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FairPoint Communications Reports First Quarter 2009 Results

CHARLOTTE, N.C., May 5 /PRNewswire-FirstCall/ -- FairPoint Communications, Inc. (NYSE: FRP) ("FairPoint" or the "Company"), a leading provider of communications services to communities across the country, today announced its financial results for the three months ended March 31, 2009. FairPoint completed its acquisition of Verizon Communication's wireline and related operations in Maine, New Hampshire and Vermont (the "Northern New England business") on March 31, 2008. As a result of that transaction, which was treated as a "reverse acquisition" for accounting purposes, the statement of operations for the three months ended March 31, 2008 reflects the operating results of the Northern New England business only. For purposes of analysis, the statement of operations for the three months ended March 31, 2008 is presented on a pro forma basis, assuming the acquisition and related transactions had occurred on January 1, 2008.

    Operational Highlights
    --  Operational trends continue to improve following the early February
        systems cutover for the northern New England operations. Bill cycles
        are current and processing on a normal schedule; provisioning of new
        orders has increased steadily, although a sizable backlog remains; and
        call center volumes are nearly at pre-cutover levels.

    --  The rate of decline in access line equivalents in the northern New
        England operations continued to improve as access lines declined by
        1.3% in the first quarter of 2009 (or 1.8% normalizing for a one-time
        adjustment to access lines identified during the systems cutover)
        compared with a decline of 2.7% in the fourth quarter of 2008.


    --  Total high-speed data (HSD) subscribers increased by 1.9% (or 1.3%
        normalizing for a one-time cutover related adjustment) in the first
        quarter compared with a 0.4% increase in the final quarter of 2008.
        HSD subscribers reached nearly 301,000 and penetration increased to
        21.5% on a consolidated basis as of March 31, 2009.


    --  Revenue totaled $311.6 million for the first quarter of 2009, a
        decline of 2.4% compared with $319.3 million in the fourth quarter of
        2008.


    --  Adjusted EBITDA (a non-GAAP financial measure as defined herein)
        totaled $123.2 million for the first quarter of 2009, compared with
        $137.5 million in the fourth quarter of 2008. For purposes of the
        covenants contained in the Company's credit facility, Adjusted EBITDA
        totaled $125.1 million in the first quarter of 2009.

"During the first quarter of 2009, we completed an unprecedented cutover to our new systems for the northern New England operations," stated Gene Johnson, Chairman and CEO of FairPoint. "While the systems cutover has resulted in a disruption to our operations and has negatively impacted or inconvenienced many of our customers, over the past several months, measurable progress has been achieved in key areas and we expect to largely return to a normal level of operations by the end of the second quarter. After some initial delay, billing cycles are up to date and are now being processed on a normal schedule, provisioning of new orders has increased steadily and we are making progress in reducing the initial cutover driven backlog. Also, call volumes into our customer service centers have declined significantly and are nearly at pre-cutover levels," Johnson continued.

"Our financial performance was negatively impacted during the first quarter as we continued to incur substantial cutover-related costs and assumed responsibility for all services previously performed by Verizon under the transition services agreement. Looking ahead, we expect to continue to incur cutover related costs, at a declining rate, during the second quarter as we strive to return to normal operating levels. We continue to expect improved results in the second half of the year as we turn our focus to growing revenue and improving our cost structure," concluded Johnson.

First Quarter Results

Revenue for the first quarter of 2009 was $311.6 million, compared with $319.3 million for the fourth quarter of 2008 and pro forma revenue of $349.4 million for the first quarter of 2008. Revenue declined 2.4% compared to the fourth quarter of 2008 reflecting the continued decrease in access line equivalents, the effects of seasonality in the Company's northern New England operations, and the weak economic environment. First quarter 2009 revenue has been reduced by $1.7 million for the estimated effect of pending disconnects that had not been processed through the Company's systems on a timely basis as a result of the systems cutover and to give effect to anticipated billing adjustments and credits that had not yet been processed as of March 31, 2009.

Operating expenses, excluding depreciation, for the first quarter of 2009 totaled $237.6 million, a decline of $31.2 million compared to the fourth quarter of 2008. The improvement in operating expenses was driven primarily by a decrease in costs incurred under the transition services agreement ("TSA") with Verizon which was terminated at the end of January. Excluding transition services and other cutover related costs, operating expenses increased by $10.0 million, primarily reflecting the additional costs incurred by the Company for services that were previously covered under the TSA with Verizon.

Adjusted EBITDA was $123.2 million for the three months ended March 31, 2009, compared with $137.5 million for the fourth quarter of 2008 and pro forma Adjusted EBITDA of $134.3 million for the three months ended March 31, 2008. The decline in Adjusted EBITDA from the fourth quarter of 2008 primarily reflects the reduced level of revenue and the higher operating expenses incurred for services previously provided under the TSA with Verizon.

