Updated November 7, 2016 with financial data through September 30, 2016
Company Presentation
2
Safe Harbor Statement
The information contained herein is current only as of the date hereof; however, unless otherwise indicated, financial information contained
herein is as of September 30, 2016. The business, prospects, financial condition or performance of FairPoint Communications, Inc.
(“FairPoint”) and its subsidiaries described herein may have changed since that date. FairPoint does not intend to update or otherwise revise
the information contained herein. FairPoint makes no representation or warranty, express or implied, as to the completeness of the
information contained herein.
Market data used throughout this presentation is based on surveys and studies conducted by third parties, as well as industry and general
publications. FairPoint has no obligation (express or implied) to update any or all of the information or to advise you of any changes; nor does
FairPoint make any express or implied warranties or representations as to the completeness or accuracy nor does it accept responsibility for
errors.
Some statements herein are known as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not
limited to, statements about our plans, objectives, expectations and intentions and other statements contained herein that are not historical
facts. When used herein, the words “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,” “continue,”
“outlook” and similar expressions are generally intended to identify forward-looking statements. Because these forward-looking statements
involve known and unknown risks and uncertainties, there are important factors that could cause actual results, events or developments to
differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and
intentions and other factors, including those factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2015 and other factors discussed in reports that we file with the Securities and Exchange Commission. You should not
place undue reliance on such forward-looking statements, which are based on the information currently available to us and speak only as of
the date hereof. FairPoint does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
We provide guidance as to certain financial information herein, which consists of forward-looking statements. Our guidance is not prepared
with a view toward compliance with the published guidelines of the American Institute of Certified Public Accountants, and neither our
independent registered public accounting firm nor any other independent expert or outside party compiles or examines the guidance and,
accordingly, no such person expresses any opinion or any other form of assurance with respect thereto. Guidance is based upon a number of
assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to
future business decisions, some of which will change. We generally state possible outcomes as high and low ranges which are intended to
provide a sensitivity analysis as variables are changed but are not intended to represent our actual results which could fall outside of the
suggested ranges. The principal reason that we release this data is to provide a basis for our management to discuss our business outlook with
analysts and investors. Notwithstanding this, we do not accept any responsibility for any projections or reports published by any such outside
analysts or investors. Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions or the
guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what
management believes is realizable as of the date hereof. Actual results may vary from the guidance and the variations may be material.
Investors should also recognize that the reliability of any forecasted financial data diminishes the farther in the future that the data is forecast.
In light of the foregoing, investors are urged to put the guidance in context and not to place undue reliance on it. Any inability to successfully
implement our operating strategy or the occurrence of any of the events or circumstances discussed therein could result in the actual
operating results being different than the guidance, and such differences may be material.
3
Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures in evaluating its performance. Throughout this presentation, reference is made
to Adjusted EBITDA, Adjusted EBITDA minus Estimated Avoided Costs, Unlevered Free Cash Flow, Unlevered Free Cash Flow minus
Estimated Avoided Costs and adjustments to GAAP and non-GAAP measures to exclude the effect of special items. Management believes
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. Unlevered Free Cash Flow and Unlevered Free Cash Flow minus Estimated Avoided Costs may also be
useful to investors in assessing the Company’s ability to generate cash and meet its debt service requirements. The maintenance
covenants contained in the Company’s credit facility are based on Adjusted EBITDA. In addition, management believes that the
adjustments to GAAP and non-GAAP measures to exclude the effect of special items may be useful to investors in understanding period-
to-period operating performance and in identifying historical and prospective trends.
On October 17, 2014, two of our labor unions in northern New England initiated a work stoppage. 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 that we believe would have been incurred absent the work stoppage ("Estimated Avoided Costs"). Estimated Avoided Costs is a
pro forma estimate only.
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 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 Net Income (Loss) to Adjusted EBITDA, Adjusted EBITDA minus Estimated Avoided Costs, Unlevered Free Cash Flow,
and Unlevered Free Cash Flow minus Estimated Avoided Costs can be found in the appendix of this presentation.
