EX-99.1 3 a2090161zex-99_1.txt EXHIBIT 99.1 EXHIBIT 99.1 [FAIR POINT LOGO] DEUTSCHE BANK HIGH YIELD FINANCE CONFERENCE September 2002 COMPANY OVERVIEW FAIRPOINT COMMUNICATIONS, INC. -------------------- Gene Johnson Chief Executive Officer TOPICS FOR DISCUSSION o COMPANY PROFILE o OPERATIONS OVERVIEW o EXIT FROM CLEC BUSINESS o ACQUISITION STRATEGY o FINANCIAL REVIEW COMPANY PROFILE o FORMED IN 1991 TO CONSOLIDATE RURAL LOCAL EXCHANGE CARRIERS (RLECs) o CURRENTLY OPERATE 29 RLECs IN 18 STATES SERVING OVER 246,000 ACCESS LINES o 2001 RLEC REVENUE OF $225 MILLION AND EBITDA OF $122 MILLION o IN MAY COMPLETED UNWINDING THE COMPETITIVE LOCAL EXCHANGE CARRIER ENTERPRISE WITHIN FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. COMPANY PROFILE SERVICE OFFERINGS Intra/Inter access Local Dial Tone Enhanced Features Long- distance [FAIR POINT LOGO] Data Internet Broadband OPERATIONS OVERVIEW [PHOTO] RESIDENTIAL CUSTOMERS COMPRISE 78% OF TOTAL ACCESS LINES OPERATIONS OVERVIEW [PHOTO] BUSINESS CUSTOMERS ARE PREDOMINATELY AGRICULTURAL, FOREST PRODUCTS, LIGHT MANUFACTURING, AND SERVICES BUSINESSES 85% OF BUSINESS LINES REPRESENT 1- OR 2-LINE CUSTOMERS OPERATIONS OVERVIEW: RLECS RLECS 29 LOCAL EXCHANGES 142 SQUARE MILES 18,940 ACCESS LINES 500-55,000 PER TELCO DENSITY RANGE 1-74 Access Lines Per Sq Mile AVERAGE DENSITY 12.9 Access Lines Per Sq Mile
ACCESS LINES BY STATE [MAP] AS OF 6/30/02 ------------- FLORIDA 54,923 MAINE 51,848 NEW YORK 42,680 WASHINGTON 39,469 OHIO 9,480 VIRGINIA 7,915 ILLINOIS 7,655 KANSAS 6,404 VERMONT 6,228 IDAHO 6,101 SOUTH DAKOTA 4,145 OKLAHOMA 3,621 PENNSYLVANIA 2,856 COLORADO 2,671 ----- TOTAL: 245,996
o Five region management structure o 920 employees deployed from 38 work centers and 27 business offices WHY RURAL? [PHOTO] ECONOMIC BARRIERS TO ENTRY BY COMPETITORS Low subscriber density High percentage of residential lines Capital intensive WHY RURAL? [PHOTO] REGULATORY ENVIRONMENT Rate of Return business Support mechanisms promote universal service Synergies & cost saving opportunities WHY RURAL? [PHOTO] STABLE REVENUE & EBITDA STATE-OF-THE-ART NETWORKS ATTRACTIVE ACQUISITION OPPORTUNITIES "RURAL" MEANS: SERVING VERY SMALL NON-SUBURBAN COMMUNITIES Communities Served With Population Greater Than: 10,000 2 Communities 7,500 5 Communities 5,000 11 Communities 2,500 31 Communities Less than 2,500 111 Communities
COMPETITION [GRAPHIC] WIRELESS TECHNOLOGY o ADDITIONAL COMPETITORS o INCREASING IMPACT ON RURAL CUSTOMERS o LONG DISTANCE MOU EFFECT o USSF BECOMING A TARGET [GRAPHIC] CABLE TELEVISION o CONVERGENCE TECHNOLOGY BARRIER FOR VOICE o BROADBAND IS KEY BATTLEGROUND o DBS NOT A NEAR TERM ISSUE [GRAPHIC] INTERNET o INSTANT MESSAGING GROWING SIGNIFICANTLY o EVENTUAL VOICE OVER INTERNET (VOIP) o PRIMARILY A THREAT TO LONG DISTANCE MOU REGULATION 0 REGULATED BY FEDERAL AND STATE JURISDICTIONS 0 TELECOM ACT OF 1996 AND SIX YEARS OF CONTINUING FEDERAL UNIVERSAL SERVICE AND ACCESS CHARGE REFORM FOR RLECS 0 STRONG CONGRESSIONAL CONSENSUS FOR RATE STABILITY AND REVENUE SUPPORT 0 STATE ACCESS CHARGE REFORM INTENDED TO REBALANCE RATES INCLUDING STATE UNIVERSAL SERVICE FUND 0 NO SIGNIFICANT COMPETITIVE ENTRY AS YET DUE TO RURAL EXEMPTION AND HIGH COST OF ENTRY EXIT