EX-99.1 4 a2062897zex-99_1.txt EXHIBIT 99.1 EXHIBIT 99.1 FOR IMMEDIATE RELEASE CONTACT: Timothy W. Henry Telephone: (704) 344.8150 Email: Thenry@fairpoint.com -------------------- FAIRPOINT RENEWS FOCUS ON SOLID RURAL TELECOM BUSINESS o COMPANY ANNOUNCES SALE OF CERTAIN ASSETS OF ITS SUBSIDIARY, FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. o FAIRPOINT REPORTS STRONG THIRD-QUARTER RESULTS ENDED SEPT. 30 o GENE JOHNSON TO REPLACE RETIRING JACK H. THOMAS AS CEO CHARLOTTE, N.C. (Nov. 7, 2001) - FairPoint Communications, Inc. ("FairPoint") today announced it will renew its focus as an operator and acquirer in the highly stable rural traditional telephone marketplace. Following a decision in October to sell its competitive local exchange carrier properties in Oregon and Washington, the company said today it has reached a definitive agreement to sell certain assets in the Northeast to Choice One Communications (Nasdaq: CWON). FairPoint will wind down the rest of its operations in its competitive communications subsidiary, FairPoint Communications Solutions Corp. ("FairPoint Solutions"), following a transition lasting until mid-year 2002. The company's board also has appointed Eugene "Gene" Johnson, currently vice chairman, to lead the company as chief executive officer. Johnson said the company intends to "focus with renewed vigor on the core competencies FairPoint was founded on: acquiring and operating rural telephone companies." In addition, the company announced its financial results for the quarter ended Sept. 30. Highlights include: o Consolidated revenues were up 11.7% compared to third quarter 2000. o Traditional telephone company revenues increased 7.9% compared to the same quarter a year ago. o The company reported consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) of $23.2 million, a 101.1% increase compared to third quarter 2000. FAIRPOINT WILL BECOME A SIGNIFICANT INVESTOR IN CHOICE ONE The definitive agreement announced today, subject to regulatory and other approvals, calls for the sale of FairPoint Solutions' assets in five Northeastern states. As part of the asset purchase agreement, FairPoint will receive cash and common stock and will become a significant investor in Choice One and receive one seat on Choice One's board of directors. "Last winter, as capital markets tightened, we quickly adjusted FairPoint Solutions to focus on core markets, lower costs to match revenue, preserve capital and accelerate the schedule to reach positive EBITDA," Johnson said. "At the time, it appeared these moves would be sufficient. Now, however, the recovery in the economy and capital markets has been pushed further into the future. It is clear that our best strategic alternative is to align with a competitive carrier that has the critical mass necessary to take advantage of economies of scale required in this industry sector. We believe Choice One has the size and proven operating performance to succeed over the long term." FairPoint Solutions agreed last month to sell its assets in Washington and Oregon to Advanced Telcom Group. FairPoint Solutions will continue to serve customers in its Northeast and Northwest markets as Choice One and ATG gradually convert lines to their respective operating platforms. In addition, FairPoint Solutions will begin notifying its remaining CLEC customers in Southwest, Southeast and Mid-Atlantic markets that they will need to find alternative carriers over the next few months pending the required regulatory procedures. "I am particularly gratified to know how much Choice One is committed to serving all our markets across the Northeast," Johnson said. For example, Choice One plans to begin service in two markets where FairPoint Solutions has a presence and Choice One does not. Those markets are Erie, Pa. and Portland/Augusta, Maine. FairPoint Solutions currently employs approximately 420 people. A significant number of employees will continue working through all or part of the transition period. "This is a decision that in the long term is in the best interests of our customers and our shareholders," said Johnson, adding that the company will continue looking for growth opportunities in its core rural telephone business, which has completed 29 acquisitions in the past eight years. "Our experience in this arena makes us national leaders in one of the most stable and growing businesses within the telecom industry," he said. RESULTS FOR THE THIRD QUARTER ENDED SEPT. 30 FairPoint's consolidated EBITDA was $23.2 million an increase of $11.7 million compared to the three months ended Sept. 30, 2000. This period over period improvement is attributed to lower EBITDA losses at the company's competitive communications operations. The traditional telephone companies reported EBITDA of $30.2 million, a decrease of $2.6 million or 7.9 percent compared to $32.8 million for the same period in 2000. In the third quarter ended Sept. 30, 2000, the traditional telephone companies reported gain on sale of assets of $7.0 million. When adjusted for this one time gain, traditional telephone companies EBITDA increased $4.3 million compared to the third quarter 2000. For the traditional telephone companies owned for comparable period, EBITDA decreased 8.3 