FairPoint Communications, Inc. (Nasdaq:FRP) (“FairPoint” or the
“Company”), a leading communications provider, today announced its
financial results for the fourth quarter and full year ended
December 31, 2016.
"Our continued focus on providing excellent
customer service, investing strategically in the network and
developing relevant new products and services resulted in a solid
fourth quarter and fiscal 2016," said Paul H. Sunu, Chief Executive
Officer. "We managed expenses well, improved performance and
increased average revenue per user to deliver Adjusted EBITDA and
Unlevered Free Cash Flow within our guidance ranges."
"I am proud of the accomplishments of the team
as we enter 2017," Sunu continued. "Through the multi-year
execution of our strategy, we have built an outstanding operational
platform that has allowed the generation of consistent Unlevered
Free Cash Flow. We are well positioned to continue our
revenue transformation by leveraging our network and operational
expertise to exceed our customers’ expectations."
"We are excited to take the next step in our
evolution as we work with Consolidated to consummate the recently
announced merger. We are confident in the benefits this
combination brings to our customers and other stakeholders, and our
commitment is to ensure the process is seamless as we remain
focused on strengthening our local roots in the markets we
serve."
Operating Highlights
The Company delivered continued improvement in
key customer-facing operating metrics including repair intervals
for all major product groups and effectively reduced operating
expenses in the fourth quarter.
Strategic investments in the network continued
during the quarter, which strengthened service reliability and
helped solidify the Company’s competitive position.
The Company is focused on driving growth
revenue2 as a critical component of its continued revenue
transformation. In the fourth quarter of 2016, the Company
generated growth revenue of $67.0 million or 32.9% of total
revenue, which increased from 29.7% of total revenue in the fourth
quarter of 2015.
Broadband revenue grew quarter-over-quarter
driven by rate increases and existing customer speed upgrades
despite seasonal disconnects and lower subscriber counts.
In the fourth quarter of 2016, Ethernet services
revenue was $24.7 million, as Ethernet circuits grew 8.2%
year-over-year. Growth in the Company's Ethernet products is
expected to continue based on demand from customers such as
regional banks, healthcare networks and wireless carriers, although
the commoditization of Ethernet services will continue to pressure
average revenue per unit over time.
As an indication of the Company's revenue
transformation progress, the quarter-over-quarter increase in
growth revenue exceeded the sequential decline in convertible
revenue for the second consecutive quarter.
As of December 31, 2016, FairPoint had
2,492 employees, a decrease of 226 employees versus a year ago.
Proposed Merger with Consolidated Communications
Holdings, Inc.
On December 3, 2016, Consolidated Communications
Holdings, Inc. ("Consolidated") and FairPoint entered into an
Agreement and Plan of Merger, pursuant to which Consolidated has
agreed to acquire FairPoint (the "Merger"). Since the
announcement of the Merger on December 5, 2016, both companies have
engaged in work required to consummate the Merger.
Applications with all necessary federal and state regulatory
authorities have been filed and the Company has received early
termination related to Hart-Scott-Rodino and clearance from two of
11 states where it has applied for approval. The Company and
Consolidated have scheduled special meetings of their respective
stockholders for March 28, 2017 to, among other things, approve the
Merger.
Integration planning is underway with a target
mid-2017 closing of the transaction. Additional details of the
planned merger can be found at www.fairpoint.com/investors.
The Company incurred $4.5 million of transaction
fees related to the Merger during the fourth quarter of 2016.
Financial Highlights
Fourth Quarter 2016 as compared to Third
Quarter 2016
Revenue decreased $3.2 million during the fourth
quarter of 2016 to $203.9 million.
The following strategic revenue categorization2
is presented to provide visibility into revenue trends for the
Company as a result of product and service evolution within our
industry as well as the Company's efforts to continue to transform
revenue to more sustainable growth products.
- Growth revenue increased $1.4 million, or 2.1%, primarily due
to growth in broadband revenue driven by rate increases and
customer speed upgrades which more than fully offset a decline in
broadband subscribers and the impact of seasonal disconnects as
well as the timing of the renewal of certain expiring long-term
Ethernet contracts. Hosted and advanced services revenue also
increased in the quarter.
- Convertible revenue2 decreased $0.6 million as customers
continued to migrate from non-Ethernet circuits and businesses
shifted from traditional voice products to VoIP and hosted
products.
- Legacy revenue2 was down $2.2 million resulting from the
decline in residential voice revenue partially offset by higher
legacy switched access revenue. Residential voice revenue
decreased primarily due to fewer lines in service and, in part,
seasonal disconnects.
- Regulatory funding revenue2 decreased $0.2 million due to the
full quarter impact of the scheduled step-down in CAF Phase II
transitional revenue.
- Miscellaneous revenue2 decreased $1.6 million primarily due to
revenue assurance activities that did not recur at the same level
in the fourth quarter and lower revenue from special purpose
construction projects compared to the third quarter.
The following traditional categorization of
revenue is presented to provide reporting continuity.
- Voice services revenue decreased $3.4 million primarily due to
fewer lines in service and, in part, seasonal disconnects.
- Access revenue decreased $0.8 million due to the continued loss
and conversion of legacy transport circuits to fiber-based Ethernet
services partially offset by the annual NECA cost study true-up
which reduced revenue in the third quarter of 2016. Wholesale
Ethernet revenue decreased due to the timing of the renewal of
certain expiring long-term Ethernet contracts.
- Data and Internet services revenue increased $1.6 million
driven by higher broadband revenue due to rate increases and speed
upgrades partially offset by broadband subscriber declines and
seasonal subscriber disconnects.
- Regulatory funding revenue decreased $0.2 million due to the
full quarter impact of the scheduled step-down in CAF Phase II
transitional revenue.
- Other services revenue decreased $0.4 million primarily due to
the lower revenue from special purpose construction projects
compared to the third quarter.
Operating expenses, excluding depreciation and
amortization, increased $32.9 million to $107.2 million in the
fourth quarter of 2016 compared to $74.2 million in the third
quarter of 2016 primarily resulting from lower amortization of
other post-employment benefits ("OPEB") benefits, Merger related
expenses and higher severance costs related to the December 2016
workforce reduction. These expenses were partially offset by
lower salary, access and network expenses. Access expenses
were $1.3 million lower in the fourth quarter of 2016 primarily due
to USAC expenses related to lower affiliate circuit revenues.
Adjusted Operating Expenses1 were $139.0 million
in the fourth quarter of 2016 compared to $143.3 million in the
third quarter of 2016. The decrease was primarily due to
lower employee expenses from decreased salaries due to lower
headcount and decreased overtime, partially offset by a higher
bonus accrual, as well as lower access and network expenses in the
quarter.
Net income was $16.0 million in the fourth
quarter of 2016 compared to $40.2 million in the third quarter of
2016. The change was primarily due to lower amortization of
OPEB benefits, Merger related expenses, higher severance costs and
lower revenue partially offset by lower income tax expense.
Adjusted EBITDA increased $1.0 million to $64.9
million in the fourth quarter of 2016 compared to $63.9 million in
the third quarter of 2016. The increase was driven by
favorable Adjusted Operating Expenses partially offset by lower
revenue.
