Vermont Business Magazine FairPoint Communications, Inc (Nasdaq: FRP), the largest telecommunications company in Vermont, today announced its financial results for the third quarter ended September 30, 2014. FairPoint reported that revenues were $228.1 million in the third quarter of 2014 compared to $236.0 million at the same time in 2013. Revenues were up $2.5 million from the second quarter. The company continues to lose money, with a net loss of $37.8 million compared to a loss of $9.0 million a year ago. So far on Wednesday, shares have moved slightly higher following the report, to $16.33 up 0.9 percent, with a 52-week range of $8.92 - $17.13.
"We reported solid revenue in the quarter as we experienced the expected seasonal lift from the second quarter to the third as well as continued strong results in our business-focused and Ethernet-based products," said Paul H. Sunu, Chief Executive Officer. "Certain expenses including overtime and increased medical claims negatively impacted Adjusted EBITDA, driving a lower than trend Adjusted EBITDA margin, but we anticipate many of those expenses will normalize over the coming quarters."
"Regrettably two of our labor unions in northern New England initiated a work stoppage," Sunu continued. "While we prefer to reach agreements with these two unions, our contingency plans give us confidence in our ability to provide continuity of service to customers during this work stoppage."
FairPoint and union representatives will meet with a mediator November 18 in Boston. The two sides have not met since the end of August. Union workers went on strike October 17 over a unilateral restructuring of benefits and retirement plans by the company. FairPoint, along with wanting to reduce benefit costs and align packages with non-union workers, also wants to have the ability to use non-union workers. The State of Vermont has warned FairPoint, a regulated telecom, that it must reduce the spike in consumer complaints since the strike or face a state investigation.
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Operating Highlights
The Company experienced strong revenue growth in business, advanced data services such as Ethernet, high-capacity data transport and other IP-based services along with broadband services. The return of seasonal revenue and effective use of selective price increases mitigated loss in legacy voice revenue and contributed to a sequential increase in total quarterly revenue. In the third quarter of 2014, data and Internet services revenue grew 7.9% versus a year ago as products like FairPoint's retail Ethernet service offerings continue to attract new customers. Data and Internet services revenue increased sequentially in the third quarter, which is an increase for the seventh consecutive quarter.
Ethernet services contributed approximately $21.3 million of revenue or 9.3% of total revenue in the third quarter of 2014 as compared to $17.2 million or 7.3% of total revenue a year ago, as retail and wholesale Ethernet circuits grew 37.5% year-over-year. Growth in the Company's Ethernet products is expected to continue based on demand from customers like regional banks, healthcare networks and wireless carriers.
As of September 30, 2014, FairPoint had 3,088 employees, a decrease of 3.0% versus a year ago, largely due to attrition.
Two of our collective bargaining agreements that cover most of our represented employees in northern New England expired on August 2, 2014. New collective bargaining agreements have not been reached. We have informed the unions that the parties are at impasse and on August 28, 2014 we implemented our final proposals. Those proposals include, among others:
- Freezing of benefit accruals and participation under the existing defined benefit pension plan.
- Pursuant to an amendment to the pension plan, effective October 14, 2014, the pension plan was frozen. As such, no additional benefits will be earned by the approximately 1,800 active participants and no new participants will be admitted to the pension plan.
- Elimination of post-retirement healthcare benefits for employees covered by the collective bargaining agreements.
- Effective August 28, 2014, pursuant to an amendment to the other post-employment benefits ("OPEB") plan, employees who retire on and after that date are no longer eligible to receive benefits under this plan, which impacts approximately 1,800 active employees. Approximately 300 retirees already receiving benefits under the OPEB plan prior to this date were not impacted by this implementation.
- Changes to medical benefits.
- Changes to medical benefits for participants covered under those collective bargaining agreements are expected to result in lower employee expenses recognized in costs of services and sales and selling, general and administrative expenses beginning in January 2015.
The two unions filed unfair labor practices charges with the National Labor Relations Board contesting the implementation of our final proposals. There is no set timeline for resolving these charges and we cannot predict the outcome of these charges at this time. As of September 30, 2014, we have not recognized the impact of this implementation in our financial statements.
We are operating without contracts with these two labor unions in northern New England. On October 17, 2014 the two labor unions initiated a work stoppage. As of November 5, 2014, the work stoppage continues. The Company has executed its contingency plans and service to its customers continues. However, there is no assurance that we will operate at the same level of service under our contingency plans. This work stoppage and other concerted activities related thereto could materially adversely impact our business, financial condition, results of operations, liquidity and/or the market price of our outstanding securities.