The information in this document should be read in conjunction with the financial statements and footnotes contained in our documents
filed with the U.S. Securities and Exchange Commission.
4
Unlevered Free Cash Flow(1)
Company Snapshot
Overview
̶ Operates in 17 states
̶ 21,000+ fiber route mile network including over 17,000
fiber route miles in northern New England
̶ Proven track record of Unlevered Free Cash Flow generation
(1) Unlevered Free Cash Flow (UFCF) means Adjusted EBITDA minus the sum of pension contributions, OPEB payments and capital expenditures. Unlevered Free Cash Flow is a non-GAAP financial measure.
A reconciliation of Net Income (Loss) to Adjusted EBITDA and Unlevered Free Cash Flow can be found in the appendix of this presentation. In addition, 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 that we
believe would have been incurred absent the work stoppage (“Estimated Avoided Costs”). Estimated Avoided Costs have been subtracted from our 2014 and 2015 UFCF results.
(2) Approximately 20% of Telecom Group is located in ME, NH and VT
Service Territory
Northern New England (NNE):
̶ Incumbent wireline provider with extensive “enterprise class”
network and scale in three contiguous states of Maine, New
Hampshire and Vermont
̶ Over 1,900 Fiber-to-the-tower (FTTT) Ethernet backhaul
connections
̶ Direct fiber connections to nearly 3,000 buildings
̶ 32 markets with access to Ethernet connections capable of
symmetrical, dedicated data transport speeds of up to 1Gig
̶ Relatively low market share of both residential and business
customers
̶ ~90% broadband availability
Telecom Group(2):
̶ Consistent, substantial cash flow generation
̶ Local presence and workforce; less competition
̶ ~90% broadband availability
5
Albany
Boston
Northern New England Network
350 Central Offices
Over 17,000 Fiber Route Miles
Network
• 400G DWDM ROADM
• 10G/1G EPS aggregation rings to all 350 offices
• IP/MPLS core with terabit routing capacity and NGN design
Network extensions
• 1 Summer St, Boston MA (on-net)
• 80 State St, Albany NY (on-net)
• 60 Hudson St, NYC NY (leased 10G waves)
Network Operations Center
• 24/7/365 network operations and data services center
Data Center Capabilities
• On-net enterprise data services facility in New Hampshire
• Bundled product with CES
Over $900 million invested in infrastructure and technology
since 2008
VT
93%
ME
88%
NH
95%
Broadband Coverage
New York
Enterprise Class fiber network designed to meet growing demand of business customers
6
Improve
Operations
2011
Focus
Competitive Advantages Built from
Execution of the Four Pillar Strategy
Change
Regulatory
Environment
2012
Focus
Transform
and Stabilize
Revenue
2013
Focus
Execute HR
Strategy
2014
Focus
C
O
M
P
E
T
IT
IV
E
A
D
V
A
N
T
A
G
E
S
Superior Network
• High capacity and resilient network
• More than 21,000 route miles of fiber
• Largest ubiquitous fiber network in
NNE
• Leverageable network assets in TG
Outstanding
Operating Platform
• Track record of disciplined
management and execution of
complex projects on time and on
budget
• Talented and knowledgeable people
working collaboratively
Technology
Development Capability
• Proven ability to develop and deploy
market-driven, industry-leading products
across the full spectrum of customers
• Strong vision of market and industry
trends
FOUNDATION BUILT ON SUCCESSFUL EXECUTION OF FOUR PILLAR STRATEGY
7
Taking Action to Leverage Our Competitive
Advantages
A
C
T
IO
N
S
Enhance and
Leverage the
Network
Enable
Effective and
Secure
Technology
Generate New
and Sustain
Existing
Revenue
Provide
Excellent
Customer
Service
FOUNDATION BUILT ON SUCCESSFUL EXECUTION OF FOUR PILLARS
C
O
M
P
E
T
IT
IV
E
A
D
V
A
N
T
A
G
E
S
Superior
Network
Outstanding
Operating Platform
Technology
Development Capability
A
C
T
IO
N
S
Enhance and
Leverage the
Network
Develop
Effective and
Secure
Technology
Generate New
and Sustain
Existing
Revenue
Provide
Excellent
Customer
Service
8
Develop Effective and Secure Technology Enhance and Leverage the Network
• Reach unserved and underserved areas through CAF II and
other funding sources
Accepted $37.4 million in annual funding plus additional
transitional funding to build and operate infrastructure
to provide 10 Mbps down/1 Mbps up broadband service
to approximately 106,000 unserved and underserved
locations in 14 states
Build out will aid broadband subscriber growth
Lower operating costs by hardening the network and
reducing repeat troubles
• Contribute to the economic success of our communities
through continued infrastructure investment