Capital expenditures were $34.1 million in the
fourth quarter of 2016 compared to $30.2 million in the third
quarter of 2016. The increase was primarily due to the timing
of planned capital projects.
Cash was $34.9 million as of December 31,
2016 compared to $33.1 million as of September 30, 2016. Total
gross debt outstanding was $916.0 million as of December 31,
2016, after the regularly scheduled principal payment of $1.6
million on the term loan made during the fourth quarter of 2016, as
compared to $917.6 million as of September 30, 2016. The
Company's $75.0 million revolving credit facility was undrawn, with
$61.1 million available for borrowing after applying $13.9 million
of outstanding letters of credit.
Net cash provided by operating activities was
$37.8 million in the fourth quarter of 2016 compared to $26.1
million in the third quarter of 2016. The increase was
primarily due to the semi-annual interest payment on the Company's
senior notes made during the third quarter as well as lower pension
contributions in the fourth quarter, partially offset by the
payment of Merger related expenses and lower revenue.
Unlevered Free Cash Flow was $25.0 million in
the fourth quarter of 2016 compared to $24.4 million in the third
quarter of 2016. Unlevered Free Cash Flow was higher in the
fourth quarter of 2016 primarily due to lower pension contributions
and higher Adjusted EBITDA partially offset by higher capital
expenditures.
Fourth Quarter 2016 as compared to
Fourth Quarter 2015
Revenue was $203.9 million in the fourth quarter
of 2016 compared to $209.8 million a year earlier.
Strategic revenue categorization:
- Growth revenue increased by $4.6 million as we experienced
growth in broadband revenue from speed upgrades and rate increases,
as well as hosted and advanced services revenue due to the
inclusion of revenue from CTI3 and customer growth, compared to the
prior year.
- Convertible revenue decreased by $4.5 million as customers
continued to migrate from non-Ethernet circuits and businesses
shifted from traditional voice products to VoIP and hosted
products.
- Legacy revenue decreased by $4.9 million resulting from a
decline in voice access lines and legacy switched access revenue
versus a year ago.
- Regulatory funding revenue decreased $0.7 million primarily due
to the timing of CAF Phase II transitional revenue.
- Miscellaneous revenue decreased $0.4 million due to the timing
of revenue assurance activities.
The following traditional categorization of
revenue is presented to provide reporting continuity.
- Voice services revenue declined $5.9 million resulting from the
loss of voice access lines versus a year ago combined with lower
long distance usage.
- Access revenue declined $3.8 million due to the continued loss
and conversion of legacy transport circuits to Ethernet
services.
- Data and Internet services revenue increased $4.2 million as
speed upgrades and price increases on broadband products more than
fully offset subscriber declines.
- Regulatory funding revenue decreased $0.7 million primarily due
to the timing of CAF Phase II transitional revenue.
- Other services revenue increased $0.3 million primarily due to
lower late payment fees.
Operating expenses, excluding depreciation and
amortization, increased $16.3 million to $107.2 million in the
fourth quarter of 2016 compared to $90.9 million in the fourth
quarter of 2015 primarily due to lower amortization of OPEB
benefits, Merger related expenses and higher severance costs
related to the December 2016 workforce reduction, partially offset
by lower salary, access and network expenses.
Adjusted Operating Expenses were $139.0 million
in the fourth quarter of 2016 compared to $145.9 million in the
fourth quarter of 2015. The decrease was primarily the result
of lower employee costs due to lower headcount, lower access and
network costs and lower operating taxes partially offset by higher
bad debt expense. Operating taxes were $1.2 million lower in
the fourth quarter of 2016 primarily due to the settlement of
certain property tax disputes.
Net income was $16.0 million in the fourth
quarter of 2016 compared to $42.3 million in the fourth quarter of
2015. The change was primarily due to lower amortization of
OPEB benefits, lower revenue, higher income tax expense, Merger
related expenses and higher severance costs. Net income was
positive in the fourth quarters of 2016 and 2015 largely due to the
non-cash GAAP treatment for the change in the liability of the OPEB
plan due to the elimination of post-employment health benefits for
active represented employees. The fourth quarter of 2016 was
the final quarter of this treatment, and thus no further impact to
net income is expected in future periods. We do not expect it will
impact our cash income taxes or change our accumulated federal net
operating loss carryforwards.
Adjusted EBITDA was $64.9 million in the fourth
quarter of 2016 compared to $63.9 million a year earlier. The
increase is due to operating expense savings partially offset by
lower revenue.
Capital expenditures were $34.1 million in the
fourth quarter of 2016 compared to $33.2 million a year
earlier.
Net cash provided by operating activities was
$37.8 million in the fourth quarter of 2016 compared to $44.5
million in the fourth quarter of 2015. The decrease was
primarily due to the payment of Merger related expenses and lower
revenue.
Unlevered Free Cash Flow of $25.0 million in the
fourth quarter of 2016 increased $1.7 million compared to $23.3
million in the fourth quarter of 2015. The increase was due
to lower pension contributions and higher Adjusted EBITDA partially
offset by higher capital expenditures. _________________1 Unlevered
Free Cash Flow, Adjusted EBITDA and Adjusted Operating Expenses are
non-GAAP financial measures. Additional information regarding
the calculation of these non-GAAP measures and a reconciliation to
net income are contained under "Use of Non-GAAP Financial Measures"
and in the attachments to this press release.2 Additional
information and definitions for regulatory funding revenue and
strategic revenue categorization and its components are contained
in the attachments to this press release.3 The Company acquired
Communication Technologies, Inc. ("CTI") in July 2016.
2017 Guidance on a Full Year, Standalone
Basis
For full year 2017, the Company expects to
generate $105 million to $115 million of Unlevered Free Cash Flow.
In addition, Adjusted EBITDA is expected to be $245 million to $250
million, annual capital expenditures are expected to be $110
million to $115 million and aggregate annual cash pension
contributions and cash OPEB payments are expected to be
approximately $24 million for full year 2017.
On March 2, 2017, the Company announced it had
received $36.7 million in Phase 2 awards from the New NY Broadband
Program to support the extension and upgrading of high-speed
broadband service in the Company’s New York service
territory. These awards will be treated as a reimbursement of
capital expected to be received on a quarterly basis. The
Company’s 2017 capital expenditure guidance incorporates current
assumptions regarding these projects.
The Company is not able to provide a
reconciliation of its forward-looking non-GAAP financial measures
to GAAP measures because the Company does not forecast certain
items used to prepare net income in accordance with GAAP.
Annual Report
The information in this press release should be
read in conjunction with the financial statements and footnotes
contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 2016 (the "Form 10-K), which will be filed
with the Securities and Exchange Commission ("SEC") no later than
March 16, 2017. The Company's results for the quarter and year
ended December 31, 2016 are subject to the completion of the
Form 10-K.
Conference Call Information
FairPoint will not host an investor call with
respect to the financial results due to the pending Merger with
Consolidated.
Use of Non-GAAP Financial Measures
This press release includes certain non-GAAP
financial measures, including but not limited to Adjusted EBITDA,
Adjusted EBITDA minus Estimated Avoided Costs, Unlevered Free Cash
Flow and Unlevered Free Cash Flow minus Estimated Avoided Costs,
Adjusted Operating Expenses, Adjusted Operating Expenses plus
Estimated Avoided Costs and the adjustments to the most directly
comparable GAAP measure used to determine the non-GAAP measures.