For purposes of the covenants contained in the Company's credit facility, Adjusted EBITDA totaled $125.1 million in the first quarter of 2009, including income of $15.0 million related to the transition agreement reached with Verizon on January 30, 2009. The one-time gain from the settlement with Verizon was largely offset by costs incurred in connection with the northern New England systems cutover which exceeded the cumulative cap for allowed cutover related add-backs as provided by the Company's credit agreement. For additional information, refer to the attached reconciliation of Adjusted EBITDA.

Operating Metrics

During the first quarter of 2009, the northern New England operations experienced a 1.3% decline in access line equivalents compared with a 2.7% decline in the fourth quarter of 2008. Access line equivalents for FairPoint's operations prior to the acquisition of the Northern New England business ("Legacy FairPoint") declined by 0.8% in the first quarter compared with a decrease of 2.6% in the fourth quarter of 2008. The improvement in the trend for access line equivalents primarily reflected growth in HSD subscribers, reduced business access line losses, and the impact of higher seasonal disconnects experienced in the fourth quarter of 2008. Also impacting access line equivalents were approximately 6,500 lines which were identified as a result of the cutover from Verizon systems. These access lines were incorrectly categorized by Verizon and as a result were not previously reported in the Company's access line count. Excluding the impact of this one-time increase in access lines, the quarter over quarter decline in access line equivalents would have been 1.8% for the northern New England operations compared with 2.7% in the fourth quarter of 2008. Access line equivalents in northern New England have been adjusted for pending disconnect orders that had not been processed through the Company's systems on a timely basis as of March 31, 2009 as a result of the systems cutover. No adjustments have been made for pending new orders that have not been processed, which will be reflected in the access line counts once they are placed in service and are being billed.

Total access line equivalents were 1,700,673 at March 31, 2009 compared with 1,865,747 at March 31, 2008, a decline of 8.8%. During the first quarter, total access line equivalents declined by 1.2%, or 1.6% after normalizing for the 6,500 access lines identified during the systems cutover, compared with a decline of 2.7% during the fourth quarter of 2008.

During the first quarter of 2009, HSD subscribers in the northern New England operations increased by 1.6% compared with an increase of 0.7% during the fourth quarter of 2008. Excluding the impact of additional lines identified during the systems cutover, the quarter over quarter increase in HSD subscribers for the northern New England operations would have been 0.8%. HSD subscribers in Legacy FairPoint's properties increased by 2.8% compared with a decrease of 0.3% during the fourth quarter of 2008.

Total combined HSD subscribers reached 300,882 as of March 31, 2009, an increase of 1.9% (or 1.3% normalizing for the one-time adjustment resulting from the systems cutover) compared with 295,360 at December 31, 2008 and 1.8% compared with 295,578 at March 31, 2008. Total HSD penetration was 21.5% as of March 31, 2009, compared with 20.7% at December 31, 2008 and 18.8% at March 31, 2008.

Long distance subscribers totaled 623,497 at March 31, 2009, down 1.3% from 631,458 as of December 31, 2008 and down 7.1% from March 31, 2008. Long distance penetration was 44.5% at March 31, 2009, compared with 44.3% as of December 31, 2008 and 42.8% a year ago.



    Access Line Equivalents

                                                      % change    % change
                                                     3/31/08 to  12/31/08 to
                     3/31/2009 12/31/2008  3/31/2008   3/31/09     3/31/09

    Residential access lines
    ------------------------
     Legacy
      FairPoint       162,059   165,409    178,659     (9.3%)      (2.0%)
     Northern
      New England     741,906   761,201    851,961    (12.9%)      (2.5%)
                      -------   -------    -------
                      903,965   926,610  1,030,620    (12.3%)      (2.4%)
    Business
     access lines
    -------------
     Legacy
      FairPoint        51,344    52,402     54,692     (6.1%)      (2.0%)
     Northern
      New England     339,074   340,094    365,307     (7.2%)      (0.3%)
                      -------   -------    -------
                      390,418   392,496    419,999     (7.0%)      (0.5%)

    Wholesale access
     lines            105,408   107,243    119,550    (11.8%)      (1.7%)

                   ---------- --------- ----------    -------      ------
       Total voice
        access
        lines       1,399,791 1,426,349  1,570,169    (10.9%)      (1.9%)
                   ---------- --------- ----------    -------      ------

    HSD subscribers
    ---------------
     Legacy
      FairPoint        76,619    74,524     70,168      9.2%        2.8%
     Northern
      New England     224,263   220,836    225,410     (0.5%)       1.6%
                      -------   -------    -------
     Total HSD
      subscribers     300,882   295,360    295,578      1.8%        1.9%

     Total access
      line
      equivalents   1,700,673 1,721,709  1,865,747     (8.8%)      (1.2%)
                    ========= =========  =========    =======     =======