Economic vitality enhances business customer prospects
Areas of Focus:
• Strategically extend and
strengthen the network
making it more resilient
and redundant
Provides opportunities
to add new customers
and upgrade service
to existing customers
• Continue to strengthen and
broaden core technology
competencies
Dedicated team of
Customer Project
Managers and IT,
Network and Project
Managers
Highly experienced
customer facing team
with a proven track
record of success
• Anticipate customer needs and continue the development
and deployment cycle
Developed and deployed Hosted PBX, Managed Wireless
LAN and Cloud Contact Center solutions and other
managed services
Best in class FTTT provider and collaborating with small
cell providers on solution development
• Evolve customer-facing technology to improve the customer
experience
Enhance customer self-serve portals and online
interaction
9
Provide Excellent Customer Service Generate New and Sustain Existing Revenue
• Apply an optimal balance of transactional and relationship
selling techniques to maximize revenue
Fully understand customer needs and advanced
products to deliver value-added solutions
Maintain consistent outreach activity to identify and
close new customers
• Utilize expertise to develop customized solutions
From basic to complex, provide thought leadership in
developing and delivering solutions
• Nimbly react to industry forces
Understand the competitive challenges and
opportunities in our markets
• Identify and capitalize on edge-out opportunities
Areas of Focus:
• Provide communications and
product solutions to address the
needs of our customers
Utilize our network assets
and technological expertise
to be the first choice for
communications solutions
in the markets we serve
• Continue to enhance processes to
efficiently deliver reliable and
responsive customer service
As the face of the FairPoint
brand, the operations team will
continue to realign and
transform, establishing higher
standards for performance,
productivity and the customer
experience
Drive discipline in processes
and procedures to ensure a
reliable customer experience
Utilize operational metrics to be more efficient and
effective
Systematic testing tools to reduce truck rolls
• Continue to expand and evolve technical competencies
aligned to new products and emerging technologies
Attract and retain talented team members that allow us
to provide leading edge solutions to our customers
10
A
CTION
S
Enhance and Leverage
the Network
Develop Effective and
Secure Technology
Generate New and Sustain
Existing Revenue
Provide Excellent
Customer Service
FOUNDATION BUILT ON SUCCESSFUL EXECUTION OF FOUR PILLAR STRATEGY
C
O
M
P
E
T
IT
IV
E
A
D
V
A
N
T
A
G
E
S
Superior Network Outstanding Operating Platform Technology Development Capability
Positive Outcomes from Strategy Execution
O
U
T
C
O
M
E
S
Brand Awareness and Support
•Leveraging our competitive advantages,
our goal is to be the most reliable,
responsive and responsible provider of
effective and secure communications
services
Growth and Scale
•A path to revenue stability and organic scale
generated through execution of our strategy
•A resilient network and a competitive offering of
reliable products and services will support a more
loyal customer base and lower churn
11
Revenue by Strategic Category
Transform, Stabilize and Grow
Transforming Revenue while Mitigating Year-over-year Declines
(1) 1Q11 revenue of $254.8 million
(2) 3Q16 revenue of $207.1 million
3Q 2016(2) 5-Year Outlook (2019)
Growth =
+6% to +10%
CAGR
Legacy =
-5% to -9%
CAGR
Convertible =
-7% to -11%
CAGR
1Q 2011(1)
Projected
Growth Rate
Growth =
+14% CAGR
Legacy =
-9% CAGR
Convertible =
-11% CAGR
Historic
Growth Rate
• Growth revenues are comprised of products such as Retail and Wholesale Ethernet, Hosted Voice, Broadband and FTTT
• Sales and marketing efforts focused on driving acceleration of Growth products including the evaluation of new products and services
• Convertible revenues are moving from older technologies like Centrex, ATM and Frame Relay
• Proactive re-terming and up-selling designed to reduce revenue churn as Convertible customers switch from TDM to IP/Ethernet
• Legacy revenues are in managed decline and comprised of Residential Voice and Switched Access
• Retention efforts and rate increases structured to slow churn in Legacy category
• Regulatory revenues are certain federal and state government funding including: CAF Phase II support, CAF Phase II transition funding, CAF Phase I frozen
support, CAF funding under the CAF/ICC Order, and universal service fund support
Gr
o
w
th R
e
v
.