Management believes Adjusted EBITDA provides a useful measure of
covenant compliance, Unlevered Free Cash Flow may be useful to
investors in assessing the Company's ability to generate cash and
meet its debt service requirements and Adjusted Operating Expenses
may be useful to investors in understanding period-to-period
operating performance. The maintenance covenants contained in
the Company's credit facility are based on Consolidated EBITDA,
which is consistent with the calculation of Adjusted EBITDA
included in the attachments to this press release.
For purposes of calculating Adjusted EBITDA (in
accordance with the definition of Consolidated EBITDA in our credit
agreement), costs, expenses and charges related to the
renegotiation of labor contracts including, but not limited to,
expenses for third-party vendors and losses related to disruption
of operations (including any associated penalties under service
level agreements and regulatory performance plans) are permitted to
be excluded from the calculation. We believe this includes,
among others, the costs paid to third-parties for the contingent
workforce and service quality penalties due to the disruption of
operations. On October 17, 2014, two of our labor unions in
northern New England initiated a work stoppage and returned to work
on February 25, 2015. As a result, significant union employee
and vehicle and other related expenses related to northern New
England were not incurred between October 17, 2014 and February 24,
2015 (the "work stoppage period"). Therefore, to assist in
the evaluation of the Company's operating performance without the
impact of the work stoppage, we estimated the union employee and
vehicle and other related expenses using historical data for the
work stoppage period by quarter that we believe would have been
incurred absent the work stoppage ("Estimated Avoided
Costs"). Estimated Avoided Costs is a pro forma estimate
only. Actual costs absent the strike may have been
different. In the first quarter of 2015, had our incumbent
workforce been in place, actual labor costs during the work
stoppage period may have been higher than the $27 million recorded
as Estimated Avoided Costs due to significant winter storm activity
that increased our service demands; however, those incremental
storm-related costs would have been an allowed add back to Adjusted
EBITDA under the credit agreement. Estimated employee expenses
avoided during the work stoppage period include salaries and wages,
bonus, overtime, capitalized labor, benefits, payroll taxes, travel
expenses and other employee related costs based on a trailing
12-month average calculated per striking employee per day during
the work stoppage period less any actual expense incurred.
Estimated vehicle fuel and maintenance expense savings, which
resulted from the contingent workforce utilizing their own
vehicles, for the work stoppage period were estimated based on a
trailing 12-month average of historical costs less actual expense
incurred. "Adjusted EBITDA minus Estimated Avoided Costs",
"Unlevered Free Cash Flow minus Estimated Avoided Costs" and
"Adjusted Operating Expenses plus Estimated Avoided Costs" may be
useful to investors in understanding our operating performance
without the impact of the two unions' work stoppage.
The Company believes that the non-GAAP measures
may be useful to investors in understanding period-to-period
operating performance and in identifying historical and prospective
trends that may not otherwise be apparent when relying solely on
GAAP financial measures. In addition, the non-GAAP measures
are useful for investors because they enable them to view
performance in a manner similar to the method used by the Company’s
management.
However, the non-GAAP financial measures, as
used herein, are not necessarily comparable to similarly titled
measures of other companies. Furthermore, these non-GAAP measures
have limitations as analytical tools and should not be considered
in isolation from, or as an alternative to, net income or loss,
operating income, cash flow or other combined income or cash flow
data prepared in accordance with GAAP. Because of these
limitations, Adjusted EBITDA, Adjusted EBITDA minus Estimated
Avoided Costs, Unlevered Free Cash Flow, Unlevered Free Cash Flow
minus Estimated Avoided Costs, Adjusted Operating Expenses,
Adjusted Operating Expenses plus Estimated Avoided Costs and
related ratios should not be considered as measures of
discretionary cash available to invest in business growth or reduce
indebtedness. The Company compensates for these limitations by
relying primarily on its GAAP results and using the non-GAAP
measures only supplementally. A reconciliation of Adjusted
EBITDA, Adjusted EBITDA minus Estimated Avoided Costs, Unlevered
Free Cash Flow and Unlevered Free Cash Flow minus Estimated Avoided
Costs to net income is contained in the attachments to this press
release.
About FairPoint Communications, Inc.
FairPoint Communications, Inc. (Nasdaq: FRP)
provides advanced data, voice and video technologies to single and
multi-site businesses, public and private institutions, consumers,
wireless companies and wholesale re-sellers in 17 states.
Leveraging an owned, fiber-based Ethernet network — with more than
22,000 route miles of fiber, including approximately 18,000 route
miles of fiber in northern New England — FairPoint has the network
coverage, scalable bandwidth and transport capacity to support
enhanced applications, including the next generation of mobile and
cloud-based communications, such as small cell wireless backhaul
technology, voice over IP, data center colocation services, managed
services and disaster recovery. For more information, visit
www.FairPoint.com.
Cautionary Note Regarding
Forward-looking Statements
The SEC encourages companies to disclose
forward-looking information so that investors can better understand
a company’s future prospects and make informed investment
decisions. Certain statements in this communication are
forward-looking statements and are made pursuant to the safe harbor
provisions of the Securities Litigation Reform Act of 1995.
These forward-looking statements reflect, among other things,
current expectations, plans, strategies, and anticipated financial
results of Consolidated and FairPoint, both separately and as a
combined entity. There are a number of risks, uncertainties,
and conditions that may cause the actual results of Consolidated
and FairPoint, both separately and as a combined entity, to differ
materially from those expressed or implied by these forward-looking
statements. These risks and uncertainties include the timing
and ability to complete the proposed acquisition of FairPoint by
Consolidated, the expected benefits of the integration of the two
companies and successful integration of FairPoint’s operations with
those of Consolidated and realization of the synergies from the
integration, as well as a number of factors related to the
respective businesses of Consolidated and FairPoint, including
economic and financial market conditions generally and economic
conditions in Consolidated’s and FairPoint’s service areas; various
risks to stockholders of not receiving dividends and risks to
Consolidated’s ability to pursue growth opportunities if
Consolidated continues to pay dividends according to the current
dividend policy; various risks to the price and volatility of
Consolidated’s common stock; changes in the valuation of pension
plan assets; the substantial amount of debt and Consolidated’s
ability to repay or refinance it or incur additional debt in the
future; Consolidated’s need for a significant amount of cash to
service and repay the debt and to pay dividends on its common
stock; restrictions contained in Consolidated’s debt agreements
that limit the discretion of management in operating the business;
legal or regulatory proceedings or other matters that impact the
timing or ability to complete the acquisition as contemplated,
regulatory changes, including changes to subsidies, rapid
development and introduction of new technologies and intense
competition in the telecommunications industry; risks associated
with Consolidated’s possible pursuit of acquisitions; system
failures; losses of large customers or government contracts; risks
associated with the rights-of-way for the network; disruptions in
the relationship with third party vendors; losses of key management
personnel and the inability to attract and retain highly qualified
management and personnel in the future; changes in the extensive
governmental legislation and regulations governing
telecommunications providers and the provision of
telecommunications services; telecommunications carriers disputing
and/or avoiding their obligations to pay network access charges for
use of Consolidated’s and FairPoint’s network; high costs of
regulatory compliance; the competitive impact of legislation and
regulatory changes in the telecommunications industry; liability
and compliance costs regarding environmental regulations; the
possibility of disruption from the integration of the two companies
making it more difficult to maintain business and operational
relationships; the possibility that the acquisition is not
consummated, including, but not limited to, due to the failure to
satisfy the closing conditions; the possibility that the merger or
the acquisition may be more expensive to complete than anticipated,
including as a result of unexpected factors or events; and
diversion of management’s attention from ongoing business
operations and opportunities. A detailed discussion of risks
and uncertainties that could cause actual results and events to
differ materially from such forward-looking statements are
discussed in more detail in the joint proxy statement of
Consolidated and FairPoint, which also constitutes a prospectus of
Consolidated, filed by Consolidated with the SEC pursuant to Rule
424(b)(3) on February 24, 2017 (the "Joint Proxy
Statement/Prospectus") and in Consolidated’s and FairPoint’s
respective filings with the SEC, including the Annual Report on
Form 10-K of Consolidated for the year ended December 31, 2016,
which was filed with the SEC on March 1, 2017, under the heading
“Item 1A-Risk Factors,” and the Annual Report on Form 10-K of
FairPoint for the year ended December 31, 2015, which was filed
with the SEC on March 2, 2016, under the heading “Item 1A-Risk
Factors,” and in subsequent reports on Forms 10-Q and 8-K and other
filings made with the SEC by each of Consolidated and FairPoint.