For the nine months ended September 30, 2014, we recognized $22.3 million of labor negotiation related expenses primarily for contingent workforce (including training) expenses and legal, communications and public relations expenses. We expect additional labor negotiation related expenses in the fourth quarter of 2014, which are expected to be offset by lower employee expenses. As defined in our credit agreement, expenses related to labor negotiation are an add-back to our Adjusted EBITDA.
Financial Highlights
Third Quarter 2014 as compared to Second Quarter 2014
Revenue increased $2.5 million during the third quarter of 2014 to $228.1 million.
- Voice services were flat, positively impacted by seasonality and rate increases, offset by fewer lines in service;
- Access revenue increased $2.0 million primarily due to the annual NECA cost study true-up and wholesale Ethernet growth, partially offset by the continued loss and conversion of legacy transport circuits;
- Data and Internet services increased $0.7 million reflecting strength in retail Ethernet circuit growth and price increases in our broadband product offering; and
- Other services decreased $0.2 million primarily driven by lower late payment revenue due to timelier customer payments.
Operating expenses, excluding depreciation, amortization and reorganization, increased $20.4 million to $200.4 million in the third quarter of 2014 compared to $180.0 million in the second quarter of 2014 primarily due to increased labor negotiation related expenses of $13.4 million compared to the second quarter, higher employee expenses primarily driven by higher overtime, bonus and medical claims as well as higher bad debt expense, partially offset by lower contracted services.
Adjusting for items that are added back in the computation of Adjusted EBITDA, operating expenses were $166.4 million in the third quarter of 2014 compared to $161.4 million in the second quarter of 2014. The increase was due to higher employee expenses primarily driven by higher overtime, bonus and medical claims as well as higher bad debt expense, partially offset by lower contracted services.
Adjusted EBITDA decreased $2.5 million to $61.7 million in the third quarter of 2014 compared to $64.2 million in the second quarter of 2014 due to higher operating expenses offset by increased revenue.
Capital expenditures were $28.8 million in the third quarter of 2014 compared to $34.9 million in the second quarter of 2014 because of additional spending in the second quarter of 2014 primarily for Next Generation 911 in Maine and vehicles. In addition, at customer requests, certain Fiber to the Tower builds were deferred to future quarters, which reduced third quarter capital expenditures from the level expected.
Unlevered Free Cash Flow, which measures Adjusted EBITDA minus capital expenditures, pension contributions and cash payments for OPEB, was $24.5 million in the third quarter of 2014 compared to $21.4 million in the second quarter of 2014. Unlevered Free Cash Flow was higher in the third quarter of 2014 primarily due to lower capital expenditures offset by lower Adjusted EBITDA.
Net loss was $37.8 million in the third quarter of 2014 compared to $22.7 million in the second quarter of 2014. The change was primarily because of an increase in loss from operations of $19.4 million, mainly from higher operating expenses, partially offset by higher revenue and a higher income tax benefit of $4.1 million in the third quarter.
Cash was $25.2 million as of September 30, 2014 compared to $31.9 million as of June 30, 2014. The decrease is primarily due to the scheduled semi-annual interest payment towards the Company's senior notes in the third quarter. Total gross debt outstanding was $930.4 million as of September 30, 2014, after taking into consideration the regularly scheduled principal payment of $1.6 million on the term loan made during the third quarter of 2014, as compared to $932.0 million as of June 30, 2014. The Company's $75.0 million revolving credit facility is undrawn, with $58.8 million available for borrowing after applying $16.2 million of outstanding letters of credit.
Third Quarter 2014 as compared to Third Quarter 2013
Revenue was $228.1 million in the third quarter of 2014 compared to $236.0 million a year earlier.
- Voice services declined $6.5 million resulting from the loss of voice access lines versus a year ago combined with lower long distance usage and the impact of certain promotional discounts on residential products, partially offset by price increases;
- Access revenue declined $3.1 million due to the continued loss and conversion of legacy transport circuits to next generation fiber-based services and revenue assurance in the third quarter of 2013 that did not recur to the same extent in the third quarter of 2014, partially offset by an increase in wholesale Ethernet revenue driven by legacy conversion and a higher year-over-year NECA cost study true-up;
- Data and Internet services increased $3.3 million reflecting strength in retail Ethernet services and price increases on residential broadband products; and
- Other services decreased $1.6 million primarily driven by additional revenue from certain special purpose construction projects and late payment charges in the third quarter of 2013.