Strike
(Millions) (Millions) (Millions)
12
Actively Manage Expense Structure
Focused on meeting Unlevered Free Cash Flow expectations
Circuits,
Network &
Fleet
26%
Facilities
8%
Contracted
Services
6%
Employee
Expenses
50%
Operating
Taxes &
Other
7%
Marketing
4%
3,
26
1
3,
26
0
2,
99
9
2,
86
0
2,
78
7
2,
81
6
2,
80
9
2,
78
4
2,
75
2
2,
69
8
2,
63
1
2,
62
9
2,
63
7
2,
62
9
2,
57
4
2,
55
3
2,
50
3
2,
46
5
2,
27
8
2,
25
9
2,
25
4
2,
21
3
2,
17
7
74
7
74
9
69
1
68
1
66
7
59
4
58
9
58
5
56
9
55
7
55
1
54
2
52
9
53
1
51
4
49
9
49
1
46
6
45
0
45
9
45
1
45
0
47
2
2,000
3,000
4,000
Q1'11 Q3'11 Q1'12 Q3'12 Q1'13 Q3'13 Q1'14 Q3'14 Q1'15 Q3'15 Q1'16 Q3'16
NNE Telecom
(No. of Employees) (2)
• 34% workforce reduction in last 5 ½ years
• 2,649 employees as of September 30, 2016
̶ 1,043 non-represented. 1,606 represented (approx.
1,415 in NNE covered by CBAs ratified Feb. 22, 2015)
• Completed workforce reduction plan in July, 2015 and
additional small reduction in April, 2016
Headcount Rationalization
34%(3)
~$604M Cost Structure (TG + NNE)(1)
• Utilize enhanced flexibility from new CBAs and
new processes identified during the strike to
enhance productivity
• Continue to groom network to minimize ongoing
costs
• Minimize contracted services costs and continue
effective management of operating taxes
• Refine marketing approach to be more effective
and efficient
(1) FY 2015 adjusted for items added back to compute Adjusted EBITDA. In addition, 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 that we believe would have been incurred absent the work stoppage
(“Estimated Avoided Costs”). Those costs are included in the approximately $604 million cost structure.
(2) NNE = Yellow, Telecom Group = Blue
(3) Decrease represents total change in workforce since 1Q11
13
Disciplined Approach to Cap Ex
(Capital expenditures by year and as a % of revenue ($ in M))
Cap Ex Trend and Allocation
Regular Regulatory FTTT
O
pt
im
a
l L
e
v
e
l: L
o
w
te
e
n
s
as
a
%
o
f R
e
v
.
Success-based
Network
Growth
Non-revenue
generating
• Cap Ex managed through regular review of
priorities and initiatives
• Cap Ex trending toward optimal level
• Completion of CAF II related builds will likely
push Cap Ex slightly higher but Cap Ex
intensity (Cap Ex divided by Revenue) is
expected to remain in the low teens
• Success-based includes spending directly
attributable to sales
• Network growth includes fiber expansion, broadband
build-out and speed upgrades
• Non-revenue generating includes IT, plant
maintenance and cost saving projects
Optimizing Cap Ex Levels
Focused on meeting Unlevered Free Cash Flow expectations
14
Sustainable
Unlevered Free
Cash Flow
Superior Operating Platform
Proven
Expense
Mgmt.