Many of these circumstances are beyond the ability of Consolidated
and FairPoint to control or predict. Moreover,
forward-looking statements necessarily involve assumptions on the
part of Consolidated and FairPoint. These forward-looking
statements generally are identified by the words “believe,”
“expect,” “anticipate,” “estimate,” “project,” “intend,” “plan,”
“should,” “may,” “will,” “would,” “will be,” “will continue” or
similar expressions. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may
cause actual results, performance or achievements of Consolidated
and FairPoint, and their respective subsidiaries, both separately
and as a combined entity to be different from those expressed or
implied in the forward-looking statements. All
forward-looking statements attributable to us or persons acting on
the respective behalf of Consolidated or FairPoint are expressly
qualified in their entirety by the cautionary statements that
appear throughout this communication. Furthermore,
forward-looking statements speak only as of the date they are
made. Except as required under the federal securities laws or
the rules and regulations of the SEC, each of Consolidated and
FairPoint disclaim any intention or obligation to update or revise
publicly any forward-looking statements. You should not place
undue reliance on forward-looking statements.
Important Merger Information and
Additional Information
This communication does not constitute an offer
to sell or the solicitation of an offer to buy any securities or a
solicitation of any vote or approval. In connection with the
proposed transaction, Consolidated and FairPoint have and will file
relevant materials with the SEC. Consolidated and FairPoint have
mailed the Joint Proxy Statement/Prospectus to their respective
stockholders. Investors are urged to read the Joint
Proxy Statement/Prospectus regarding the proposed transaction
because it contains important information. The Joint
Proxy Statement/Prospectus and other relevant documents that have
been or will be filed by Consolidated and FairPoint with the SEC
are or will be available free of charge at the SEC’s website,
www.sec.gov, or by directing a request when such a filing is made
to Consolidated Communications Holdings, Inc., 121 South 17th
Street, Mattoon, IL 61938, Attention: Investor Relations or to
FairPoint Communications, Inc., 521 East Morehead Street, Suite
500, Charlotte, North Carolina 28202, Attention: Secretary.
Consolidated, FairPoint and certain of their
respective directors, executive officers and other members of
management and employees may be considered participants in the
solicitation of proxies in connection with the proposed
transaction. Information about the directors and executive
officers of Consolidated is set forth in its definitive proxy
statement, which was filed with the SEC on March 28, 2016.
Information about the directors and executive officers of FairPoint
is set forth in its definitive proxy statement, which was filed
with the SEC on March 25, 2016, and in the Joint Proxy
Statement/Prospectus. These documents can be obtained free
of charge from the sources listed above. Investors may obtain
additional information regarding the interests of such participants
by reading the Joint Proxy Statement/Prospectus.
|
|
| FAIRPOINT COMMUNICATIONS, INC. AND
SUBSIDIARIES |
| Consolidated Balance Sheets |
| December 31, 2016 and 2015 |
| (in thousands, except share
data) |
| |
|
|
December 31, 2016 |
|
|
December 31, 2015 |
|
|
Assets: |
|
|
|
| Cash |
$ |
34,924 |
|
|
$ |
26,560 |
|
| Accounts
receivable, net |
62,395 |
|
|
60,136 |
|
| Prepaid
expenses |
24,498 |
|
|
24,410 |
|
| Other
current assets |
4,898 |
|
|
5,030 |
|
|
Total current assets |
126,715 |
|
|
116,136 |
|
| Property,
plant and equipment, net |
1,024,352 |
|
|
1,118,781 |
|
|
Intangible assets, net |
75,913 |
|
|
83,879 |
|
|
Restricted cash |
653 |
|
|
651 |
|
|
Other assets |
3,202 |
|
|
3,079 |
|
|
Total assets |
$ |
1,230,835 |
|
|
$ |
1,322,526 |
|
| |
|
|
|
| Liabilities and
Stockholders' Deficit: |
|
|
|
| Current
portion of long-term debt |
$ |
6,400 |
|
|
$ |
6,400 |
|
| Current
portion of capital lease obligations |
1,227 |
|
|
918 |
|
| Accounts
payable |
27,598 |
|
|
28,157 |
|
| Accrued
interest payable |
10,120 |
|
|
9,983 |
|
| Accrued
payroll and related expenses |
26,187 |
|
|
24,753 |
|
|
Other accrued liabilities |
47,918 |
|
|
50,018 |
|
|
Total current liabilities |
119,450 |
|
|
120,229 |
|
| Capital
lease obligations |
1,311 |
|
|
1,223 |
|
| Accrued
pension obligations |
133,917 |
|
|
150,562 |
|
| Accrued
post-employment benefit obligations |
87,629 |
|
|
94,042 |
|
| Deferred
income taxes, net |
28,016 |
|
|
35,075 |
|
| Other
long-term liabilities |
16,219 |
|
|
22,739 |
|
|
Long-term debt, net of current portion |
898,370 |
|
|
900,145 |
|
|
Total long-term liabilities |
1,165,462 |
|
|
1,203,786 |
|
|
Total liabilities |
1,284,912 |
|
|
1,324,015 |
|
| Stockholders'
deficit: |
|
|
|
| Common
stock, $0.01 par value, 37,500,000 shares authorized,
27,074,398 and 26,921,066 shares issued and outstanding
at December 31, 2016 and 2015, respectively |
271 |
|
|
269 |
|
|
Additional paid-in capital |
527,613 |
|
|
521,842 |
|
|
Accumulated deficit |
(603,497 |
) |
|
(707,592 |
) |
|
Accumulated other comprehensive income |
21,536 |
|
|
183,992 |