     Long distance
      subscribers     623,497   631,458    671,278     (7.1%)      (1.3%)
                    ========= =========  =========    =======     =======

Cutover Update

As previously reported, the Company began to operate the northern New England operations on its new systems on February 9, 2009. During the period from January 23, 2009 until January 30, 2009, all retail orders were taken manually and following cutover were entered into the new systems. From February 2, 2009 through February 9, 2009, the Company manually processed only emergency orders, although the Company continued to provide repair and maintenance services to all customers. Following the cutover to its new systems, the Company experienced increased handle time by customer service representatives for new orders, reduced levels of order flow across the systems which caused delays in provisioning and installation, delays in processing bill cycles and collection treatment efforts, and significantly higher call volumes into its customer service centers. While many of these issues were anticipated, the magnitude of difficulties experienced was greater than the Company's expectations.

Since that time, the Company has continued to work diligently in each of these key areas and has made measurable progress. Order handle time, although still above pre-cutover levels, has been reduced significantly; provisioning of new orders has increased steadily, although a sizable cutover related backlog still remains; all bill cycles have been caught up and bills are now being processed on a normal schedule and call volumes into the customer service centers have been substantially reduced and are nearly at pre-cutover levels. Collection efforts, however, are hampered by a lack of systems functionality which adversely impacts liquidity. Based upon the progress made to date and our current plans, the Company continues to expect that it will largely return to normal operations by the end of the second quarter of 2009.

Cash Flow and Liquidity

Cash flow from operations totaled $46.1 million for the three months ended March 31, 2009, while capital expenditures totaled $57.7 million for the three months ended March 31, 2009.

In the first quarter of 2009, operating cash flow of $46.1 million was reduced by payments totaling $19.9 million related to the transition services and other agreements with Verizon and costs related to the systems cutover activities totaling $19.4 million. Normalizing for these non-recurring payments, net cash provided by operating activities for the first quarter of 2009 would have been $85.4 million.

As previously disclosed, on January 30, 2009, the Company entered into an agreement (the "Transition Agreement") with Verizon providing for the acceleration of $30.0 million of payments that could have been owed to FairPoint, pursuant to regulatory orders, based on access line losses during the first two years following the March 31, 2008 acquisition ($15 million of which would have been due on March 31, 2009 with the remaining $15 million potentially due on March 31, 2010). Verizon also waived any potential refund of these amounts and agreed to provide credits totaling $7.7 million against amounts owed by FairPoint under the TSA and related agreements. These amounts were used to offset the approximately $45.4 million owed by the Company to Verizon under these agreements, including a one-time fee of $34.0 million due at cutover, with the balance related to the purchase of certain internet access hardware. As a result, the Company made a final payment to Verizon of approximately $7.7 million on February 20, 2009. The settlements set forth in the Transition Agreement resulted in a $22.7 million improvement in the Company's cash flow and income of $15.0 million related to the acceleration and recognition of the potential 2010 payment in the first quarter of 2009.

On January 21, 2009, as reported previously, FairPoint executed an amendment to its Credit Agreement pursuant to which Bank of America, N.A. was appointed as administrative agent replacing Lehman Commercial Paper Inc. In addition, among other things, the amendment clarifies that FairPoint may increase the annual dividend back to $1.03 per share, subject to certain conditions. The amendment also permits the repurchase of FairPoint's 13-1/8% senior notes due 2018, subject to certain conditions, including compliance with its tax sharing agreement with Verizon. Subsequently, the Company obtained approval from Verizon permitting the repurchase of its senior notes.

During the first quarter, the Company repurchased $8.0 million aggregate principal amount of its senior notes for $2.2 million in cash. In addition, the Company also prepaid $3.3 million of borrowings under its term loan credit facility. In total, the Company retired $11.3 million of outstanding debt during the quarter, in compliance with regulatory orders in Maine, New Hampshire and Vermont.

During the first quarter, the Company drew down $50.0 million under its $170 million revolving credit facility. As of March 31, 2009, the Company had $4.7 million remaining available under its revolving credit facility, net of letters of credit totaling $15.3 million. At March 31, 2009, the Company also had pending commitments for additional letters of credit totaling $3.7 million.

Cash and cash equivalents at March 31, 2009 totaled $92.5 million (excluding restricted cash totaling an additional $55.2 million). As of March 31, 2009, the Company was in compliance with the financial covenants contained in its credit facility. On April 1, 2009, the Company made its semi-annual interest payment on the senior notes totaling $35.6 million. Cash and cash equivalents at April 30, 2009 totaled approximately $69 million. While the Company currently believes that cash generated from operations and cash on hand should be sufficient to meet its cash obligations for the next twelve months, any delays or disruptions in cash flow would place further strains on the Company's liquidity position.

