FairPoint Reports Third Quarter 2007 Results

CHARLOTTE, N.C., Nov. 2 /PRNewswire-FirstCall/ -- FairPoint Communications, Inc. ("FairPoint" or the "Company"), a leading provider of communications services to rural and small urban communities across the country, today announced its financial results for the third quarter ended September 30, 2007.

-- Revenues for the third quarter of 2007 increased $5.0 million, or 7.1% over the third quarter of 2006. Revenues increased $3.0 million or 4.4% compared with the third quarter of 2006, excluding the impact of operations acquired in the last twelve months. -- Adjusted EBITDA (as defined herein) for the third quarter of 2007 was $34.6 million, compared with $33.4 million for the same period last year. The increase in Adjusted EBITDA is principally due to an increase in intrastate access revenues of $2.8 million, partially offset by a $2.1 million reduction in distributions from investments due to the sale of the Company's investment in Orange County- Poughkeepsie Limited Partnership in April 2007. -- Loss per share for the third quarter of 2007 was $0.15, compared with earnings per share on a fully diluted basis of $0.17 in the third quarter of 2006. The decrease in earnings per share is principally the result of expenses related to the Company's pending merger with Verizon's wireline operations in Maine, New Hampshire and Vermont and a non-cash loss of $5.7 million related to certain interest rate swap agreements.

"Our third quarter results demonstrate our ability to maintain our focus on our business and particularly on our customers," said Gene Johnson, Chairman & CEO of FairPoint. "Our financial results for the quarter are indicative of the hard work our team has put forth while undertaking our proposed acquisition of Verizon's wireline operations in Maine, New Hampshire and Vermont. We continue to focus on driving the top-line, managing costs, maintaining a sound balance sheet and, most importantly, understanding the needs of our customers."

Mr. Johnson, continued, "While we are experiencing substantial resistance to our merger proposal in the region, we have earned the support of many interveners. Our culture is to acknowledge objections and work diligently to satisfy them in the best interests of our shareholders, customers and employees. We believe we have made a great case for the merger with considerable investments in infrastructure, a plan for 675 new positions and significant broadband expansion throughout Northern New England to meet the needs of the residents and businesses of these three states for today, tomorrow and into the future. While there can be no assurance that we will receive satisfactory approval orders on a timely basis, we continue to anticipate all regulatory approvals will be received by the end of December, allowing the transaction to close on January 31, 2008."

Results for the three month period ended September 30, 2007 Operating Revenues

Consolidated revenues for the three months ended September 30, 2007 were $75.7 million, an increase of $5.0 million or 7.1%, compared with the three months ended September 30, 2006. Operations acquired in the last twelve months accounted for approximately $2.0 million of the increase in total revenues. Excluding the impact of operations acquired in the previous twelve months, revenues increased approximately $3.0 million, or 4.4% compared with the third quarter of the prior year. Items contributing to the increase in revenues were increases in intrastate access revenue of $2.8 million (principally due to the settlement during the quarter of certain previously disputed access charges totaling $4.4 million), data and internet service revenue of $1.4 million, long distance revenue of $1.1 million and local service revenue of $0.2 million. These increases were partially offset by decreases in interstate access revenue of $1.5 million and other revenue of $0.9 million.

Operating Expenses

Operating expenses (excluding depreciation and amortization) increased to $54.8 million compared to $40.4 million in the third quarter of 2006. Excluding the impact of operations acquired in the last twelve months, operating expenses increased $13.0 million. The primary drivers of this increase were merger related expenses of $12.5 million and cost of goods sold of $0.6 million (principally related to high speed data ("HSD") and long distance services), bad debt expense of $0.6 million, materials and supplies expense of $0.3 million and audit and tax services of $0.3 million. These increases were partially offset by decreases in employee related costs of $0.6 million, billing expenses of $0.5 million and contract services of $0.4 million.

Included in operating expenses are costs associated with stock based compensation which are non-cash expenses. Total stock based compensation expenses for the three months ended September 30, 2007 and September 30, 2006 were $1.0 million and $0.8 million, respectively. Depreciation and amortization expense decreased $0.2 million compared to the same period in 2006. Also, in the third quarter, the Company recorded a gain of $2.2 million on the sale of the operating assets of Yates City Telephone Company in Illinois, which had less than 500 access lines at the time of sale.