|
|
Total stockholders' deficit |
(54,077 |
) |
|
(1,489 |
) |
|
Total liabilities and stockholders' deficit |
$ |
1,230,835 |
|
|
$ |
1,322,526 |
|
| FAIRPOINT COMMUNICATIONS, INC. AND
SUBSIDIARIES |
| Consolidated Statements of
Operations |
| Years Ended December 31, 2016 and
2015 |
| (in thousands, except per share
data) |
|
|
| |
Three Months Ended December 31, |
|
Years Ended December 31, |
| |
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
|
Revenues |
$ |
203,929 |
|
|
$ |
209,824 |
|
|
$ |
824,443 |
|
|
$ |
859,465 |
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of
services and sales, excluding depreciation and
amortization |
95,145 |
|
|
97,241 |
|
|
389,316 |
|
|
430,308 |
|
| Other
post-employment benefit and pension benefit |
(39,618 |
) |
|
(53,412 |
) |
|
(213,760 |
) |
|
(170,338 |
) |
| Selling,
general and administrative expense |
51,625 |
|
|
47,078 |
|
|
197,239 |
|
|
206,046 |
|
|
Depreciation and amortization |
54,642 |
|
|
56,399 |
|
|
222,303 |
|
|
223,819 |
|
|
Reorganization related expense |
— |
|
|
5 |
|
|
— |
|
|
38 |
|
|
Total operating expenses |
161,794 |
|
|
147,311 |
|
|
595,098 |
|
|
689,873 |
|
|
Income from operations |
42,135 |
|
|
62,513 |
|
|
229,345 |
|
|
169,592 |
|
| Other
income/(expense): |
|
|
|
|
|
|
|
| Interest
expense |
(20,806 |
) |
|
(20,739 |
) |
|
(82,697 |
) |
|
(80,718 |
) |
|
Other, net |
(48 |
) |
|
60 |
|
|
296 |
|
|
485 |
|
|
Total other expense |
(20,854 |
) |
|
(20,679 |
) |
|
(82,401 |
) |
|
(80,233 |
) |
| Income before
income taxes |
21,281 |
|
|
41,834 |
|
|
146,944 |
|
|
89,359 |
|
| Income
tax (expense)/benefit |
(5,276 |
) |
|
476 |
|
|
(42,849 |
) |
|
1,057 |
|
|
Net income |
$ |
16,005 |
|
|
$ |
42,310 |
|
|
$ |
104,095 |
|
|
$ |
90,416 |
|
| |
|
|
|
|
|
|
|
| Weighted average shares
outstanding: |
|
|
|
|
|
|
|
|
Basic |
26,878 |
|
|
26,688 |
|
|
26,854 |
|
|
26,652 |
|
|
Diluted |
27,226 |
|
|
27,036 |
|
|
27,119 |
|
|
26,973 |
|
| |
|
|
|
|
|
|
|
| Income per share,
basic |
$ |
0.60 |
|
|
$ |
1.59 |
|
|
$ |
3.88 |
|
|
$ |
3.39 |
|
| |
|
|
|
|
|
|
|
| Income per share,
diluted |
$ |
0.59 |
|
|
$ |
1.56 |
|
|
$ |
3.84 |
|
|
$ |
3.35 |
|
| FAIRPOINT COMMUNICATIONS, INC. AND
SUBSIDIARIES |
| Consolidated Statements of Cash
Flows |
| Years Ended December 31, 2016 and
2015 |
| (in thousands) |
| |
|
|
Years Ended December 31, |
| |
2016 |
|
2015 |
| Cash flows from
operating activities: |
|
|
|
|
|
|
|
|
Net income |
$ |
104,095 |
|
|
$ |
90,416 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
| Deferred
income taxes |
42,609 |
|
|
(1,260 |
) |
| Provision
for uncollectible revenue |
577 |
|
|
5,793 |
|
|
Depreciation and amortization |
222,303 |
|
|
223,819 |
|
| Other
post-employment benefits |
(228,442 |
) |
|
(184,569 |
) |
| Qualified
pension |
(6,508 |
) |
|
(5,534 |
) |
|
Stock-based compensation |
6,291 |
|
|
6,357 |
|
| Other
non-cash items |
5,265 |
|
|
4,211 |
|
| Changes
in assets and liabilities arising from operations: |
|
|
|
| Accounts
receivable |
(2,478 |
) |
|
5,615 |
|
| Prepaid
and other assets |
198 |
|
|
1,327 |
|
| Accounts
payable and accrued liabilities |
(4,094 |
) |
|
(36,642 |
) |
| Accrued
interest payable |
137 |
|
|
5 |
|
| Other
assets and liabilities, net |
(5,701 |
) |
|
2,463 |
|
|
Total adjustments |
30,157 |
|
|
21,585 |
|
|
Net cash provided by operating activities |
134,252 |
|
|
112,001 |
|
| Cash flows from
investing activities: |
|
|
|
| Net
capital additions |
(117,050 |
) |
|
(116,159 |
) |
|
Acquisition of business, net of cash acquired |
(2,729 |
) |
|
— |
|
|
Distributions from investments and proceeds from the sale of
property and equipment |
1,319 |
|
|
288 |
|
|
Net cash used in investing activities |
(118,460 |
) |
|
(115,871 |
) |
| Cash flows from
financing activities: |
|
|
|
|
Repayments of long-term debt |
(6,400 |
) |
|
(6,400 |
) |
|
Restricted cash |
(2 |
) |
|
— |
|
| Proceeds
from exercise of stock options |
12 |
|
|
13 |
|
|
Repayment of capital lease obligations |
(1,038 |
) |
|
(770 |
) |
|
Net cash used in financing activities |
(7,428 |
) |
|
(7,157 |
) |
| Net
change |
8,364 |
|
|
(11,027 |
) |
| Cash,
beginning of period |
26,560 |
|
|
37,587 |
|
|
Cash, end of period |
$ |
34,924 |
|
|
$ |
26,560 |
|
| FAIRPOINT COMMUNICATIONS, INC. |
| Supplemental Financial
Information |
| (Unaudited) |
|
|
|
|
4Q16 |
3Q16 |
2Q16 |
1Q16 |
4Q15 |
|
2016 |
2015 |
|
Summary Income Statement (in thousands): |
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
| Voice services |
$ |
71,523 |
|
$ |
74,916 |
|
$ |
75,099 |
|
$ |
75,903 |
|
$ |
77,401 |
|
|
$ |
297,441 |
|
$ |
323,412 |
|
| Access |
58,219 |
|
59,030 |
|
60,579 |
|
61,933 |
|
62,065 |
|
|
239,761 |
|
256,617 |
|
| Data and Internet services |
49,070 |
|
47,479 |
|
46,159 |
|
44,560 |
|
44,876 |
|
|
187,268 |
|
178,620 |
|
| Regulatory funding (1) |
12,486 |
|
12,691 |
|
13,117 |
|
13,117 |
|
13,143 |
|
|
51,411 |
|
53,818 |
|
| Other services |
12,631 |
|
13,025 |
|
11,603 |
|
11,303 |
|
12,339 |
|
|
48,562 |
|
46,998 |
|
| Total revenue |
203,929 |
|
207,141 |
|
206,557 |
|
206,816 |
|
209,824 |
|
|
824,443 |
|
859,465 |
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
| Operating expenses, excluding depreciation and amortization
(2) |
107,152 |
|
74,240 |
|
89,256 |
|
102,147 |
|
90,907 |
|
|
372,795 |
|
466,016 |
|
| Depreciation and amortization |