Operating expenses, excluding depreciation, amortization and reorganization, increased $13.2 million to $200.4 million in the third quarter of 2014 compared to $187.2 million in the third quarter of 2013 primarily due to increased labor negotiation related expenses of $16.9 million, partially offset by lower contracted services and severance expense in the third quarter of 2014.
Adjusting for items that are added back in the computation of Adjusted EBITDA, operating expenses were $166.4 million in the third quarter of 2014 compared to $168.8 million a year earlier. The decrease was primarily the result of lower contracted services in the third quarter of 2014.
Adjusted EBITDA was $61.7 million in the third quarter of 2014 compared to $67.5 million a year earlier. The decrease is due to lower revenue partially offset by adjusted operating expense savings.
Capital expenditures were $28.8 million in the third quarter of 2014 compared to $33.8 million a year earlier. The decrease is primarily driven by certain Fiber to the Tower builds that were deferred to future quarters at customer requests and a lower overall 2014 capital plan.
Unlevered Free Cash Flow of $24.5 million in the third quarter of 2014 was essentially flat compared to $24.4 million a year earlier. The slight increase was due to lower capital expenditures and pension and OPEB contributions offset by lower Adjusted EBITDA in the third quarter of 2014.
Net loss was $37.8 million in the third quarter of 2014 compared to $9.0 million in the third quarter of 2013. The change was due primarily to higher operating expenses, including depreciation expense, and lower revenue. Income tax benefit in the third quarter of 2013 included an additional tax benefit due to a change in the valuation allowance.
2014 Guidance and Subsequent Events
On January 24, 2011, the FairPoint Litigation Trust (the "Trust") was created and the Company transferred to the Trust the Litigation Trust Claims, as defined in the FairPoint Litigation Trust Agreement among the Company, its subsidiaries and the trustee. The Trust thereafter settled its claims. On October 16, 2014, we received a one-time payment of $7.4 million from the settlement proceeds. For purposes of calculating Adjusted EBITDA (in accordance with the definition of Consolidated EBITDA in our credit agreement), $6.7 million is permitted to be included in the calculation and $0.7 million will be interest income in the fourth quarter of 2014. The Company will not receive further payments from the Trust.
The Company expects to generate $100 million to $110 million of Unlevered Free Cash Flow for fiscal 2014. Unlevered Free Cash Flow refers to Adjusted EBITDA minus capital expenditures, pension contributions and cash payments for OPEB. In addition, for fiscal 2014, Adjusted EBITDA is expected to be approximately $260 million and capital expenditures are expected to be approximately $120 million. Aggregate cash pension contributions and cash OPEB payments are expected to be approximately $35 million.
Aggregate cash pension contributions and cash OPEB payments are expected to be $21 million to $25 million for 2015.
Quarterly Report
The information in this press release should be read in conjunction with the financial statements and footnotes contained in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2014, which will be filed with the SEC no later than November 10, 2014. The Company's results for the quarter ended September 30, 2014 are subject to the completion of such quarterly report.