Net Income (Loss) and Earnings per Share

Net income (loss) decreased $11.2 million compared to the third quarter of 2006, resulting in a net loss of $5.2 million for the three months ended September 30, 2007. This decrease was primarily driven by higher expenses, principally related to the pending merger with Verizon's wireline operations in Maine, New Hampshire and Vermont and a non-cash loss of $5.7 million related to certain interest rate swap agreements. The Company reported a loss per share of $0.15 for the three months ended September 30, 2007, compared with earnings per share on a fully diluted basis of $0.17 for the same period in 2006.

Net Cash Provided by Operating Activities from Continuing Operations

Net cash provided by operating activities from continuing operations for the nine months ended September 30, 2007 was $24.2 million, a decrease of $34.8 million compared with the nine months ended September 30, 2006. The primary driver of this decrease in net cash provided by operating activities from continuing operations was the $28.4 million of merger related expenses incurred during the nine months ended September 30, 2007. The remaining decrease is due to other changes in current assets and liabilities.

Adjusted EBITDA and Cash Available for Dividends

Adjusted EBITDA for the three months ended September 30, 2007 was $34.6 million, compared with Adjusted EBITDA of $33.4 million for the same period in the prior year. The increase in Adjusted EBITDA is principally due to the $2.8 million increase in intrastate access revenue partially offset by a $2.1 million reduction in distributions from investments. The Company incurred expenses of $12.5 million in the third quarter of 2007 related to the pending merger with Verizon's wireline operations in Maine, New Hampshire and Vermont. The Company's credit facility allows these expenses to be added back to calculate Adjusted EBITDA and merger related capital expenditures to be added back to Cash Available for Dividends, up to $72.85 million in the aggregate. Cash Available for Dividends (as defined herein) of $21.5 million was generated during the three months ended September 30, 2007. Cash Available for Dividends for the three months ended September 30, 2007 was up from the $12.1 million generated in the three months ended June 30, 2007 due to the increase in Adjusted EBITDA and gains recognized on the sale of assets of $5.2 million during the third quarter.

Operational highlights -- HSD penetration increased to 27.6% of voice access lines at September 30, 2007 compared to 22.7% at September 30, 2006. -- HSD average revenue per subscriber ("ARPU") was $41.57 for the third quarter of 2007, consistent with previous quarters. -- Total HSD subscribers increased by 1,846 in the third quarter of 2007 to 66,978 at September 30, 2007. -- Interstate long distance penetration at September 30, 2007 increased to 53.7% of voice access lines compared to 45.6% at September 30, 2006, primarily as a result of the Company's continuing efforts to sell a voice bundled offering consisting of local voice, long distance and enhanced calling services. -- Total access line equivalents were 309,857 as of September 30, 2007. Total access line equivalents as of September 30, 2007 increased 0.3% compared with September 30, 2006 and decreased 0.9% compared with September 30, 2006 including only lines owned for the full year. -- Voice access lines, excluding lines acquired or disposed of in the last twelve months, as of September 30, 2007 decreased 4.8% compared to September 30, 2006. Access Line Equivalents 9/30/2007 6/30/2007 9/30/2006 % change 9/30/07 to 9/30/06 Access lines owned for full year(1): Voice access lines 239,221 243,637 251,286 (4.8%) HSD subscribers 66,310 64,493 57,095 16.1% Subtotal: Access line equivalents 305,531 308,130 308,381 (0.9%) Access lines acquired or disposed of during the last twelve months(1)(2): Voice access lines 3,658 3,725 477 N/A HSD subscribers 668 639 - N/A Subtotal: Access line equivalents 4,326 4,364 477 N/A Total access line equivalents 309,857 312,494 308,858 0.3% (1) In the third quarter of 2006, the Company began including access lines and HSD subscribers from its two competitive local exchange carrier ("CLEC") companies. Historically, these access lines have not been included in the Company's access line and subscriber counts. CLEC lines have been included in the line counts for all periods above for comparison purposes. (2) Represents voice access lines and HSD subscribers for companies owned less than twelve months. The Company completed the acquisition of the assets of Cass County Telephone Company Limited Partnership in the third quarter of 2006, the acquisition of Unite Communications Systems, Inc. in the third quarter of 2006 and the acquisition of The Germantown Independent Telephone Company in the fourth quarter of 2006. The Company sold the operations of a subsidiary, Fremont Broadband, LLC, during the second quarter of 2006 and sold the operations of a subsidiary, Yates City Telephone Company, during the third quarter of 2007. Cash Available for Dividends