In addition, the continuing adverse general economic conditions, the operational difficulties experienced following the systems cutover, the additional incremental costs incurred to operate the business following cutover and the resulting inability to fully execute on the Company's 2009 operating plan and compete effectively in the marketplace, are causing the Company to be at risk of failing to comply with the interest coverage covenant contained in its credit facility as early as the covenant measurement period ending June 30, 2009. In the event of noncompliance, the Company would seek to obtain a waiver from its lenders or seek to amend the covenants. There can be no assurance that such a waiver or amendment could be obtained at all or on terms, including any costs or fees associated therewith, reasonably acceptable to the Company in light of its current liquidity position and expected future cash flows.

FairPoint is considering engaging a financial advisor to evaluate its current capital structure and to explore options with respect to a potential restructuring. In addition, the Company intends to seek from time to time to repurchase a portion of its 13-1/8% notes. Such repurchases, if any, will depend on prevailing market conditions, the Company's liquidity needs, contractual restrictions, including those contained in the tax sharing agreement with Verizon, and the agreements governing the Company's indebtedness, and other factors.

Conference Call and Webcast

As previously announced, FairPoint will host a conference call and simultaneous webcast to discuss its first quarter results at 8:30 a.m. EDT on May 6, 2009. Participants should call (888) 562-3356 (US/Canada) or (973) 582-2700 (international) at 8:20 a.m. (EDT) and request the FairPoint Communications First Quarter 2009 Earnings Call or Conference ID# 97880446. A telephonic replay will be available for anyone unable to participate in the live call. To access the replay, call (800) 642-1687 (US/Canada) or (706) 645-9291 (international) and enter confirmation code 97880446. The recording will be available from Wednesday, May 6, 2009 at 11:30 a.m. (EDT) through Wednesday, May 13, 2009 at 11:59 p.m. (EDT).

A live broadcast of the earnings conference call will be available via the Internet at www.fairpoint.com under the Investors section. An online replay will be available beginning later in the morning on May 6, 2009 and will remain available for one year.

During the conference call, representatives of the Company may discuss and answer one or more questions concerning the Company's business and financial matters. The responses to these questions may contain information that has not been previously disclosed.

The information in this press release should be read in conjunction with the financial statements and footnotes contained in FairPoint's Quarterly Report on Form 10-Q which will be filed with the Securities and Exchange Commission ("SEC"). FairPoint's results for the quarter ended March 31, 2009 are subject to the completion and filing with the SEC of its Quarterly Report on Form 10-Q.

Non-GAAP Financial Measures

Adjusted EBITDA (including Adjusted EBITDA as calculated under FairPoint's credit facility) is a non-GAAP financial measure (i.e., it is not a measure of financial performance under generally accepted accounting principles) and should not be considered in isolation or as a substitute for consolidated statements of operations and cash flow data prepared in accordance with GAAP. In addition, the non-GAAP financial measures used by FairPoint may not be comparable to similarly titled measures of other companies. For a definition of and additional information regarding Adjusted EBITDA, and a reconciliation of such measure to the most comparable financial measure calculated in accordance with GAAP, please see the attachments to this press release.

FairPoint believes Adjusted EBITDA is useful to investors because Adjusted EBITDA is commonly used in the communications industry to analyze companies on the basis of operating performance, liquidity and leverage. FairPoint believes Adjusted EBITDA allows a standardized comparison between companies in the industry, while minimizing the differences from depreciation policies, financial leverage and tax strategies. In addition, certain covenants in FairPoint's credit facility and the indenture governing its senior notes as well as the regulatory orders issued in connection with the acquisition of the Northern New England business contain ratios based on Adjusted EBITDA. The restricted payment covenants in such agreements and orders regulating the payment of dividends on FairPoint's common stock are also based on Adjusted EBITDA. If FairPoint's Adjusted EBITDA were to decline below certain levels, covenants in FairPoint's credit facility that are based on Adjusted EBITDA may be violated and could cause, among other things, a default under such credit facility. In addition, such a decline could result in FairPoint's inability to pay dividends on its common stock in the future.

While FairPoint uses Adjusted EBITDA in managing and analyzing its business and financial condition and believes it is useful to its management and investors for the reasons described above, Adjusted EBITDA has certain shortcomings. In particular, Adjusted EBITDA does not represent the residual cash flows available for discretionary expenditures, since items such as debt repayment and interest payments are not deducted from such measure. FairPoint's management compensates for the shortcomings of Adjusted EBITDA by utilizing it in conjunction with its comparable GAAP financial measures.

