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| FairPoint Communications Reports First Quarter 2009 Results |
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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
"During the first quarter of 2009, we completed an unprecedented cutover
to our new systems for the northern New England operations," stated "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 First Quarter Results Revenue for the first quarter of 2009 was Operating expenses, excluding depreciation, for the first quarter of 2009
totaled Adjusted EBITDA was For purposes of the covenants contained in the Company's credit facility,
Adjusted EBITDA totaled 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 Total access line equivalents were 1,700,673 at 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 Long distance subscribers totaled 623,497 at
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 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 In the first quarter of 2009, operating cash flow of As previously disclosed, on On During the first quarter, the Company repurchased During the first quarter, the Company drew down Cash and cash equivalents at 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 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 Conference Call and Webcast As previously announced, FairPoint will host a conference call and
simultaneous webcast to discuss its first quarter results at 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 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 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 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
SOURCE |