|
FAIRPOINT COMMUNICATIONS, INC. Supplemental Financial Information (Unaudited) (in thousands, except operating and financial metrics) |
|||||||||||||||||||||||
|
3Q14 |
2Q14 |
1Q14 |
4Q13 |
3Q13 |
YTD 2014 |
YTD 2013 |
|||||||||||||||||
|
Summary Income Statement: |
|||||||||||||||||||||||
|
Revenue: |
|||||||||||||||||||||||
|
Voice services |
$ |
94,799 |
$ |
94,838 |
$ |
95,495 |
$ |
98,510 |
$ |
101,272 |
$ |
285,132 |
$ |
306,649 |
|||||||||
|
Access |
77,112 |
75,123 |
76,940 |
80,763 |
80,182 |
229,175 |
241,049 |
||||||||||||||||
|
Data and Internet services |
44,851 |
44,089 |
42,343 |
41,645 |
41,550 |
131,283 |
119,778 |
||||||||||||||||
|
Other services |
11,358 |
11,547 |
15,779 |
12,478 |
12,985 |
38,684 |
38,482 |
||||||||||||||||
|
Total revenue |
228,120 |
225,597 |
230,557 |
233,396 |
235,989 |
684,274 |
705,958 |
||||||||||||||||
|
Operating expenses: |
|||||||||||||||||||||||
|
Operating expenses, excluding |
200,412 |
180,037 |
198,582 |
185,964 |
187,166 |
579,031 |
584,909 |
||||||||||||||||
|
Depreciation and amortization |
56,618 |
55,080 |
54,071 |
53,605 |
52,877 |
165,769 |
228,833 |
||||||||||||||||
|
Reorganization (income) expense |
12 |
47 |
18 |
19 |
(229) |
77 |
(790) |
||||||||||||||||
|
Total operating expenses |
257,042 |
235,164 |
252,671 |
239,588 |
239,814 |
744,877 |
812,952 |
||||||||||||||||
|
Loss from operations |
(28,922) |
(9,567) |
(22,114) |
(6,192) |
(3,825) |
(60,603) |
(106,994) |
||||||||||||||||
|
Other income (expense): |
|||||||||||||||||||||||
|
Interest expense |
(20,195) |
(20,023) |
(20,008) |
(20,272) |
(20,304) |
(60,226) |
(58,403) |
||||||||||||||||
|
Loss on debt refinancing |
— |
— |
— |
— |
— |
— |
(6,787) |
||||||||||||||||
|
Other income (expense), net |
90 |
(224) |
215 |
3,477 |
951 |
81 |
1,386 |
||||||||||||||||
|
Total other expense |
(20,105) |
(20,247) |
(19,793) |
(16,795) |
(19,353) |
(60,145) |
(63,804) |
||||||||||||||||
|
Loss from continuing operations before |
(49,027) |
(29,814) |
(41,907) |
(22,987) |
(23,178) |
(120,748) |
(170,798) |
||||||||||||||||
|
Income tax benefit |
11,249 |
7,134 |
9,670 |
29,090 |
14,218 |
28,053 |
61,201 |
||||||||||||||||
|
Net income (loss) from continuing operations |
(37,778) |
(22,680) |
(32,237) |
6,103 |
(8,960) |
(92,695) |
(109,597) |
||||||||||||||||
|
Gain on sale of discontinued operations |
— |
— |
— |
— |
— |
— |
10,044 |
||||||||||||||||
|
Net income (loss) |
$ |
(37,778) |
$ |
(22,680) |
$ |
(32,237) |
$ |
6,103 |
$ |
(8,960) |
$ |
(92,695) |
$ |
(99,553) |
|||||||||
|
Reconciliation of Adjusted EBITDA |
|||||||||||||||||||||||
|
Net income (loss) |
$ |
(37,778) |
$ |
(22,680) |
$ |
(32,237) |
$ |
6,103 |
$ |
(8,960) |
$ |
(92,695) |
$ |
(99,553) |
|||||||||
|
Income tax benefit |
(11,249) |
(7,134) |
(9,670) |
(29,090) |
(14,218) |
(28,053) |
(61,201) |
||||||||||||||||
|
Interest expense |
20,195 |
20,023 |
20,008 |
20,272 |
20,304 |
60,226 |
58,403 |
||||||||||||||||
|
Depreciation and amortization |
56,618 |
55,080 |
54,071 |
53,605 |
52,877 |
165,769 |
228,833 |
||||||||||||||||
|
Pension expense (1a) |
4,892 |
4,754 |
4,799 |
7,000 |
6,357 |
14,445 |
19,221 |
||||||||||||||||
|
OPEB expense (1a) |
14,941 |
13,404 |
13,529 |
12,173 |
11,973 |
41,874 |
42,296 |
||||||||||||||||
|
Compensated absences (1b) |
(3,829) |
(3,013) |
11,313 |
(3,276) |
(4,367) |
4,471 |
3,707 |
||||||||||||||||
|
Severance |
264 |
129 |
384 |
485 |
3,537 |
777 |
7,665 |
||||||||||||||||
|
Restructuring costs (1c) |
12 |
47 |
18 |