About FairPoint

FairPoint Communications, Inc. is an industry leading provider of communications services to communities across the country. Today, FairPoint owns and operates local exchange companies in 18 states offering advanced communications with a personal touch, including local and long distance voice, data, Internet, television and broadband services. FairPoint is traded on the New York Stock Exchange under the symbol FRP. Learn more at www.fairpoint.com

This press release may contain forward-looking statements by FairPoint that are not based on historical fact, including, without limitation, statements containing the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions and statements. Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results, events or developments to differ materially from those expressed or implied by these forward-looking statements. Such factors include those risks described from time to time in FairPoint's filings with the SEC, including, without limitation, the risks described in FairPoint's most recent Annual Report on Form 10-K on file with the SEC. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. All information is current as of the date this press release is issued, and FairPoint undertakes no duty to update this information.




                FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES
                Unaudited Condensed Consolidated Balance Sheets


                                        March 31,       December 31,
                                          2009             2008
                                          ----             ----
                                          (Dollars in thousands)
              Assets
    Current assets:
      Cash                              $92,542           $70,325
      Restricted cash                     4,407             8,144
      Accounts receivable, net          192,403           173,589
      Materials and supplies             36,032            38,694
      Other                              26,802            28,747
      Deferred income tax, net           33,792            31,418
                                         ------            ------
    Total current assets                385,978           350,917
                                        -------           -------
    Property, plant, and
     equipment, net                   2,014,700         2,013,515
    Intangibles assets, net             228,748           234,481
    Prepaid pension asset                 9,225             8,708
    Debt issue costs, net                24,695            26,047
    Restricted cash                      50,796            60,359
    Other assets                         16,470            21,094
    Goodwill                            595,120           619,372
                                        -------           -------
    Total assets                     $3,325,732        $3,334,493
                                     ==========        ==========

         Liabilities and
         Stockholders' Equity
    Current liabilities:
      Current portion of
       long-term debt                   $45,000           $45,000
      Current portion of capital
       lease obligations                  1,999             2,231
      Accounts payable                  169,993           147,778
      Dividends payable                       -            23,008
      Accrued interest payable           36,634            18,844
      Interest rate swaps                39,860            41,274
      Other non-operating
       accrued liability                      -            19,000
      Other accrued liabilities          70,556            70,887
                                         ------            ------
    Total current liabilities           364,042           368,022
                                        -------           -------

    Long-term liabilities:
      Capital lease obligations           7,107             7,522
      Accrued pension obligation         48,154            46,801
      Employee benefit obligations      233,012           225,840
      Deferred income taxes             128,862           154,757
      Unamortized investment
       tax credits                        5,204             5,339
      Other long-term liabilities        28,332            35,492
      Long-term debt, net of
       current portion                2,464,306         2,425,253
      Interest rate swap agreements      30,197            41,681
                                         ------            ------
    Total long-term liabilities       2,945,174         2,942,685
                                      ---------         ---------
    Stockholders' equity:
      Common stock                          895               890
      Additional paid-in capital        735,865           735,719
      Retained earnings (deficit)      (587,096)         (578,319)
      Accumulated other
       comprehensive loss              (133,148)         (134,504)
                                       --------          --------
    Total stockholders' equity           16,516            23,786
                                         ------            ------
    Total liabilities and
     stockholders' equity            $3,325,732        $3,334,493
                                     ==========        ==========



                 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES
          Unaudited Condensed Consolidated Statements of Operations


                                              Three months ended
                                                   March 31,
                                                   ---------
                                                2009      2008
    ---------------------------------------------------------------
                                             (Dollars in thousands)

    Revenues                                  $311,630  $282,414
    ---------------------------------------------------------------
    Operating expenses:
      Cost of services and sales, excluding
       depreciation and amortization           145,147   135,837
      Selling, general and administrative
       expense, excluding depreciation and
       amortization                             92,412    63,116
      Depreciation and amortization             67,867    53,925
    ---------------------------------------------------------------
    Total operating expenses                   305,426   252,878
    ---------------------------------------------------------------
    Income from operations                       6,204    29,536
    ---------------------------------------------------------------
    Other income (expense):
      Interest expense                         (53,479)  (14,522)
      Gain on derivative instruments            12,898         -
      Gain on early retirement of debt           4,863         -
      Other                                     15,915       986
    ---------------------------------------------------------------
    Total other expense                        (19,803)  (13,536)
    ---------------------------------------------------------------
    Income (loss) before income taxes          (13,599)   16,000
    Income tax (expense) benefit                 4,822    (6,457)
    ---------------------------------------------------------------
    Net income (loss)                          $(8,777)   $9,543
    ---------------------------------------------------------------

    Weighted average shares outstanding:
      Basic                                     89,151    53,761
    ---------------------------------------------------------------
      Diluted                                   89,151    53,761
    ---------------------------------------------------------------

    Earnings per share:
      Basic                                     $(0.10)    $0.18
    ---------------------------------------------------------------
      Diluted                                    (0.10)     0.18
    ---------------------------------------------------------------



                FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES
           Unaudited Condensed Consolidated Statements of Cash Flows