FROM CLEC BUSINESS o DECEMBER 2000 - slowed expansion & reduced on-going capital requirements o NOVEMBER 2001 - decided to exit business - Business model weaknesses and poor execution - Slowing economy and capital markets closed down - Ultimately, could not justify incremental investment o NOVEMBER 2001 - sold northwestern assets to ATG & northeastern assets to Choice One o MAY 2002 - debt restructure completed STRATEGIC IMPERATIVES GROW BY ACQUISITION o 1,200 operating RLECs o RBOC divestitures OPTIMIZE REGULATORY o Regulatory trends provide broadband PROCESSES opportunities MAXIMIZE OTHER o Data & Internet services REVENUES o Features penetration o Video OPERATIONAL o Lower operating costs EFFICIENCIES o Economies of scale INCREMENTAL EBITDA OPPORTUNITY FROM ANCILLARY SERVICES
PENETRATION ----------- INDUSTRY FAIRPOINT SERVICES AVERAGE* AVERAGE -------- -------- ------- ----- VOICE MAIL 8.8% 9.9% ----- CALLER ID NAME 17.1% 14.3% CALL WAITING 26.8% 21.9% ----- CALL FORWARDING 4.8% 5.2% ----- WIRE MAINTENANCE 50.7% 34.6% INTERNET PROVIDER 17.7% 13.0% LONG DISTANCE 35.8% 25.8%
*INDEPENDENT BENCH MARK STUDY BY CHR -------------------------------------------------------------------------- 80% OF AVERAGE WOULD GENERATE INDUSTRY $8.9 MILLION OF INCREMENTAL EBITDA. -------------------------------------------------------------------------- CREATING VALUE THROUGH ACQUISITIONS DUE DILIGENCE REDUCES DOWNSIDE RISK ----------------------------------- INTENSIVE REGULATORY MANAGEMENT ------------------------------- MARKETING EXPERTISE ------------------- NETWORK AND TECHNOLOGY ATTENTION -------------------------------- ACCOUNTING/FINANCIAL SOPHISTICATION ----------------------------------- FIND THE HIDDEN VALUES STRONG POST ACQUISITION PERFORMANCE (PROPERTIES OWNED > 2 YEARS) [CHART]
($ IN MILLIONS) 1993 1994 1996 1997 1998 1999 ----- ----- ----- ----- ------ ----- 2 YR PROJECTED EBITDA AT ACQUISITION $3.0 $ 9.4 $2.9 $6.2 $36.6 $ 9.2 2 YR FORWARD ACTUAL EBITDA $3.3 $11.1 $3.7 $7.2 $41.4 $11.9
HIDDEN VALUE
VALUE BOOK VALUE ATTRIBUTED IN MARKET 12/31/01 ACQUISITION MODEL VALUE ------------ ----------------- ------------ CHOUTEAU CELLULAR (TULSA MSA, RSA 6, RSA4) $ 3,450,125 $ 4,524,438 - ILLINOIS RSA 2 CELLULAR INTEREST 4,030,053 2,595,187 - ILLINOIS VALLEY CELLULAR RSA 2 SWITCH CO. 1,800,632 1,607,210 - ORANGE COUNTY/POUGHKEEPSIE MSA 7,764,656 5,605,862 - SICC INTEREST (RSA 6&7, RSA 8&9) 4,551,800 1,694,843 - COBANK B PARTICIPATION CERTIFICATES 4,655,000 0 - RTB CLASS C SHARES 20,217,000 0 - ------------ ------------ ------------ TOTAL ASSETS $ 46,469,266 $ 16,027,540 $ 66,200,000 ============ ============ ============ ------------
OTHER NON CORE ASSETS --------------------- NTELOS STOCK SYRINGA NETWORKS SOUTH DAKOTA NETWORKS BENTON RIDGE TELEPHONE STOCK ACCELERNET ANPI OWNERSHIP RTFC SUB. CAPITAL CERTIFICATES FINANCIAL REVIEW FAIRPOINT COMMUNICATIONS, INC. ---------------- Tim Henry Vice President-Finance and Treasurer HISTORICAL GROWTH: 1994 - 2001 [CHART] REVENUE EBITDA (MILLIONS) ACCESS LINES (THOUSANDS) [GRAPH OF HISTORICAL GROWTH: 1994 - 2001] ILEC REVENUES ILEC EBITDA ILEC ACCESS LINES CREDIT STRUCTURE o BORROWER UNDER FAIRPOINT SENIOR SECURED CREDIT FACILITY o ISSUER OF NEW NOTES