Disciplined Cap Ex
New
Collective
Bargain-
ing
Agree-
ments
Committed to Driving Unlevered Free Cash
Flow
Unlevered Free Cash Flow
15
16
Appendix
17
Summary Financial Results
(1) Adjusted EBITDA is a non-GAAP financial measure. A reconciliation of Net Income (Loss) to Adjusted EBITDA can be found in this appendix as well as in our third quarter 2016 earnings release
furnished November 2, 2016 in a current report on Form 8-K.
(2) Unlevered Free Cash Flow means Adjusted EBITDA minus the sum of pension contributions, OPEB payments and capital expenditures. Unlevered Free Cash Flow is a non-GAAP financial measure.
A reconciliation of Net Income (Loss) to Unlevered Free Cash Flow can be found in this appendix as well as in our third quarter 2016 earnings release furnished November 2, 2016 in a current
report on Form 8-K.
Third Quarter 2016 Results
Third Quarter
• Leveraging outstanding operating platform
• Strong execution through the peak summer storm season resulted in lower operating costs quarter-
over-quarter in what is normally a higher cost quarter
• Historically low trouble loads
• Mean time to repair showing meaningful improvement
• Revenue of $207.1M for the quarter
• 3Q16 Growth revenue made up 31.7% of total revenue, up from 28.6% in 3Q15
• Ethernet services contributed $24.9M of revenue in 3Q16 as compared to $24.8M a year ago
o Ethernet revenue was 12.0% of total revenue in 3Q16 compared to 11.2% of total revenue in
3Q15
o Total Ethernet circuits grew by 9.5% YoY
• Costs continue to be managed and adjusted operating expenses declined QoQ
• Net income of $40.2M for the quarter
• Adjusted EBITDA(1) of $63.9M for the quarter
• Adjusted EBITDA margin of 30.8% increased 70 basis points from 3Q15
• Unlevered Free Cash Flow(2) of $24.4M for the quarter
18
Highlights of Collective Bargaining
Agreements Ratified February 22, 2015
• The defined benefit pension plan has been closed to new employees. For employees on the payroll as of October
14, 2014, past accruals have been frozen and effective February 22, 2015, future defined benefit accruals will be at
50% of prior rates and capped after 30 years of total credited service.
• Retiree medical for active employees has been eliminated. A transitional monthly medical premium reimbursement
arrangement is available for eligible employees who elect to retire in the first 30 months of the contract period. To
be eligible for the reimbursement arrangement a retiree must, among other criteria, have commenced a pension
under the defined benefit pension plan. The monthly reimbursement arrangement shall not exceed $800 per
retiree, plus an additional $400 for a retiree’s spouse, and shall only be for reimbursement of eligible medical
insurance premiums. The reimbursement arrangement will be available only until the retiree reaches age 65, or
dies, among other limitations, whereupon payments for the retiree’s spouse shall end as well.
• Employees will participate in the NECA/IBEW multi-employer medical plan. For 2015, the company’s contribution is
approximately equal to 79% of the cost had these employees been on the company’s management health plan.
Further, future annual increases in the company’s premium contributions are capped at 4% per year.
• ~$8 to $12 million in annualized medical plan expense savings
Other Highlights:
• Modest change to the 401(k) plan with a dollar-for-dollar match up to 5% of eligible pay.
• For existing employees there was a delayed ratification payment of $400, with general wage increases of 1% in August 2016 and 2% in
August 2017.
• New hire wage rate increases will occur at 12-month intervals versus 6-month intervals under the expired agreements.
• Paid sick days will be limited to 6 per year versus unlimited paid sick days under the expired agreements.
• Short term disability benefits will be available under the same 6-month plan as available to management versus 12 months at 100% of
normal salary benefit under the expired agreements.
• Prohibitions on layoffs included in the expired agreements were eliminated.
• Subcontracting rules were liberalized to permit subcontracting in a variety of circumstances including weather emergencies, spikes in service
workloads and where management determines that due to evolving technological needs, different skills are necessary.
• Other operational rules such as call-outs, standby and transfers among locations were liberalized.