                                                    Three months ended
                                                         March 31,
                                                        ----------
                                                     2009       2008
                                                     ----       ----
                                                  (Dollars in thousands)
    Cash flows from operating activities:
      Net income                                  $(8,777)     $9,543
                                                  -------      ------
    Adjustments to reconcile net income to
     net cash provided by operating activities
     of continuing operations excluding
     impact of acquisitions:
        Deferred income taxes                      (4,925)     16,021
        Provision for uncollectible revenue         5,569       3,874
        Depreciation and amortization              67,867      53,925
        SFAS 106 post-retirement accruals           7,732      22,522
        Gain on derivative instruments            (12,898)          -
        Gain on early retirement of debt           (4,863)          -
        Other non cash items                        2,557     (27,956)
        Changes in assets and liabilities
         arising from operations:
           Accounts receivable                    (22,201)     (8,067)
           Prepaid and other assets                 2,068     (20,332)
           Accounts payable and other
            accrued liabilities                    14,126     (37,870)
           Other assets and liabilities, net         (176)    (11,956)
                                                  -------     -------
             Total adjustments                     54,856      (9,839)
                                                  -------     -------
               Net cash provided by
                operating activities of
                continuing operations              46,079        (296)
                                                  -------     -------
    Cash flows from investing activities
     of continuing operations:
      Acquired cash balance, net                        -      11,552
      Net capital additions                       (57,660)    (24,604)
      Net proceeds from sales of
       investments and other assets                   110           -
                                                  -------     -------
        Net cash used in investing activities
         of continuing operations                 (57,550)    (13,052)
                                                  -------     -------
    Cash flows from financing activities
     of continuing operations:
      Loan origination costs                         (494)    (29,238)
      Proceeds from issuance of long-term debt     50,000   1,635,500
      Repayments of long-term debt                 (5,475)   (685,441)
      Contributions from Verizon                        -     344,629
      Restricted cash                              13,300     (80,886)
      Repayment of capital lease obligations         (647)       (255)
      Dividends paid to stockholders              (22,996) (1,160,000)
                                                  -------     -------
        Net cash provided by (used in)
         financing activities of
         continuing operations                     33,688      24,309
                                                  -------     -------
        Net increase in cash                       22,217      10,961
    Cash, beginning of period                      70,325           -
                                                  -------     -------
    Cash, end of period                           $92,542     $10,961
                                                  =======     =======



                     FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES
              Unaudited Pro Forma Combined Statement of Operations (Non-GAAP)
                        For the Three Months Ended March 31, 2008
                          (in thousands, except per share data)

                  Northern                                        Pro Forma
                    New                    Merger                Results for
                  England      Legacy      Related    Pro Forma   Combined
                business (A) FairPoint (B) Costs (C)  Adjustments Businesses
                ------------------------------------------------------------

    Revenues     $282,414      67,927          -        (923)(D)   $349,418
                ------------------------------------------------------------
    Operating
     expenses:
      Cost of
       services
       and sales,
       excluding
       depreciation
       and
       amort-
       ization    135,837      27,511          -     (10,131)(D)(E) 153,217
      Selling,
       general
       and
       adminis-
       trative
       expense     63,116      12,010     47,000     (50,286)(E)(F)  71,840
      Depreciation
       and
       amort-
       ization     53,925      13,299          -       5,436(G)      72,660
      Gain on
       sale of
       operating
       assets           -           -          -           -              -
                ------------------------------------------------------------
         Total
          operating
          expenses
                  252,878      52,820     47,000     (54,981)       297,717
                ------------------------------------------------------------
         Income
          from
          operations
                   29,536      15,107    (47,000)     54,058         51,701
                ------------------------------------------------------------
    Other income
     (expense):
       Interest
        expense   (14,522)    (11,083)         -     (21,510)(H)    (47,115)
       Interest
        and
        dividend
        income          -         713          -           -            713
       Loss on
        derivative
        instruments     -     (22,259)         -           -(I)     (22,259)
       Other
        nonoperating,
        net           986     (32,419)         -      32,419            986
                ------------------------------------------------------------
         Total
          other
          expense
                  (13,536)    (65,048)         -      10,909        (67,675)
                ------------------------------------------------------------

         Income
          before
          income
          taxes    16,000     (49,941)   (47,000)     64,967        (15,974)
    Income tax
     (expense)
     benefit       (6,457)      6,567     25,000(J)  (18,650)(J)      6,460
                ------------------------------------------------------------
         Net
          income   $9,543     (43,374)   (22,000)     46,317        ($9,514)
                ============================================================

    Basic
     weighted
     average
     shares
     outstanding
                 53,761.0    34,770.0                              89,025.0
    Diluted
     weighted
     average
     shares
     outstanding
                 53,761.0    34,770.0                              89,025.0