54,642 |
|
54,918 |
|
55,105 |
|
57,638 |
|
56,399 |
|
|
222,303 |
|
223,819 |
|
| Reorganization expense (post-emergence) |
— |
|
— |
|
— |
|
— |
|
5 |
|
|
— |
|
38 |
|
| Total operating expenses |
161,794 |
|
129,158 |
|
144,361 |
|
159,785 |
|
147,311 |
|
|
595,098 |
|
689,873 |
|
| Income from operations |
42,135 |
|
77,983 |
|
62,196 |
|
47,031 |
|
62,513 |
|
|
229,345 |
|
169,592 |
|
| Other
income/(expense): |
|
|
|
|
|
|
|
|
| Interest expense |
(20,806 |
) |
(20,698 |
) |
(20,583 |
) |
(20,610 |
) |
(20,739 |
) |
|
(82,697 |
) |
(80,718 |
) |
| Other income, net |
(48 |
) |
91 |
|
95 |
|
158 |
|
60 |
|
|
296 |
|
485 |
|
| Total other expense |
(20,854 |
) |
(20,607 |
) |
(20,488 |
) |
(20,452 |
) |
(20,679 |
) |
|
(82,401 |
) |
(80,233 |
) |
| Income
before income taxes |
21,281 |
|
57,376 |
|
41,708 |
|
26,579 |
|
41,834 |
|
|
146,944 |
|
89,359 |
|
| Income tax
benefit/(expense) |
(5,276 |
) |
(17,169 |
) |
(12,393 |
) |
(8,011 |
) |
476 |
|
|
(42,849 |
) |
1,057 |
|
| Net income |
$ |
16,005 |
|
$ |
40,207 |
|
$ |
29,315 |
|
$ |
18,568 |
|
$ |
42,310 |
|
|
$ |
104,095 |
|
$ |
90,416 |
|
| |
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted EBITDA and Unlevered Free Cash
Flow to Net Income (in thousands): |
|
|
|
|
|
| Net
income |
$ |
16,005 |
|
$ |
40,207 |
|
$ |
29,315 |
|
$ |
18,568 |
|
$ |
42,310 |
|
|
$ |
104,095 |
|
$ |
90,416 |
|
| Income tax (benefit)/expense |
5,276 |
|
17,169 |
|
12,393 |
|
8,011 |
|
(476 |
) |
|
42,849 |
|
(1,057 |
) |
| Interest expense |
20,806 |
|
20,698 |
|
20,583 |
|
20,610 |
|
20,739 |
|
|
82,697 |
|
80,718 |
|
| Depreciation and amortization |
54,642 |
|
54,918 |
|
55,105 |
|
57,638 |
|
56,399 |
|
|
222,303 |
|
223,819 |
|
| Pension expense (3a) |
2,294 |
|
2,617 |
|
2,020 |
|
2,036 |
|
2,297 |
|
|
8,967 |
|
8,635 |
|
| OPEB benefit (3a) |
(41,912 |
) |
(70,045 |
) |
(55,506 |
) |
(55,264 |
) |
(55,710 |
) |
|
(222,727 |
) |
(178,973 |
) |
| Compensated absences (3b) |
(1,573 |
) |
(2,838 |
) |
(2,226 |
) |
6,287 |
|
(3,995 |
) |
|
(350 |
) |
(1,645 |
) |
| Severance |
3,293 |
|
73 |
|
38 |
|
1,459 |
|
2 |
|
|
4,863 |
|
4,014 |
|
| Restructuring costs (3c) |
— |
|
— |
|
— |
|
— |
|
6 |
|
|
— |
|
38 |
|
| Other non-cash items, net (3e) |
1,652 |
|
1,083 |
|
1,401 |
|
2,694 |
|
2,243 |
|
|
6,830 |
|
8,197 |
|
| Labor negotiation related expense (3f) |
— |
|
— |
|
— |
|
— |
|
95 |
|
|
— |
|
48,933 |
|
| All other allowed adjustments, net (3f) |
4,433 |
|
7 |
|
(40 |
) |
(88 |
) |
(20 |
) |
|
4,312 |
|
(170 |
) |
| Adjusted
EBITDA (3) |
64,916 |
|
63,889 |
|
63,083 |
|
61,951 |
|
63,890 |
|
|
253,839 |
|
282,925 |
|
| Estimated Avoided Costs (6) |
— |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
(27,000 |
) |
| Adjusted EBITDA minus Estimated Avoided
Costs |
$ |
64,916 |
|
$ |
63,889 |
|
$ |
63,083 |
|
$ |
61,951 |
|
$ |
63,890 |
|
|
$ |
253,839 |
|
$ |
255,925 |
|
| Adjusted EBITDA minus Estimated Avoided Costs Margin |
31.8 |
% |
30.8 |
% |
30.5 |
% |
30.0 |
% |
30.4 |
% |
|
30.8 |
% |
29.8 |
% |
|
|
|
|
|
|
|
|
|
|
| Adjusted
EBITDA (3) |
$ |
64,916 |
|
$ |
63,889 |
|
$ |
63,083 |
|
$ |
61,951 |
|
$ |
63,890 |
|
|
$ |
253,839 |
|
$ |
282,925 |
|
| Pension contributions |
(4,285 |
) |
(7,632 |
) |
(3,558 |
) |
— |
|
(5,828 |
) |
|
(15,475 |
) |
(14,168 |
) |
| OPEB payments |
(1,505 |
) |
(1,614 |
) |
(1,182 |
) |
(1,414 |
) |
(1,505 |
) |
|
(5,715 |
) |
(5,597 |
) |
| Capital expenditures |
(34,144 |
) |
(30,221 |
) |
(26,805 |
) |
(25,880 |
) |
(33,238 |
) |
|
(117,050 |
) |
(116,159 |
) |
| Unlevered
Free Cash Flow (4) |
24,982 |
|
24,422 |
|
31,538 |
|
34,657 |
|
23,319 |
|
|
115,599 |
|
147,001 |
|
| Estimated Avoided Costs (6) |
— |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
(27,000 |
) |
| Unlevered Free Cash Flow minus Estimated
Avoided Costs |
$ |
24,982 |
|
$ |
24,422 |
|
$ |
31,538 |
|
$ |
34,657 |
|
$ |
23,319 |
|
|
$ |
115,599 |
|
$ |
120,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4Q16 |
3Q16 |
2Q16 |
1Q16 |
4Q15 |
|
2016 |
2015 |
|
Reconciliation of Adjusted Operating Expenses to Operating
Expenses, excluding depreciation and amortization (in
thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
expenses, excluding depreciation and amortization |
$ |
107,152 |
|
$ |
74,240 |
|
$ |
89,256 |
|
$ |
102,147 |
|
$ |
90,907 |
|
|
$ |
372,795 |
|
$ |
466,016 |
|
| Pension expense |
(2,294 |
) |
(2,617 |
) |
(2,020 |
) |
(2,036 |
) |
(2,297 |
) |
|
(8,967 |
) |
(8,635 |
) |
| OPEB benefit |
41,912 |
|
70,045 |
|
55,506 |
|
55,264 |
|
55,710 |
|
|
222,727 |
|
178,973 |
|
| Compensated absences |
1,573 |
|
2,838 |
|
2,226 |
|
(6,287 |
) |
3,995 |
|
|
350 |
|
1,645 |
|
| Severance |
(3,293 |
) |
(73 |
) |
(38 |
) |
(1,459 |
) |
(2 |
) |
|
(4,863 |
) |
(4,014 |
) |
| Other non-cash items, net |
(1,492 |
) |
(1,172 |
) |
(1,456 |
) |
(2,764 |
) |
(2,284 |
) |
|
(6,884 |
) |
(8,512 |
) |
| Labor negotiation related expense |
— |
|
— |
|
— |
|
— |
|
(95 |
) |
|
— |
|
(48,933 |
) |
| All other allowed adjustments, net (3f) |
(4,545 |
) |
(9 |
) |
— |
|
— |
|
— |
|
|
(4,554 |
) |
— |
|
| Adjusted
Operating Expenses (5) |
139,013 |
|
143,252 |
|
143,474 |
|
144,865 |
|
145,934 |
|
|
570,604 |
|
576,540 |
|
| Estimated Avoided Costs (6) |
— |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
27,000 |
|
| Adjusted Operating Expenses plus Estimated
Avoided Costs |