19 |
70 |
77 |
188 |
||||||||||||||||
|
Storm expenses (1d) |
— |
(190) |
(410) |
2,598 |
— |
(600) |
— |
||||||||||||||||
|
Other non-cash items, net (1e) |
331 |
(109) |
1,131 |
299 |
426 |
1,353 |
1,603 |
||||||||||||||||
|
Gain on sale of assets |
170 |
243 |
10 |
36 |
(956) |
423 |
(10,793) |
||||||||||||||||
|
Early debt payment expenses |
— |
— |
— |
— |
— |
— |
6,787 |
||||||||||||||||
|
Labor negotiation related expense (1f) |
17,142 |
3,700 |
1,413 |
356 |
175 |
22,255 |
292 |
||||||||||||||||
|
All other allowed adjustments, net (1f) |
(14) |
(20) |
(184) |
(3,365) |
291 |
(218) |
367 |
||||||||||||||||
|
Adjusted EBITDA |
$ |
61,695 |
$ |
64,234 |
$ |
64,175 |
$ |
67,215 |
$ |
67,509 |
$ |
190,104 |
$ |
197,815 |
|||||||||
|
Adjusted EBITDA margin |
27.0 |
% |
28.5 |
% |
27.8 |
% |
28.8 |
% |
28.6 |
% |
27.8 |
% |
28.0 |
% |
|||||||||
|
Pension contributions |
$ |
(7,038) |
$ |
(6,895) |
$ |
(6,960) |
$ |
(7,925) |
$ |
(8,519) |
$ |
(20,893) |
$ |
(12,046) |
|||||||||
|
OPEB payments |
(1,398) |
(1,068) |
(1,062) |
(938) |
(786) |
(3,528) |
(2,532) |
||||||||||||||||
|
Capital expenditures |
(28,798) |
(34,900) |
(28,077) |
(37,207) |
(33,768) |
(91,775) |
(91,091) |
||||||||||||||||
|
Unlevered Free Cash Flow |
$ |
24,461 |
$ |
21,371 |
$ |
28,076 |
$ |
21,145 |
$ |
24,436 |
$ |
73,908 |
$ |
92,146 |
|||||||||
|
3Q14 |
2Q14 |
1Q14 |
4Q13 |
3Q13 |
YTD 2014 |
YTD 2013 |
|||||||||||||||||
|
Reconciliation of Adjusted EBITDA to Revenue: |
|||||||||||||||||||||||
|
Total revenue |
$ |
228,120 |
$ |
225,597 |
$ |
230,557 |
$ |
233,396 |
$ |
235,989 |
$ |
684,274 |
$ |
705,958 |
|||||||||
|
Operating expenses, excluding |
$ |
200,412 |
$ |
180,037 |
$ |
198,582 |
$ |
185,964 |
$ |
187,166 |
$ |
579,031 |
$ |
584,909 |
|||||||||
|
Pension expense (1a) |
(4,892) |
(4,754) |
(4,799) |
(7,000) |
(6,357) |
(14,445) |
(19,221) |
||||||||||||||||
|
OPEB expense (1a) |
(14,941) |
(13,404) |
(13,529) |
(12,173) |
(11,973) |
(41,874) |
(42,296) |
||||||||||||||||
|
Compensated Absences (1b) |
3,829 |
3,013 |
(11,313) |
3,276 |
4,367 |
(4,471) |
(3,707) |
||||||||||||||||
|
Severance |
(264) |
(129) |
(384) |
(485) |
(3,537) |
(777) |
(7,665) |
||||||||||||||||
|
Storm expenses (1d) |
— |
190 |
410 |
(2,598) |
— |
600 |
— |
||||||||||||||||
|
Other non-cash items, net (1e) |
(577) |
110 |
(1,171) |
(445) |
(394) |
(1,638) |
(1,824) |
||||||||||||||||
|
Labor negotiation related expense (1f) |
(17,142) |
(3,700) |
(1,413) |
(356) |
(175) |
(22,255) |
(292) |
||||||||||||||||
|
All other allowed adjustments, net (1f) |
— |
— |
(1) |
(2) |
(318) |
(1) |
(782) |
||||||||||||||||
|
Adjusted operating expenses, |
$ |
166,425 |
$ |
161,363 |
$ |
166,382 |
$ |
166,181 |
$ |
168,779 |
$ |
494,170 |
$ |
509,122 |
|||||||||
|
Adjusted operating expenses margin |
73.0 |
% |
71.5 |
% |
72.2 |
% |
71.2 |
% |
71.5 |
% |
72.2 |
% |
72.1 |
% |
|||||||||
|
Adjusted income from continuing |
$ |
61,695 |
$ |
64,234 |
$ |
64,175 |
$ |
67,215 |
$ |
67,210 |
$ |
190,104 |
$ |
196,836 |
|||||||||
|
Adjusted income from continuing |
27.0 |
% |
28.5 |
% |
27.8 |
% |
28.8 |
% |
28.5 |
% |
27.8 |
% |
27.9 |
% |
|||||||||
|
Reversal of certain bankruptcy claims |
— |
— |
— |
— |
299 |
— |
979 |
||||||||||||||||
|
Adjusted EBITDA |
$ |
61,695 |
$ |
64,234 |
$ |
64,175 |
$ |
67,215 |
$ |
67,509 |
$ |
190,104 |
$ |
197,815 |
|||||||||
|
Adjusted EBITDA margin |
27.0 |
% |
28.5 |
% |
27.8 |
% |
28.8 |
% |
28.6 |
% |
27.8 |
% |
28.0 |
% |
|||||||||
|
Select Operating and Financial |