    Basic
     earnings per
     common share:
      Continuing
       operations   $0.18                                            ($0.11)

    Diluted
     earnings per
     common share:
      Continuing
       operations   $0.18                                            ($0.11)


    Note:  The unaudited pro forma combined financial statements have been
    prepared using the purchase method of accounting as if the transaction
    with Verizon had been completed as of January 1, 2008.  The unaudited pro
    forma combined financial statements give effect to (1) the contribution
    by Verizon of assets comprising its local exchange business in Maine, New
    Hampshire and Vermont to Spinco, a subsidiary of Verizon, (2) the
    spin-off of Spinco to Verizon stockholders and (3) the merger of Spinco
    with FairPoint accounted for as a reverse acquisition of FairPoint by
    Spinco, with Spinco considered the accounting acquirer.

    The accompanying notes are an integral part of these unaudited pro forma
    combined condensed financial statements.

    (A) Reflects the standalone results for the Northern New England business
    for the quarter ended March 31, 2008.

    (B) Reflects the standalone results for the Legacy FairPoint business for
    the quarter ended March 31, 2008.

    (C) Reflects nonrecurring transition and transaction costs incurred by
    FairPoint prior to the closing of the merger.

    (D) Reflects revenues and expenses of approximately $2 million associated
    with VOIP and wireless directory assistance services as well as customers
    of VSSI-CPE FairPoint.

    (E) Reflects an actuarially determined reduction of $10 million of pension
    and OPEB expense related to employees not transferred to Spinco.  Of this
    amount, $8 million was included in cost of services and sales and $2
    million was included in selling, general and administrative expense.

    (F) Reflects the elimination of nonrecurring transition and transaction
    costs related to the merger (see Note C above).

    (G) Reflects the amortization of customer relationship intangible assets
    acquired in the merger.  Such intangibles are being amortized over a
    weighted average estimated useful life of 9.7 years.

    (H) Reflects additional interest expense related to the debt structure of
    FairPoint following completion of the merger, net of $17 million of
    interest expense allocated by Verizon to the Northern New England
    business.

    (I) Reflects the elimination of Legacy FairPoint's loss on derivative
    instruments related to forward interest rate swap agreements that were
    contingent upon completion of the merger.

    (J) Reflects the income tax effects associated with the adjustments
    described above.



                FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES
                   Revenue and Operating Metrics (unaudited)
                             (Dollars in thousands)


                                        Three Months Ended
                                        ------------------
                                                                      Pro
                                                                    Forma (1)
                 March 31,  December 31,  September 30,   June 30,  March 31,
                   2009        2008           2008         2008       2008
                 ------------------------------------------------------------
    Revenues:
    ---------
    Local
     calling
     services    $129,032    $135,610      $143,415     $149,591     $149,654
    Network
     access
     (2)(3)        97,038      96,295        94,094      101,402      108,538
    Long
     distance
     services      45,375      46,312        50,161       49,090       48,624
    Data and
     Internet
     services      28,405      29,461        32,873       30,552       30,653
    Other
     services(3)   11,780      11,582         7,712       14,055       11,949
                -------------------------------------------------------------
    Total
     revenue     $311,630    $319,260      $328,255     $344,690     $349,418
                =============================================================


    Operating
     Metrics:
    ---------
    Residential
     voice
     access
     lines        903,965     926,610       958,324      996,531    1,030,620
    Business
     voice
     access
     lines        390,418     392,496       403,939      412,633      419,999
    Wholesale
     access
     lines        105,408     107,243       112,131      116,731      119,550
                -------------------------------------------------------------

       Total
        voice
        access
        lines   1,399,791   1,426,349     1,474,394    1,525,895    1,570,169

    HSD
     subscribers  300,882     295,360       294,134      294,412      295,578
                -------------------------------------------------------------

      Total
       access
       lines
       equivalents
                1,700,673   1,721,709     1,768,528    1,820,307    1,865,747
                =============================================================


    Long
     distance
     subscribers  623,497     631,458       643,844      656,599      671,278
                =============================================================


    (1) FairPoint acquired Verizon's wireline and related operations in
    Maine, New Hampshire and Vermont (the Northern New England business) on
    March 31, 2008.  The pro forma results have been prepared using the
    purchase method of accounting as if the transaction had been completed as
    of January 1, 2008.

    (2) During the first quarter of 2009, the Company reclassified certain
    revenues from network access revenues to local calling services revenue.
    Prior period revenues were also reclassified for comparison purposes.