• The term of the collective bargaining agreements are from February 22, 2015 through August 4, 2018.
19
Recent Financial Trends
(1) Adjusted EBITDA is a non-GAAP financial measure. A reconciliation of Net Income (Loss) to Adjusted EBITDA can be found in this appendix as well as in our third quarter 2016 earnings
release furnished November 2, 2016 in a current report on Form 8-K.
(2) Unlevered Free Cash Flow means Adjusted EBITDA minus the sum of pension contributions, OPEB payments and capital expenditures. Unlevered Free Cash Flow is a non-GAAP financial
measure. A reconciliation of Net Income (Loss) to Unlevered Free Cash Flow can be found in this appendix as well as in our third quarter 2016 earnings release furnished November 2,
2016 in a current report on Form 8-K.
(3) 2014 calculations of Adjusted EBITDA and Unlevered Free Cash Flow deduct $33 million of Estimated Avoided Costs experienced in 4Q14 related to the strike.
(4) 2015 calculations of Adjusted EBITDA and Unlevered Free Cash Flow deduct $27 million of Estimated Avoided Costs experienced in 1Q15 related to the strike.
($ in M) 3Q15 4Q15 1Q16 2Q16 3Q16 2014 2015 2016 Guidance
Revenue $221.6 $209.8 $206.8 $206.6 $207.1 901.4$ 859.5$
Net Income $53.1 $42.3 $18.6 $29.3 $40.2 ($136.3) $90.4
Adjusted EBITDA(1) $66.7 $63.9 $62.0 $63.1 $63.9 257.6$ 255.9$
margin 30.1% 30.4% 30.0% 30.5% 30.8% 28.6% 29.8%
Capital expenditures $28.2 $33.2 $25.9 $26.8 $30.2 119.5$ 116.2$ Approx. $115
% of revenue 12.7% 15.8% 12.5% 13.0% 14.6% 13.3% 13.5%
Cash Pension & OPEB $5.4 $7.3 $1.4 $4.7 $9.2 $34.1 $19.8 Approx. $22
Unlevered Free Cash Flow(2) $33.1 $23.3 $34.7 $31.5 $24.4 104.0$ 120.0$
Cash on hand $17.0 $26.6 $23.1 $41.1 $33.1 37.6$ 26.6$
Debt, gross $924.0 $922.4 $920.8 $919.2 $917.6 928.8$ 922.4$
$245 to $255
$110 to $120
Financial Highlights
(4) (3)
20
Revenue: Stabilize, Transform and Grow
by Customer Segment (1) by Product Type (1)(2)
(1) 3Q16 revenue of $207.1 million
(2) Access includes switched access and special access, which includes wholesale Ethernet services like fiber-to-the-tower
(2)
Maintaining revenue transformation momentum
21
($ in millions) 2014 2015 3Q16
Pension
Plan assets (1) $195.4 $197.1 $216.8
Projected benefit obligation $408.2 $347.6 $360.6
Key assumptions:
Discount Rate (2) 4.04% 4.44% 4.44%
OPEB
Plan assets $0.0 $0.0 $0.0
Projected benefit obligation $741.4 $100.2 $92.9
Key assumptions:
Discount Rate 4.14% 4.15% 4.15%
Healthcare cost trend (<65 years) 7.90% 7.70% 7.70%
Healthcare cost trend (>65 years) 7.90% 7.70% 7.70%
Meaningful
reduction in
obligation
Pension & OPEB GAAP Liability • Pension & OPEB liabilities declined a
combined $680 million from 4Q14 to 1Q15
due primarily to the new collective
bargaining agreements (CBAs)
• Pension contribution and OPEB payments of
approximately $22 million and $24 million
expected in 2016 and 2017, respectively
• No lump sum payments under the new
collective bargaining agreements
• Pension and OPEB liabilities are highly
sensitive to changes in the discount rate,
census data and healthcare cost trend
assumptions
• 34% reduction in headcount since 2011
(1) Combined assets and liabilities of the Associate and Management pension plans
(2) Discount rate used to value GAAP projected benefit obligation
Pension and OPEB Considerations
Meaningful reduction in Pension and OPEB liabilities primarily related to new CBAs
22
Reconciliation of Non-GAAP Measures
(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 (or subtraction) 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, including stock compensation expense, 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 (including losses related to disruption of operations), non-cash gains/losses, non-operating dividend and interest income and
other extraordinary gains/losses.
