase Agreement, dated January 15,
    2004, between Pinnacle One Partners, L.P. and Consolidated
    Communications Acquisitions Texas Corp. (f/k/a Homebase
    Acquisition Texas Corp.)
3
.1**
Form of Amended and Restated Certificate of
    Incorporation to be effective upon closing
3
.2**
Form of Amended and Restated Bylaws to be
    effective upon closing
4
.1**
Specimen Class A Common Stock Certificate
4
.2**
Specimen Class B Common Stock Certificate
4
.3*
Indenture, dated April 14, 2004, by and
    among Consolidated Communications Illinois Holdings, Inc.,
    Consolidated Communications Texas Holdings, Inc., Homebase
    Acquisition, LLC and Wells Fargo Bank, N.A., as Trustee, with
    respect to the 9 3/4% Senior Notes due 2012
4
.4*
Form 9 3/4% Senior Note due 2012
4
.5*
Registration Rights Agreement, dated
    April 14, 2004, among Consolidated Communications Illinois
    Holdings, Inc., Consolidated Communications Texas Holdings,
    Inc., Homebase Acquisition, LLC and Credit Suisse First Boston
    LLC, Citigroup Global Markets Inc. and Deutsche Bank Securities
    Inc.
4
.6**
Registration Rights Agreement,
    dated           ,
    2005, among Consolidated Communications Holdings, Inc. and
    Central Illinois Telephone, LLC, Providence Equity Partners IV,
    L.P. and Spectrum Equity Investors IV, L.P.
5
.1**
Opinion of King & Spalding LLP
10
.1**
Form of Amended and Restated Credit Agreement
10
.2**
Form of Amended and Restated Pledge &
    Guarantee Agreement
10
.3**
Form of Pledge Agreement
10
.4**
Form of Security Agreement
10
.5**
Form of CCI Illinois Borrower Group Guarantee
10
.6**
Form of CCI Texas Borrower Group Guarantee
10
.7*
Services and Facilities Agreement, dated
    December 31, 2002, among Consolidated Communications, Inc.,
    Illinois Consolidated Telephone Company, Consolidated
    Communications Market Response, Inc., Consolidated
    Communications Public Services, Inc., Consolidated
    Communications Operator Services, Inc., Consolidated
    Communications Mobile Services, Inc., Consolidated
    Communications Business Services, Inc. and Consolidated
    Communications Network Services, Inc.
10
.8*
Lease Agreement, dated December 31, 2002,
    between LATEL, LLC and Consolidated Market Response, Inc.
10
.9*
Lease Agreement, dated December 31, 2002,
    between LATEL, LLC and Illinois Consolidated Telephone Company
10
.10*
Master Lease Agreement, dated February 25,
    2002, between General Electric Capital Corporation and TXU
    Communications Ventures Company
10
.11*
Amendment No. 1 to Master Lease Agreement,
    dated February 25, 2002, between General Electric Capital
    Corporation and TXU Communications Ventures Company, dated
    March 18, 2002
10
.12*
Master Lease Agreement, dated February 25,
    2002, between General Electric Capital Corporation and TXU
    Communications Ventures Company
10
.13*
Amendment No. 1 to Master Lease Agreement,
    dated February 25, 2002, between General Electric Capital
    Corporation and TXU Communications Ventures Company, dated
    March 18, 2002
10
.14*
Homebase Acquisition, LLC 2003 Restricted Share
    Plan
10
.15*
Form of Grant of Restricted Share Award
21
.1**
List of subsidiaries of registrant
Table of Contents
Exhibit
No.
Description
23
.1
Consent of Ernst & Young LLP,
    Independent Registered Public Accounting Firm
23
.2
Consent of Deloitte & Touche LLP,
    Independent Registered Public Accounting Firm
23
.3**
Consent of King & Spalding LLP (included
    in Exhibit 5.1)
24
.1
Powers of Attorney (set forth on the signature
    page hereto)
*
Previously filed on October 26, 2004 as an
    exhibit to the Registrant's Registration Statement on
    Form S-4 (File No. 333-119968)
**
To be filed by amendment