    (3) During the third and fourth quarters of 2008, the Company recorded
    certain revenue adjustments/reclassifications that relate to prior
    periods.  The table below shows the revenue for the affected category as
    if the adjustments were reflected in the appropriate period:



                                      Three Months Ended
                                      ------------------
                             Normalized  Normalized   Normalized
                            December 31, September 30, June 30,
                                2008        2008         2008
                             ---------   ---------   -------------
           Revenues:
           Local calling
            services         $135,610    $143,415       $149,591
           Network access      96,295      96,094         99,402
           Long distance
            services           46,312      50,161         49,090
           Data and Internet
            services           30,814      31,520         30,552
           Other services      11,582      10,994         10,773

                              -------     -------        -------
           Total revenue     $320,613    $332,184       $339,408
                              =======     =======        =======



                 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES
              Unaudited Reconciliation of Net Income under GAAP to
                            Adjusted EBITDA (Non-GAAP)
                              (Dollars in thousands)

                                      Three Months Ended
                                      ------------------
                                                                      Pro
                                                                    Forma (1)
                 March 31,  December 31,  September 30,   June 30,  March 31,
                   2009        2008           2008         2008       2008
                 ------------------------------------------------------------

    Net Income   $(8,777)   $(76,072)      $(25,109)      $23,114  $(9,514)
    Depreciation
     and
     amort-
     ization      67,867      70,598         60,768        69,741   72,660
    Interest
     expense      53,479      52,730         49,665        45,123   47,115
    Income taxes  (4,822)    (46,598)       (17,176)       13,909   (6,460)
                -------------------------------------------------------------
                 107,747         658         68,148       151,887  103,801
                -------------------------------------------------------------

    (Gain)
     loss on
     derivatives (12,898)     49,909          5,014       (43,123)  22,259
    Gain on
     repurchase
     of debt      (4,863)          -              -             -        -
    Transition
     services
     agreement    15,895      49,597         49,550        49,476        -
    Other merger
     and cutover
     related
     costs(2)      9,618      26,871         15,191        10,095        -
    Non-cash
     items(3)      9,589       9,128          5,723         5,723    8,200

                -------------------------------------------------------------
    Adjusted
     EBITDA
     (Covenant)
     (4)        $125,088    $136,163       $143,626      $174,058  $134,260
                =============================================================

    Other
     adjustments
     to EBITDA:
      Cutover costs
       in excess of
       cumulative
       cap(5)      9,743           -              -             -         -
      Severance      451           -              -             -         -
      Non-cash
       accrual for
       compensated
       absences(6) 2,966           -              -             -         -
      Revenue and
       expense
       adjustments
       related
       to prior
       periods(7)      -       1,353          4,956        (6,309)        -
      Other
       income(8) (15,000)          -              -             -         -
                -------------------------------------------------------------

    Adjusted
     EBITDA     $123,248    $137,516       $148,582      $167,749  $134,260
                ==============================================================


    (1) FairPoint acquired Verizon's wireline and related operations in
    Maine, New Hampshire and Vermont (the Northern New England business) on
    March 31, 2008.  The pro forma results have been prepared using the
    purchase method of accounting as if the transaction had been completed as
    of January 1, 2008.

    (2) Other one-time items related to the merger and systems cutover
    primarily include training costs, recruiting and relocation costs, brand
    and promotional marketing costs, systems development costs and travel
    costs.

    (3) Includes non-cash pension, OPEB and stock based compensation
    expenses.

    (4) Adjusted EBITDA is defined in FairPoint's credit facility as net
    income (loss) before interest expense and provision (benefit) for income
    taxes and depreciation and amortization, excluding unusual or one-time
    non-recurring items (including costs related to the use of Verizon's
    systems and services under the Transition Services Agreement as well as
    other costs related to the cutover to FairPoint's newly developed systems
    platform), non-cash items related to pension and OPEB, stock based
    compensation and other costs and adjustments related to the acquisition
    of the Northern New England business.

    (5) Represents one-time costs incurred in connection with the systems
    cutover which exceeded the cumulative cap of $61 million for allowed
    cutover related add-backs as provided in the Company's credit facility.

    (6) Represents the non-cash accrual for vacation pay for the remainder
    of 2009 for employees of the northern New England operations which fully
    vested on January 1, 2009.

    (7) Includes certain revenue and expense adjustments related to prior
    quarters.

    (8) Other income for the three months ended March 31, 2009 represents a
    gain resulting from the one-time payment made by Verizon to the Company
    pursuant to the Transition Agreement entered into on January 30, 2009.

SOURCE  FairPoint Communications, Inc.

    -0-                           05/05/2009
    /CONTACT:  Investors: Brett Ellis, +1-866-377-3747, bellis@fairpoint.com,
Media: Rose Cummings, +1-704-602-7304, rcummings@fairpoint.com, both of
FairPoint Communications, Inc./
    /Web Site:  http://www.fairpoint.com /
    (FRP)

CO:  FairPoint Communications, Inc.; Verizon Communication
ST:  North Carolina
IN:  TCS TLS
SU:  ERN CCA

PR
-- CL11362 --
7262 05/05/2009 17:29 EDT http://www.prnewswire.com