|||||||||||||||||||||||
|
Residential lines |
484,346 |
502,759 |
516,106 |
527,890 |
542,238 |
||||||||||||||||||
|
Business lines (2) |
286,538 |
289,519 |
289,568 |
290,955 |
292,937 |
||||||||||||||||||
|
Wholesale lines (3) |
54,386 |
55,569 |
58,605 |
59,859 |
60,315 |
||||||||||||||||||
|
Total lines (2) |
825,270 |
847,847 |
864,279 |
878,704 |
895,490 |
||||||||||||||||||
|
% change y-o-y |
(7.8) |
% |
(7.1) |
% |
(6.7) |
% |
(7.0) |
% |
(7.3) |
% |
|||||||||||||
|
% change q-o-q |
(2.7) |
% |
(1.9) |
% |
(1.6) |
% |
(1.9) |
% |
(1.9) |
% |
|||||||||||||
|
Broadband subscribers (4) |
329,494 |
333,421 |
331,538 |
329,766 |
330,698 |
||||||||||||||||||
|
% change y-o-y |
(0.4) |
% |
0.2 |
% |
0.4 |
% |
1.5 |
% |
3.0 |
% |
|||||||||||||
|
% change q-o-q |
(1.2) |
% |
0.6 |
% |
0.5 |
% |
(0.3) |
% |
(0.6) |
% |
|||||||||||||
|
penetration of lines |
39.9 |
% |
39.3 |
% |
38.4 |
% |
37.5 |
% |
36.9 |
% |
|||||||||||||
|
Access line equivalents (2) |
1,154,764 |
1,181,268 |
1,195,817 |
1,208,470 |
1,226,188 |
||||||||||||||||||
|
% change y-o-y |
(5.8) |
% |
(5.1) |
% |
(4.8) |
% |
(4.8) |
% |
(4.7) |
% |
|||||||||||||
|
% change q-o-q |
(2.2) |
% |
(1.2) |
% |
(1.0) |
% |
(1.4) |
% |
(1.5) |
% |
|||||||||||||
|
Retail Ethernet |
5,447 |
5,156 |
4,875 |
4,651 |
4,241 |
||||||||||||||||||
|
Wholesale Ethernet |
6,234 |
5,570 |
5,248 |
4,866 |
4,257 |
||||||||||||||||||
|
Ethernet Circuits |
11,681 |
10,726 |
10,123 |
9,517 |
8,498 |
||||||||||||||||||
|
% change y-o-y |
37.5 |
% |
48.3 |
% |
56.6 |
% |
60.1 |
% |
57.8 |
% |
|||||||||||||
|
% change q-o-q |
8.9 |
% |
6.0 |
% |
6.4 |
% |
12.0 |
% |
17.5 |
% |
|||||||||||||
|
Employee Headcount |
3,088 |
3,160 |
3,166 |
3,171 |
3,182 |
||||||||||||||||||
|
% change y-o-y |
(3.0) |
% |
(2.9) |
% |
(4.7) |
% |
(5.9) |
% |
(6.4) |
% |
|||||||||||||
|
(1) For purposes of calculating Adjusted EBITDA (in accordance with the definition of Consolidated EBITDA in the Company's credit agreement), the Company adjusts net (loss) 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, |
|||||||||||||||||||||||
|
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, except to the extent they will require a cash payment in a future period, and |
|||||||||||||||||||||||
|
f) the add-back (or subtraction) of other items, including facility and office closures, labor negotiation expenses, non-cash gains/losses, non-operating dividend and interest income and other extraordinary gains/losses. |
|||||||||||||||||||||||
|
(2) Access lines are presented pro forma for the divestiture of our pay phone operations in our northern New England footprint and include Hosted Voice seats. |
|||||||||||||||||||||||
|
(3) Wholesale access lines include Resale and UNE-P, but exclude UNE-L and special access circuits. |
|||||||||||||||||||||||
|
(4) Broadband subscribers include DSL, fiber-to-the-premise, cable modem and fixed wireless broadband, but exclude Ethernet and other high-capacity circuits. |
|||||||||||||||||||||||
|
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets September 30, 2014 and December 31, 2013 (in thousands, except share data) |
|||||||
|
September 30, 2014 |
December 31, 2013 |
||||||
|
(unaudited) |
|||||||
|
Assets: |
|||||||
|
Cash |
$ |
25,227 |
$ |
42,700 |
|||
|
Restricted cash |
— |
543 |
|||||
|
Accounts receivable (net of $11.2 million and $13.1 million allowance for doubtful accounts, |
77,267 |
89,248 |
|||||
|
Prepaid expenses |
24,209 |
26,552 |
|||||
|
Other current assets |
3,524 |
3,876 |
|||||
|