percent to $30.1 million, while the companies acquired in 2000 contributed EBITDA of $.14 million. FairPoint Solutions reported revenues of $18.5 million, an increase of 25.9 percent over the comparable period in 2000. Solutions recorded an EBITDA loss of approximately $7.0 million. The Company reported a net loss after taxes of $26.6 million for the quarter. THOMAS RETIREMENT FairPoint's current CEO, Jack H. Thomas, will retire as chief executive officer, effective Jan. 1, 2002. Thomas will retain his role as chairman of the board. Thomas, 60, had been planning his succession for some time and the move is unrelated to FairPoint Solutions' sales agreements. A co-founder of FairPoint in 1988, Thomas assumed the role of chief executive officer in 1993. Prior to joining FairPoint, Thomas served as chief operating officer of C-TEC Corporation, a diversified communications company that at the time owned Commonwealth Telephone Company. He also worked in various management capacities at United Telephone Company of Ohio and C&P Telephone. Johnson, also a co-founder of FairPoint, primarily has been responsible for corporate development activities. Prior to joining FairPoint, he was president and sole shareholder of JC&A Inc., an investment banking and brokerage firm providing services to the cable television, telephone and related industries. His previous experience included Cable Investments, Inc., where he led the mergers and acquisitions department, and Enstar Cable Corporation, where he served as president and chief operating officer. He also owned a cable television construction and engineering firm. Before entering the cable television industry in 1980 Johnson was a Certified Public Accountant with the firm Haskins and Sells, a predecessor to the leading accounting and consulting firm Deloitte & Touche. "We see this change in roles as a natural progression for our company," Johnson said. "All of us at FairPoint owe Jack a great deal of gratitude for his leadership and for the significant role he played in making this company successful. While he's retiring from day-to-day responsibilities, we are delighted he will remain involved with the company as chairman." ABOUT FAIRPOINT FairPoint is an integrated communications provider offering voice, Internet, data, Web-enabled and other related communication services to its customers in its traditional telephone companies. FairPoint was founded to take advantage of the consolidation opportunities in the highly fragmented rural independent telephone industry. Since its first traditional telephone acquisition in 1993, the Company has completed 28 additional acquisitions across the country. # # # FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
================================================================================ SEPTEMBER 30, DECEMBER 31, 2001 2000 Assets (UNAUDITED) -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Current assets: Cash $ 6,156 1,023 Accounts receivable 48,333 48,257 Other 8,752 7,763 -------------------------------------------------------------------------------- Total current assets 63,241 57,043 -------------------------------------------------------------------------------- Property, plant, and equipment, net 358,607 348,916 -------------------------------------------------------------------------------- Other assets: Investments 47,410 50,353 Goodwill, net of accumulated amortization 456,947 451,486 Deferred charges and other assets 29,832 33,625 -------------------------------------------------------------------------------- Total other assets 534,189 535,464 -------------------------------------------------------------------------------- Total assets $ 956,037 941,423 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) -------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 16,396 38,118 Current portion of long-term debt and other long-term liabilities 7,236 6,480 Demand notes payable 474 535 Accrued interest payable 26,765 11,547 Restructuring accruals 12,417 13,343 Other accrued liabilities 42,086 34,612 -------------------------------------------------------------------------------- Total current liabilities 105,374 104,635 -------------------------------------------------------------------------------- Long-term liabilities: Long-term debt, net of current portion 883,050 751,630 Deferred credits and other long-term liabilities 14,305 15,754 -------------------------------------------------------------------------------- Total long-term liabilities 897,355 767,384 -------------------------------------------------------------------------------- Minority interest 17 15 -------------------------------------------------------------------------------- Common stock subject to put option 4,136 5,011 -------------------------------------------------------------------------------- Stockholders' equity: Common stock 498 498 Additional paid-in capital 219,881 227,245 Unearned compensation (3,758) (9,707) Accumulated other comprehensive income (loss) (3,913) 440 Accumulated deficit (263,553) (154,098) -------------------------------------------------------------------------------- Total stockholders' equity (deficit) (50,845) 64,378 -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 956,037 941,423 ================================================================================