The Company's credit facility contains a covenant that limits its ability to pay cash dividends on its common stock to the amount of Cumulative Cash Available for Dividends that accumulates from April 1, 2005 through the end of the Company's most recent fiscal quarter for which financial statements are available and a compliance certificate has been delivered (which, as of September 30, 2007, was the quarter ended June 30, 2007). Under this covenant, as of September 30, 2007, the Company had Cumulative Cash Available for Dividends of $43.6 million, from which it paid a dividend on October 16, 2007 of $13.9 million, resulting in a carryover of $29.7 million of Cumulative Cash Available for Dividends. In addition to this $29.7 million carryover, based on the Company's financial performance through September 30, 2007 as described in this earnings release, the Company generated an additional $21.5 million of Cash Available for Dividends and as a result expects to have $51.2 million of Cumulative Cash Available for Dividends from which to declare and pay its next dividend. Cash Available for Dividends corresponds to the term "Available Cash" in the Company's credit facility and Cumulative Cash Available for Dividends corresponds to the term "Cumulative Distributable Cash" in the Company's credit facility.

2007 Outlook

For the full year, FairPoint continues to anticipate revenues of $281 to $284 million. FairPoint continues to expect Adjusted EBITDA for the full year to be $123 to $125 million. Expected full year capital expenditures for 2007 remain unchanged at approximately $29 to $31 million, excluding expenditures related to the merger.

As previously disclosed, the Company expects to spend approximately $95 to $110 million on infrastructure and network systems integration and planning through January 31, 2008. We expect to continue to incur significant monthly cash expenditures related to the merger through the consummation of the merger. We currently expect the merger will close on January 31, 2008; however, the closing may be delayed if required regulatory approvals have not been obtained. We anticipate that we will have to rely on borrowings under our credit facility, in addition to cash generated from operations, to make these expenditures and satisfy our debt service and dividend and working capital requirements. If the closing is significantly delayed, these sources of funds may no longer be available to us. The Company's accounting treatment of these expenditures may cause the financial statement impact of these expenditures to be different than the cash flow impact.

Merger Information and Update

The Company announced on January 16, 2007 that it had signed definitive agreements with Verizon Communications Inc. that will result in Verizon establishing separate entities for its local exchange and related business assets in the region, spinning off the capital stock of the parent of those new entities to Verizon's stockholders, and merging the parent with and into FairPoint. FairPoint and Verizon are working to complete the merger as quickly as possible after receipt of applicable regulatory approvals. The merger was approved by FairPoint's stockholders at its annual meeting on August 22, 2007 and, if regulatory approvals are timely received, FairPoint expects to complete the merger on January 31, 2008. For additional information on the merger and related agreements, please refer to the Current Reports on Form 8-K filed by the Company with the Securities and Exchange Commission on January 19, 2007, April 23, 2007, June 28, 2007 and July 9, 2007 and the Company's definitive proxy statement dated July 16, 2007.

The regulatory approval process is proceeding. The Company has submitted pre-filed testimony, answered data requests, participated in technical conferences, presented testimony at hearings (which have concluded) and is preparing formal briefs and reply briefs. There can be no assurance that regulatory approval will be received or received on a satisfactory and timely basis. In addition, at the current time, it is unclear what restrictions, if any, on our operations, capital structure and/or our ability to pay dividends at the current level and/or what expenditure requirements, if any, may be imposed as part of any such regulatory approvals.

The Company has entered into settlement agreements with many intervening parties in all three states, including rural local exchange carriers, competitive local exchange carriers and other wholesale carriers and electric utilities. Many of these parties have announced their support of the merger. Settlement conferences with certain other interveners continue.

FairPoint also received approval from the Virginia State Corporation Commission and the Illinois Commerce Commission.