$ |
139,013 |
|
$ |
143,252 |
|
$ |
143,474 |
|
$ |
144,865 |
|
$ |
145,934 |
|
|
$ |
570,604 |
|
$ |
603,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Revenue Categorization and Product Revenue Detail
(in millions): (7) |
|
Growth (8) |
|
|
|
|
|
|
|
|
| Broadband (8a) |
$ |
37.0 |
|
$ |
36.0 |
|
$ |
34.8 |
|
$ |
34.0 |
|
$ |
33.9 |
|
|
$ |
141.8 |
|
$ |
135.6 |
|
| Ethernet (8b) |
24.7 |
|
24.9 |
|
24.9 |
|
23.6 |
|
24.8 |
|
|
98.1 |
|
95.9 |
|
| Hosted and Advanced Services (8c) |
5.3 |
|
4.7 |
|
4.1 |
|
3.8 |
|
3.7 |
|
|
17.9 |
|
13.4 |
|
|
Subtotal Growth |
67.0 |
|
65.6 |
|
63.8 |
|
61.4 |
|
62.4 |
|
|
257.8 |
|
244.9 |
|
| Growth as
a % of Total Revenue |
32.9 |
% |
31.7 |
% |
30.9 |
% |
29.7 |
% |
29.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible (9) |
|
|
|
|
|
|
|
|
| Non-Ethernet Special Access (9a) |
15.7 |
|
16.0 |
|
16.7 |
|
18.2 |
|
17.9 |
|
|
66.6 |
|
79.9 |
|
| Business Voice (9b) |
29.1 |
|
29.5 |
|
29.9 |
|
30.5 |
|
31.0 |
|
|
119.0 |
|
127.7 |
|
| Other convertible (9c) |
5.1 |
|
5.0 |
|
5.0 |
|
5.4 |
|
5.5 |
|
|
20.5 |
|
23.9 |
|
|
Subtotal Convertible |
49.9 |
|
50.5 |
|
51.6 |
|
54.1 |
|
54.4 |
|
|
206.1 |
|
231.5 |
|
|
Convertible as a % of Total Revenue |
24.5 |
% |
24.4 |
% |
25.0 |
% |
26.2 |
% |
25.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy (10) |
|
|
|
|
|
|
|
|
| Residential Voice (10a) |
50.9 |
|
53.9 |
|
53.4 |
|
53.9 |
|
53.8 |
|
|
212.1 |
|
226.0 |
|
| Switched Access and Other (10b) |
16.1 |
|
15.3 |
|
16.8 |
|
17.7 |
|
18.1 |
|
|
65.9 |
|
74.7 |
|
|
Subtotal Legacy |
67.0 |
|
69.2 |
|
70.2 |
|
71.6 |
|
71.9 |
|
|
278.0 |
|
300.7 |
|
| Legacy as
a % of Total Revenue |
32.9 |
% |
33.4 |
% |
34.0 |
% |
34.6 |
% |
34.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory funding (1) |
12.5 |
|
12.7 |
|
13.1 |
|
13.1 |
|
13.2 |
|
|
51.4 |
|
53.8 |
|
| Regulatory
funding as a % of Total Revenue |
6.1 |
% |
6.1 |
% |
6.3 |
% |
6.3 |
% |
6.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous (11) |
7.5 |
|
9.1 |
|
7.9 |
|
6.6 |
|
7.9 |
|
|
31.1 |
|
28.6 |
|
|
Miscellaneous as a % of Total Revenue |
3.6 |
% |
4.4 |
% |
3.8 |
% |
3.2 |
% |
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Revenue |
$ |
203.9 |
|
$ |
207.1 |
|
$ |
206.6 |
|
$ |
206.8 |
|
$ |
209.8 |
|
|
$ |
824.4 |
|
$ |
859.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary Cash Flows (in thousands): |
|
|
|
|
|
|
|
|
| Cash Flows
from operating activities: |
|
|
|
|
|
|
|
|
| Net
income |
$ |
16,005 |
|
$ |
40,207 |
|
$ |
29,315 |
|
$ |
18,568 |
|
$ |
42,310 |
|
|
$ |
104,095 |
|
$ |
90,416 |
|
| Deferred income taxes |
5,429 |
|
17,057 |
|
12,215 |
|
7,908 |
|
343 |
|
|
42,609 |
|
(1,260 |
) |
| Provision for uncollectible revenue |
1,281 |
|
391 |
|
311 |
|
(1,406 |
) |
187 |
|
|
577 |
|
5,793 |
|
| Depreciation and amortization |
54,642 |
|
54,918 |
|
55,105 |
|
57,638 |
|
56,399 |
|
|
222,303 |
|
223,819 |
|
| OPEB |
(43,418 |
) |
(71,659 |
) |
(56,687 |
) |
(56,678 |
) |
(57,213 |
) |
|
(228,442 |
) |
(184,569 |
) |
| Pension |
(1,991 |
) |
(5,015 |
) |
(1,538 |
) |
2,036 |
|
(3,533 |
) |
|
(6,508 |
) |
(5,534 |
) |
| Other non-cash items |
2,781 |
|
2,349 |
|
2,658 |
|
3,768 |
|
2,148 |
|
|
11,556 |
|
10,568 |
|
| Changes in assets and liabilities arising from
operations |
3,050 |
|
(12,183 |
) |
4,998 |
|
(7,803 |
) |
3,868 |
|
|
(11,938 |
) |
(27,232 |
) |
|
Net cash provided by operating activities |
37,779 |
|
26,065 |
|
46,377 |
|
24,031 |
|
44,509 |
|
|
134,252 |
|
112,001 |
|
|
Net cash used in investing activities |
(34,031 |
) |
(32,242 |
) |
(26,482 |
) |
(25,705 |
) |
(33,180 |
) |
|
(118,460 |
) |
(115,871 |
) |
| Net cash used in financing
activities |
(1,895 |
) |
(1,868 |
) |
(1,843 |
) |
(1,822 |
) |
(1,802 |
) |
|
(7,428 |
) |
(7,157 |
) |
|
Net change |
1,853 |
|
(8,045 |
) |
18,052 |
|
(3,496 |
) |
9,527 |
|
|
8,364 |
|
(11,027 |
) |
| Cash, beginning of period |
33,071 |
|
41,116 |
|
23,064 |
|
26,560 |
|
17,033 |
|
|
26,560 |
|
37,587 |
|
| Cash, end of period |
$ |
34,924 |
|
$ |
33,071 |
|
$ |
41,116 |
|
$ |
23,064 |
|
$ |
26,560 |
|
|
$ |
34,924 |
|
$ |
26,560 |
|
|
|
|
|
|
|
|
|
|
|
|
4Q16 |
3Q16 |
2Q16 |
1Q16 |
4Q15 |
|
|
|
|
Select Operating Metrics: |
|
|
|
|
|
|
|
| Broadband subscribers (12) |
306,624 |
|
309,547 |
|
311,440 |
|
311,323 |
|
311,130 |
|
|
|
|
| % change y-o-y |
(1.4 |
)% |
(1.4 |
)% |
(1.2 |
)% |
(1.7 |
)% |
(2.7 |
)% |
|
|
|
| % change q-o-q |
(0.9 |
)% |
(0.6 |
)% |
— |
% |
0.1 |
% |
(0.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ethernet Circuits |
15,691 |
|
15,444 |
|
15,137 |
|
14,813 |
|
14,507 |
|
|
|
|
| % change y-o-y |
8.2 |
% |
9.5 |
% |
10.7 |
% |
13.2 |
% |
15.0 |
% |
|
|
|
| % change q-o-q |
1.6 |
% |
2.0 |
% |
2.2 |
% |
2.1 |
% |
2.9 |
% |
|
|
|
| |
|
|
|
|
|
|
|
|
| Residential voice lines |
366,111 |
|
377,403 |
|
388,983 |
|
398,488 |
|
409,852 |
|
|
|
|
| % change y-o-y |
(10.7 |
)% |
(10.9 |
)% |
(11.0 |
)% |
(11.7 |
)% |
(12.2 |
)% |
|
|
|
| % change q-o-q |
(3.0 |
)% |
(3.0 |
)% |
(2.4 |
)% |
(2.8 |
)% |
(3.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Employee
Headcount |
2,492 |
|
2,649 |
|
2,663 |
|
2,704 |
|
2,718 |
|
|
|
|
| % change y-o-y |
(8.3 |
)% |
(2.9 |
)% |
(9.1 |
)% |
(9.7 |
)% |
(10.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) We receive certain federal and state government funding that