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
========================================================================================= Three months ended Nine months ended September 30, September 30, 2001 2000 2001 2000 ----------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Revenues $ 78,024 69,828 229,375 174,775 ----------------------------------------------------------------------------------------- Operating expenses: Network operating costs 33,551 36,075 102,967 85,630 Selling, general and administrative 22,164 25,566 66,741 63,678 Depreciation and amortization 17,648 14,856 52,281 36,729 Restructure charges -- -- 35,070 -- Stock-based compensation, net of forfeitures (1,106) 1,376 (1,246) 15,075 ----------------------------------------------------------------------------------------- Total operating expenses 72,257 77,873 255,813 201,112 ----------------------------------------------------------------------------------------- Income (loss) from operations 5,767 (8,045) (26,438) (26,337) ----------------------------------------------------------------------------------------- Other income (expense): Net gain (loss) on sale of investments (730) 3,387 (708) 6,230 Interest and dividend income 458 439 1,759 1,839 Interest expense (32,973) (19,099) (86,303) (46,376) Other, net 1,162 (478) 3,184 2,768 ----------------------------------------------------------------------------------------- Total other expense (32,083) (15,751) (82,068) (35,539) ----------------------------------------------------------------------------------------- Loss before income taxes (26,316) (23,796) (108,506) (61,876) Income tax benefit (expense) (326) 7,812 (947) 15,616 Minority interest in income of subsidiaries -- (1) (2) (2) ----------------------------------------------------------------------------------------- Net loss $(26,642) (15,985) (109,455) (46,262) =========================================================================================
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSES (UNAUDITED)
=================================================================================================================================== THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------------------- ------------------------------------------- 2001 2000 2001 2000 ------------------- -------- ---------------------- --------- (DOLLARS IN THOUSANDS) Net loss $ (26,642) (15,985) (109,455) (46,262) Other comprehensive loss: Available-for-sale securities: Unrealized holding gain arising during period $ 526 645 752 411 Less reclassification adjustment for gain realized in net loss (946) (420) (2,909) (2,264) (946) (194) (3,989) (3,578) ------- ---------- -------- --------- -------- ---------- ------- --------- Cash flow hedges: Cumulative effect of a change in accounting principle $ -- -- (4,664) -- Net derivative loss (603) -- (636) -- Reclassification adjustment 380 (223) -- 1,141 (4,159) -- ------- ---------- --------- -------- ---------- --------- Other comprehensive loss (643) (2,264) (4,353) (3,578) ---------- --------- ---------- --------- Comprehensive loss $ (27,285) (18,249) (113,808) (49,840) ========== ========= ========== =========
FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
=============================================================================================================== NINE MONTHS ENDED SEPTEMBER 30, 2001 2000 --------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net loss $ (109,455) (46,262) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of debt issue costs 5,727 2,384 Depreciation and amortization 52,281 36,729 Impairment of long-lived assets 18,790 -- Other non cash items 8,006 1,878 Changes in assets and liabilities arising from operations, net of acquisitions: Accounts receivable and other current assets (1,462) (10,943) Accounts payable and accrued expenses (12,100) 11,260 Restructuring accruals (926) -- --------------------------------------------------------------------------------------------------------------- Total adjustments 70,316 41,308 --------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (39,139) (4,954) --------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Net capital additions (65,672) (49,517) Acquisitions of telephone properties (18,418) (253,937) Other, net 4,813 18,662 --------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (79,277) (284,792) --------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Loan origination costs (3,127) (9,340) Proceeds from issuance of long-term debt 356,225 561,586 Repayment of long-term debt (224,721) (424,695) Net proceeds from the issuance of common stock -- 158,896 Other, net (4,828) (1,825) --------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 123,549 284,622 --------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash 5,133 (5,124) Cash, beginning of period 1,023 9,923 --------------------------------------------------------------------------------------------------------------- Cash, end of period $ 6,156 4,799 ===============================================================================================================