Deferred income tax, net |
12,469 |
18,250 |
|||||
|
Total current assets |
142,696 |
181,169 |
|||||
|
Property, plant and equipment (net of $1,037.1 million and $886.2 million accumulated |
1,238,016 |
1,301,292 |
|||||
|
Intangible assets (net of $41.0 million and $32.7 million accumulated amortization, |
97,629 |
105,886 |
|||||
|
Debt issue costs, net |
6,245 |
7,101 |
|||||
|
Restricted cash |
651 |
651 |
|||||
|
Other assets |
3,262 |
3,799 |
|||||
|
Total assets |
$ |
1,488,499 |
$ |
1,599,898 |
|||
|
Liabilities and Stockholders' Deficit: |
|||||||
|
Current portion of long-term debt |
$ |
6,400 |
$ |
6,400 |
|||
|
Current portion of capital lease obligations |
921 |
1,445 |
|||||
|
Accounts payable |
39,627 |
37,876 |
|||||
|
Claims payable and estimated claims accrual |
216 |
256 |
|||||
|
Accrued interest payable |
3,416 |
9,977 |
|||||
|
Accrued payroll and related expenses |
27,745 |
34,897 |
|||||
|
Other accrued liabilities |
54,956 |
55,994 |
|||||
|
Total current liabilities |
133,281 |
146,845 |
|||||
|
Capital lease obligations |
1,038 |
447 |
|||||
|
Accrued pension obligations |
144,306 |
153,534 |
|||||
|
Accrued post-retirement healthcare obligations |
622,424 |
584,734 |
|||||
|
Deferred income taxes |
53,168 |
85,948 |
|||||
|
Other long-term liabilities |
20,971 |
25,864 |
|||||
|
Long-term debt, net of current portion |
909,048 |
911,722 |
|||||
|
Total long-term liabilities |
1,750,955 |
1,762,249 |
|||||
|
Total liabilities |
1,884,236 |
1,909,094 |
|||||
|
Stockholders' deficit: |
|||||||
|
Common stock, $0.01 par value, 37,500,000 shares authorized, 26,708,989 and 26,480,837 |
267 |
264 |
|||||
|
Additional paid-in capital |
515,341 |
512,008 |
|||||
|
Retained deficit |
(754,384) |
(661,689) |
|||||
|
Accumulated other comprehensive loss |
(156,961) |
(159,779) |
|||||
|
Total stockholders' deficit |
(395,737) |
(309,196) |
|||||
|
Total liabilities and stockholders' deficit |
$ |
1,488,499 |
$ |
1,599,898 |
|||
|
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations Three and Nine months ended September 30, 2014 and 2013 (Unaudited) (in thousands, except per share data) |
|||||||||||||||
|
Three Months Ended |
Nine Months Ended |
||||||||||||||
|
2014 |
2013 |
2014 |
2013 |
||||||||||||
|
Revenues |
$ |
228,120 |
$ |
235,989 |
$ |
684,274 |
$ |
705,958 |
|||||||
|
Operating expenses: |
|||||||||||||||
|
Cost of services and sales, excluding depreciation and |
104,643 |
107,646 |
321,870 |
332,420 |
|||||||||||
|
Selling, general and administrative expense |
95,769 |
79,520 |
257,161 |
252,489 |
|||||||||||
|
Depreciation and amortization |
56,618 |
52,877 |
165,769 |
228,833 |
|||||||||||
|
Reorganization related expense (income) |
12 |
(229) |
77 |
(790) |
|||||||||||
|
Total operating expenses |
257,042 |
239,814 |
744,877 |
812,952 |
|||||||||||
|
Loss from operations |
(28,922) |
(3,825) |
(60,603) |
(106,994) |
|||||||||||
|
Other income (expense): |
|||||||||||||||
|
Interest expense |
(20,195) |
(20,304) |
(60,226) |
(58,403) |
|||||||||||
|
Loss on debt refinancing |
— |
— |
— |
(6,787) |
|||||||||||
|
Other income |
90 |
951 |
81 |
1,386 |
|||||||||||
|
Total other expense |
(20,105) |
(19,353) |
(60,145) |
(63,804) |
|||||||||||
|
Loss before income taxes |
(49,027) |
(23,178) |
(120,748) |
(170,798) |
|||||||||||
|
Income tax benefit |
11,249 |
14,218 |
28,053 |
61,201 |
|||||||||||
|
Loss from continuing operations |
(37,778) |
(8,960) |
(92,695) |
(109,597) |
|||||||||||
|
Gain on sale of discontinued operations, net of taxes |