we classify as regulatory funding including: CAF Phase II
support effective January 1, 2015 to build and operate broadband
services; CAF Phase II transition funding (scheduled to phase down
over three-years); CAF Phase I frozen support (for Kansas and
Colorado in 2015 and until a reverse auction is conducted); CAF
funding under the CAF/ICC Order; and universal service fund support
from certain states in which we operate.(2) Excludes reorganization
costs.(3) For purposes of calculating Adjusted EBITDA (calculated
in accordance with the definition of Consolidated EBITDA in the
Company's credit agreement), the Company adjusts net income for
interest, income taxes, depreciation and amortization, in addition
to:a) the add-back of aggregate pension and other post-employment
benefits (OPEB) expense/(benefit),b) the add-back (or subtraction)
of the adjustment to the compensated absences accrual to eliminate
the impact of changes in the accrual,c) the add-back of costs
related to the reorganization, including professional fees for
advisors and consultants,d) the add-back of costs and expenses,
including those imposed by regulatory authorities, with respect to
casualty events, acts of God or force majeure to the extent they
are not reimbursed from proceeds of insurance,e) the add-back of
other non-cash items, including stock compensation expense, except
to the extent they will require a cash payment in a future period,
andf) the add-back (or subtraction) of other items, including
facility and office closures, expenses related to permitted
transactions, labor negotiation expenses (including losses related
to disruption of operations), non-cash gains/losses, non-operating
dividend and interest income and other extraordinary
gains/losses.(4) Unlevered Free Cash Flow refers to Adjusted EBITDA
(calculated in accordance with the definition of Consolidated
EBITDA in the Company's credit agreement) minus capital
expenditures, cash pension contributions and cash payments for
OPEB.(5) For purposes of calculating Adjusted Operating Expenses,
the Company adjusts operating expenses, excluding depreciation and
amortization, for pension and OPEB expense/(benefit) see (3a),
compensated absences see (3b), severance, storm expenses see (3d),
other non-cash items, net see (3e), labor negotiation related
expense see (3f), all other allowed adjustments, net see (3f) and
settlement proceeds see (7).(6) See "Use of Non-GAAP Financial
Measures" above for information regarding the calculation. The
first quarter of 2015 represents 39 business days of estimated
avoided costs.(7) Management believes the Strategic Revenue
Categorization provides key metrics that will enhance investors'
ability to evaluate our business and assist investors in their
understanding of the changing composition of our revenue as well as
period-to-period revenue trends as a result of product and service
evolution within our industry.(8) Growth revenue is comprised of
products and services that are generally viewed as in-demand by
telecommunications consumers over the medium- to long-term and are
expected to increase over time.a) Broadband revenue is comprised of
both residential and business customers delivered through DSL,
ADSL, VDSL or other similar services.b) Ethernet revenue includes
Ethernet over copper ("EOC") or Ethernet over fiber ("EOF")
services delivered to end-users or to wholesalers, who then sell to
their end-users.c) Hosted and Advanced Services includes VoIP and
other digital voice services including unified messaging and other
IP features as well as revenue generated from our various advanced
services including our value added reseller of unified
communications, data networking and cabling infrastructure
solutions, the next-generation emergency 9-1-1 contracts in several
of our service territories as well as data center and managed
services.(9) Convertible revenues are revenues that could move from
TDM-based technologies to Ethernet or other advanced services.a)
Non-Ethernet Special Access includes high-capacity circuits.
The revenues are primarily comprised of business revenue from T1's,
DS3's and SONET products.b) Business Voice is traditional voice,
long distance, ISDN and Centrex services for a business customer.c)
Other convertible revenue primarily includes Unbundled Network
Element ("UNE"), Asynchronous Transfer Mode ("ATM"), Frame Relay,
ISDN, Analog Private Line and Internet services such as
dial-up.(10) Legacy revenues are TDM-based voice related consumer
revenue largely related to residential customers.a) Residential
Voice is comprised of TDM voice services to residential
customers.b) Switched Access and Other primarily includes Switched
Transport, Local Switching, NECA pooling elements and colocation of
miscellaneous equipment.(11) Miscellaneous is comprised of special
purpose projects, late payment fees from our customers and pole
rental revenues among other various service revenues.(12) Broadband
subscribers include DSL, fiber-to-the-premise, cable modem and
fixed wireless broadband, but exclude Ethernet and other
high-capacity circuits.
Investor Relations Contact:
Paul Taaffe
(704) 227-3623
ptaaffe@fairpoint.com
Media Contact:
Angelynne Beaudry
(207) 535-4129
aamores@fairpoint.com
Fairpoint Communications, Inc. (NASDAQ:FRP)
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