FAIRPOINT COMMUNICATIONS, INC. CONSOLIDATED AND SEGMENT FINANCIAL INFORMATION
($ million) Three Months Ending Three Months Ending September 30, 2001 September 30, 2000 --------------------- ------------------- CONSOLIDATED REVENUES Revenues $ 78,024 $ 69,828 Operating Expenses 72,257 77,873 --------------------- -------------------- Income From Operations 5,767 (8,045) ===================== ==================== Other Income (Expense) (32,083) (15,751)(5) Loss Before Income Taxes (26,316) (23,796) Net Income (Loss) (26,642) (15,985) EBITDA 23,199 11,534 SEGMENT INFORMATION: Traditional Telephone Operations: Revenues $ 59,508 $ 55,135 Operating Expenses 44,302 39,016 --------------------- -------------------- Income From Operations 15,206 16,119 ===================== ==================== Other Income (Expense) (26,654) (14,352)(5) Loss Before Income Taxes (11,448) 1,769 Net Income (Loss) (11,774) 747 EBITDA 30,203 32,785 Competitive Operations: Revenues $ 18,516 $ 14,693 Operating Expenses 27,955 38,857 --------------------- -------------------- Income From Operations (9,439) (24,164) ===================== ==================== Other Income (Expense) (5,429) (1,399) Loss Before Income Taxes (14,868) (25,565) Net Income (Loss) (14,868) (16,732) EBITDA (7,004) (21,251) Nine Months Ending Nine Months Ending September 30, 2001 September 30, 2000 -------------------- ------------------- CONSOLIDATED REVENUES Revenues $ 229,375 $ 174,775 Operating Expenses 255,813 201,112 --------------------- -------------------- Income From Operations (26,438) (26,337) ===================== ==================== Other Income (Expense) (82,068)(1) (35,539)(5) Loss Before Income Taxes (108,506) (61,876) Net Income (Loss) (109,455) (46,262) EBITDA 28,830 36,302 SEGMENT INFORMATION: Traditional Telephone Operations: Revenues $ 170,153 $ 138,519 Operating Expenses 123,922 112,203 --------------------- -------------------- Income From Operations 46,231 26,316 ===================== ==================== Other Income (Expense) (67,128)(2) (32,471)(5) Loss Before Income Taxes (20,896) (6,155) Net Income (Loss) (21,845) (10,666) EBITDA 92,531 83,157 Competitive Operations: Revenues $ 59,222 $ 36,256 Operating Expenses 131,891 (3) 88,909 --------------------- -------------------- Income From Operations (72,669) (52,653) ===================== ==================== Other Income (Expense) (14,940)(4) (3,068) Loss Before Income Taxes (87,610) (55,721) Net Income (Loss) (87,610) (35,596) EBITDA (63,701) (46,855) Access Lines: As of 09/30/01 As of 09/30/00 -------------------- --------------------- Traditional Telephone Operations 246,020 235,924 Competitive Operations 97,665 95,289
Footnotes: (1) Includes FASB 133 interest expense of $11.2 million for the nine months ended Sept. 30, 2001 (2) Includes FASB 133 interest expense of $9.0 million for the nine months ended Sept. 30, 2001 (3) Includes $35.1 million in Restructure Charges related to the scale back in the Competitive operations in recorded in March and June 2001 (4) Includes FSAB 133 interest expense of $2.2 million for the nine months ended Sept. 30, 2001 (5) Includes Gain on Sale of Assets of $7.0 million FAIRPOINT COMMUNICATIONS, INC. SEQUENTIAL FINANCIAL INFORMATION FOR THE QUARTERS ENDING SEPTEMBER 30, JUNE 30 AND MARCH 31, 2001
($ million) Three Months Ending Three Months Ending Three Months Ending September 30, 2001 June 30, 2001 March 31, 2001 -------------------- ------------------- ------------------- CONSOLIDATED REVENUES Revenues $ 78,024 $ 75,513 $ 75,838 Operating Expenses 72,257 78,441 105,115 ------------------ ----------------- ------------------ Income From Operations 5,767 (2,928) (29,277) ================== ================= ================== Other Income (Expense) (32,083) (20,618) (29,367) Loss Before Income Taxes (26,316) (23,546) (58,644) Net Income (Loss) (26,642) (23,849) (58,964) EBITDA 23,199 17,955 (12,324) SEGMENT INFORMATION: Traditional Telephone Operations: Revenues $ 59,508 $ 55,660 $ 54,985 Operating Expenses 44,302 41,260 38,360 ------------------ ----------------- ------------------ Income From Operations 15,206 14,400 16,625 ================== ================= ================== Other Income (26,654) (16,472) (24,002) Loss Before Income Taxes (11,448) (2,073) (7,375) Net Income (Loss) (11,774) 17,332 (27,403) EBITDA 30,203 30,369 31,959 Competitive Operations: Revenues $ 18,516 $ 19,853 $ 20,853 Operating Expenses 27,955 37,181 (1) 66,755 (2) ------------------ ----------------- ------------------ Income From Operations (9,439) (17,328) (45,902) ================== ================= ================== Other Income (5,429) (4,146) (5,365) Loss Before Income Taxes (14,868) (21,473) (51,269) Net Income (Loss) (14,868) (41,181) (31,561) EBITDA (7,004) (12,414) (44,283) Access Lines: September 30, 2001 June 30, 2001 March 31, 2001 -------------------- ------------------- ------------------ Traditional Telephone Operations 246,020 239,953 237,749 Competitive Operations 97,665 103,621 113,905
Footnotes: (1) Includes $1.4 million in Restructure Charge to related to discontinuing the NetLever business initiative. (1) Includes $33.6 million in Restructure Charge related to the scale back in the Competitive operations recorded in March 2001.