— |
— |
— |
10,044 |
|||||||||||
|
Net loss |
$ |
(37,778) |
$ |
(8,960) |
$ |
(92,695) |
$ |
(99,553) |
|||||||
|
(Loss) earnings per share, basic: |
|||||||||||||||
|
Continuing operations |
$ |
(1.43) |
$ |
(0.34) |
$ |
(3.51) |
$ |
(4.18) |
|||||||
|
Discontinued operations |
— |
— |
— |
0.38 |
|||||||||||
|
Loss per share, basic |
$ |
(1.43) |
$ |
(0.34) |
$ |
(3.51) |
$ |
(3.80) |
|||||||
|
(Loss) earnings per share, diluted: |
|||||||||||||||
|
Continuing operations |
$ |
(1.43) |
$ |
(0.34) |
$ |
(3.51) |
$ |
(4.18) |
|||||||
|
Discontinued operations |
— |
— |
— |
0.38 |
|||||||||||
|
Loss per share, diluted |
$ |
(1.43) |
$ |
(0.34) |
$ |
(3.51) |
$ |
(3.80) |
|||||||
|
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2014 and 2013 (Unaudited) (in thousands) |
|||||||
|
Nine Months Ended |
|||||||
|
2014 |
2013 |
||||||
|
Cash flows from operating activities: |
|||||||
|
Net loss |
$ |
(92,695) |
$ |
(99,553) |
|||
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|||||||
|
Deferred income taxes |
(28,907) |
(62,202) |
|||||
|
Provision for uncollectible revenue |
6,840 |
6,665 |
|||||
|
Depreciation and amortization |
165,769 |
228,833 |
|||||
|
Post-retirement healthcare |
38,348 |
39,936 |
|||||
|
Qualified pension |
(6,447) |
7,175 |
|||||
|
Loss on abandoned projects |
170 |
— |
|||||
|
Stock-based compensation |
3,527 |
4,524 |
|||||
|
Gain on sale of business, net |
— |
(10,044) |
|||||
|
Loss on debt refinancing |
— |
6,787 |
|||||
|
Other non-cash items |
921 |
(919) |
|||||
|
Changes in assets and liabilities arising from operations: |
|||||||
|
Accounts receivable |
5,141 |
(9,002) |
|||||
|
Prepaid and other assets |
2,694 |
(5,443) |
|||||
|
Restricted cash |
463 |
4,554 |
|||||
|
Accounts payable and accrued liabilities |
(6,660) |
(10,664) |
|||||
|
Accrued interest payable |
(6,561) |
3,241 |
|||||
|
Other assets and liabilities, net |
(3,607) |
11,151 |
|||||
|
Reorganization adjustments: |
|||||||
|
Non-cash reorganization income |
— |
(980) |
|||||
|
Claims payable and estimated claims accrual |
(40) |
(46) |
|||||
|
Restricted cash - Cash Claims Reserve |
80 |
577 |
|||||
|
Total adjustments |
171,731 |
214,143 |
|||||
|
Net cash provided by operating activities |
79,036 |
114,590 |
|||||
|
Cash flows from investing activities: |
|||||||
|
Net capital additions |
(91,775) |
(91,091) |
|||||
|
Proceeds from sale of business |
— |
30,452 |
|||||
|
Distributions from investments and proceeds from the sale of property |
1,101 |
1,296 |
|||||
|
Net cash used in investing activities |
(90,674) |
(59,343) |
|||||
|
Cash flows from financing activities: |
|||||||
|
Proceeds from issuance of long-term debt |
— |
920,590 |
|||||
|
Financing costs |
— |
(13,217) |
|||||
|
Repayments of long-term debt |
(4,800) |
(960,200) |
|||||
|
Proceeds from exercise of stock options |
32 |
53 |
|||||
|
Repayment of capital lease obligations |
(1,067) |
(936) |
|||||
|
Net cash used in financing activities |
(5,835) |
(53,710) |
|||||
|
Net change |
(17,473) |
1,537 |
|||||
|
Cash, beginning of period |
42,700 |
23,203 |
|||||
|
Cash, end of period |
$ |
25,227 |
$ |
24,740 |
|||
SOURCE CHARLOTTE, N.C., Nov. 5, 2014 /PRNewswire/ --FairPoint Communications, Inc.
1 Unlevered Free Cash Flow and Adjusted EBITDA are non-GAAP financial measures. Additional information regarding the calculation of Unlevered Free Cash Flow and Adjusted EBITDA and a reconciliation to net income (loss) are contained in the attachments to this press release.