o ISSUER OF EXISTING NOTES [FAIR POINT LOGO] [CHART] TRADITIONAL TELEPHONE BUSINESS (RESTRICTED SUBSIDIARIES) COMPETITIVE COMMUNICATIONS BUSINESS (UNRESTRICTED SUBSIDIARIES) BORROWER UNDER SENIOR SECURED CREDIT FACILITY FAIRPOINT COMMUNICATIONS SOLUTIONS, CORP. MJD CAPITAL MJD SERVICES MJD HOLDINGS MJD VENTURES STE FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. SENIOR SECURED CREDIT FACILITY RESOLUTION ----------------------------------------- OUTSTANDING DEBT AS OF 5/10/02: $129,000,000 (INCLUDES INTEREST RATE SWAP OBLIGATIONS) FINAL SETTLEMENT: o $5 MILLION CASH PAYMENT RETIRED $7 MILLION OF DEBT o $28 MILLION OF DEBT AT 8% REMAINS AT FCSC o $94 MILLION FLIPS TO 17% PIK PREFERRED STOCK; NON-CONVERTIBLE, NON-VOTING, MATURES MAY 2011 o NO REDEMPTION RIGHTS PRIOR TO MAY 2011, EXCEPT FOR CHANGE OF CONTROL OR CERTAIN LIQUIDITY EVENTS. 2001 FULL YEAR FINANCIAL RESULTS CONSOLIDATED REVENUES Up 20.2% to $235.2 million CONSOLIDATED OPERATING EXPENSES Up 11.6% to 175.7 million CONSOLIDATED OPERATING CASH FLOW (EBITDA) Up 11.0% to 123.7 million ACCESS LINES SERVED Up 3.7% to 245,306
(SIX MONTHS OPERATING RESULTS FOR THE PERIOD ENDED JUNE 30, 2002 (YEAR OVER YEAR COMPARISON) CONSOLIDATED REVENUES Up 0.4% to $115.2 million CONSOLIDATED OPERATING EXPENSES Down 7.0% to $77.5 million CONSOLIDATED OPERATING CASH FLOW (EBITDA) Down 4.0% to $60.3 million (1) RLEC OPERATING CASH FLOW (EBITDA) Up 5.8% to $65.9 million ACCESS LINES SERVED Up 0.6% to 245,996
(1) Includes a non-cash $5.6 million asset write down and MCI/Worldcom bad debt reserve of $1.9 million. Adjusted for these one-time expenses, EBITDA increased 8% to $67.8 million FAIRPOINT COMMUNICATIONS, INC. Restricted Group Debt Capitalization ($ in Millions)
6/30/02 ------- DEMAND NOTES $ 0.4 CURRENT PORTION OF LONG-TERM DEBT 6.1 SENIOR LONG-TERM DEBT (1) 363.2 ------- TOTAL SENIOR DEBT 369.7 SENIOR SUBORDINATED DEBT 400.0 OTHER SUBORDINATED DEBT 7.0 ------- TOTAL DEBT $ 776.7 =======
(1) EXCLUDES $28.0 MILLION OF SOLUTIONS DEBT CREDIT STATISTICS
($000 OMITTED) 6/30/2002 --------- INTEREST COVERAGE RATIO INTEREST EXPENSE $ 76,623 TOTAL COVENANT EBITDA 132,901 ----- RATIO 1.73X COVENANT 1.50X ----- LEVERAGE RATIO CONSOLIDATED NET DEBT $ 774,664 TOTAL COVENANT EBITDA 132,901 ----- RATIO 5.83X COVENANT 6.50X ----- SENIOR LEVERAGE RATIO SENIOR CONSOLIDATED DEBT $ 365,296 TOTAL COVENANT EBITDA 132,901 ----- RATIO 2.75X COVENANT 4.00X -----
COMMON EQUITY OWNERSHIP SUMMARY [PIE CHART] T.H. LEE 38.8% KELSO & COMPANY 32.9% FOUNDERS/MGT 20.7% BANK GROUP 7.6% CREDIT RISK CONSIDERATION ATTRACTIVE INDUSTRY DYNAMICS AND GROWTH OPPORTUNITIES ----------------------------------------------------- LOW COMPETITIVE THREATS AND HIGH BARRIERS TO ENTRY -------------------------------------------------- FAVORABLE REGULATORY ENVIRONMENT -------------------------------- STABLE REVENUE AND EBITDA ------------------------- ESTABLISHED ACQUISITION PLATFORM AND DEMONSTRATED INTEGRATION EXPERTISE ----------------------------------------------------------------------- EXPERIENCED MANAGEMENT TEAM --------------------------- SUBSTANTIAL EQUITY BASE PROVIDED BY THOMAS H. LEE AND KELSO [FAIR POINT LOGO] DEUTSCHE BANK HIGH YIELD FINANCE CONFERENCE September 2002