(2) On October 17, 2014, two of our labor unions in northern New England initiated a work stoppage. 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 that we believe would have been incurred absent the work stoppage. Estimated Avoided Costs is a pro forma estimate only.
Reconciliation of Adjusted EBITDA and
Unlevered Free Cash Flow from Net (Loss) Income:
2011 2012 2013 2014 2015 3Q15 4Q15 1Q16 2Q16 3Q16
Net Income/(loss) 171,962$ (153,294)$ (93,450)$ (136,319)$ 90,416$ 53,054$ 42,310$ 18,568$ 29,315$ 40,207$
Income tax (benefit)/expense 226,613 (95,560) (90,291) (29,778) (1,057) (658) (476) 8,011 12,393 17,169
Interest expense 73,128 67,610 78,675 80,371 80,718 20,186 20,739 20,610 20,583 20,698
Depreciation and amortization 358,406 376,614 282,438 220,678 223,819 56,296 56,399 57,638 55,105 54,918
Pension expense (1a) 12,185 17,809 26,221 18,144 8,635 (1,861) 2,297 2,036 2,020 2,617
OPEB expense (1a) 39,601 50,875 54,469 57,138 (178,973) (55,707) (55,710) (55,264) (55,506) (70,045)
Compensated absences (1b) (462) 329 431 2,848 (1,646) (6,084) (3,995) 6,287 (2,226) (2,838)
Severance 8,006 6,380 8,150 2,005 4,015 (106) 2 1,459 38 73
Restructuring costs (1c) 21,053 1,335 207 104 38 5 6 - - -
Storm expenses (1d) 4,040 3,000 2,598 145 - - - - - -
Other non-cash items, net (1e) (651,943) 3,518 1,902 2,087 8,197 1,441 2,243 2,694 1,401 1,083
Loss (gain) on sale of assets - - (10,757) 450 - - - - - -
Loss on debt refinancing - - 6,787 - - - - - - -
Labor negotiation expense - - 648 73,590 48,933 160 95 - - -
All other allowed adjustments, net (1f) (1,055) (675) (2,998) (889) (170) (35) (20) (88) (40) 7
Adjusted EBITDA 261,534$ 277,941$ 265,030$ 290,574$ 282,925$ 66,691$ 63,890$ 61,951$ 63,083$ 63,889$
Estimated Avoided Costs (2) - - - (33,000) (27,000) - - - - -
Adjusted EBITDA minus Estimated Avoided Costs (2) 261,534$ 277,941$ 265,030$ 257,574$ 255,925$ 66,691$ 63,890$ 61,951$ 63,083$ 63,889$
Adjusted EBITDA 261,534$ 277,941$ 265,030$ 290,574$ 282,925$ 66,691$ 63,890$ 61,951$ 63,083$ 63,889$
Pension contributions (6,178)$ (17,850)$ (19,971)$ (28,266)$ (14,168)$ (3,958)$ (5,828)$ -$ (3,558)$ (7,632)$
OPEB payments (1,763)$ (3,183)$ (3,470) (5,808) (5,597) (1,457) (1,505) (1,414) (1,182) (1,614)
Capital expenditures (176,125)$ (145,066)$ (128,298) (119,489) (116,159) (28,193) (33,238) (25,880) (26,805) (30,221)
Unlevered Free Cash Flow 77,468$ 111,842$ 113,291$ 137,011$ 147,001$ 33,083$ 23,319$ 34,657$ 31,538$ 24,422$
Estimated Avoided Costs (2) - - - (33,000) (27,000) - - - - -
Unlevered Free Cash Flow minus Estimated Avoided Costs (2) 77,468$ 111,842$ 113,291$ 104,011$ 120,001$ 33,083$ 23,319$ 34,657$ 31,538$ 24,422$
Year Quarter
23
Operating Footprint