Merger Integration Update -- First data extract of Verizon Northern New England data completed -- Data mapping rules completed -- Build II of systems integration completed -- Build III delivered to test groups, includes core functionality for over 65% of the functional components and 79% of the planned operational system support (OSS) interfaces -- Major systems and integrated interfaces are being tested with sample data from Verizon extracts -- Developed draft Cutover Readiness Plans -- Developed draft training plans for Close and Cutover releases -- Completed demonstration of the wholesale gateway to CLEC customers Conference Call and Webcast

As previously announced, FairPoint will host a conference call and simultaneous webcast to discuss its third quarter results at 8:30 a.m. EDT on November 2, 2007. Participants should call (888) 253-4456 (US/Canada) or (706) 643-3201 (International) and request the FairPoint Communications third quarter earnings call. A telephonic replay will be available for anyone unable to participate in the live call. To access the replay, call (800) 642- 1687 and enter the confirmation code 21399083. The recording will be available from Friday, November 2, 2007 at 1:00 p.m. (EDT) through Friday, November 9, 2007 at 11:59 p.m. (EDT).

A live broadcast of the earnings conference call will be available via the Internet at http://www.fairpoint.com/ under the Investor Relations section. An online replay will be available beginning at 1:00 p.m. (EDT) on November 2, 2007 and will remain available for one year. During the conference call, representatives of FairPoint may discuss and answer one or more questions concerning FairPoint's business and financial matters. The responses to these questions, as well as other matters discussed during the conference call, may contain information that has not been previously disclosed.

Non-GAAP Financial Measures

EBITDA (as defined herein), Adjusted EBITDA and Cash Available for Dividends are non-GAAP financial measures (i.e., they are not measures of financial performance under generally accepted accounting principles) and should not be considered in isolation or as a substitute for consolidated statements of operations and cash flows data prepared in accordance with GAAP. In addition, the non-GAAP financial measures used by FairPoint may not be comparable to similarly titled measures of other companies. For definitions of and additional information regarding EBITDA, Adjusted EBITDA and Cash Available for Dividends, and a reconciliation of such measures to the most comparable financial measures calculated in accordance with GAAP, please see the attachments to this press release.

FairPoint believes EBITDA is useful to investors because EBITDA is commonly used in the communications industry to analyze companies on the basis of operating performance, liquidity and leverage. FairPoint believes EBITDA allows a standardized comparison between companies in the industry, while minimizing the differences from depreciation policies, financial leverage and tax strategies.

Certain covenants in FairPoint's credit facility contain ratios based on Adjusted EBITDA and the restricted payment covenant in FairPoint's credit facility regulating the payment of dividends on its common stock is based on Adjusted EBITDA. If FairPoint's Adjusted EBITDA were to decline below certain levels, covenants in FairPoint's credit facility that are based on Adjusted EBITDA may be violated and could cause, among other things, a default under such credit facility, or result in FairPoint's inability to pay dividends on its common stock.

FairPoint believes Cash Available for Dividends is useful to investors as a means to evaluate FairPoint's ability to pay dividends on its common stock. However, FairPoint is not required to use such cash to pay dividends and any dividends are subject to declaration by FairPoint's board of directors and compliance with Delaware law and the terms of its credit facility.

While FairPoint uses these non-GAAP financial measures in managing and analyzing its business and financial condition and believes they are useful to its management and investors for the reasons described above, these non-GAAP financial measures have certain shortcomings. In particular, Adjusted EBITDA does not represent the residual cash flows available for discretionary expenditures, since items such as debt repayment and interest payments are not deducted from such measure. FairPoint's management compensates for the shortcomings of these measures by utilizing them in conjunction with their comparable GAAP financial measures.

The information in this press release should be read in conjunction with the financial statements and footnotes contained in FairPoint's quarterly report to be filed with the Securities and Exchange Commission.

About FairPoint

FairPoint is a leading provider of communications services to rural and small urban communities across the country. Incorporated in 1991, FairPoint's mission is to acquire and operate telecommunications companies that set the standard of excellence for the delivery of service to rural and small urban communities. Today, FairPoint owns and operates 30 local exchange companies located in 18 states offering an array of services, including local and long distance voice, data, Internet and broadband offerings. FairPoint is traded on the New York Stock Exchange under the symbol "FRP".

This press release may contain forward-looking statements by FairPoint that are not based on historical fact, including, without limitation, statements containing the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions and 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. Such factors include those risks described from time to time in FairPoint's filings with the Securities and Exchange Commission ("SEC"), including, without limitation, the risks described in FairPoint's most recent Annual Report on Form 10-K on file with the SEC. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. All information is current as of the date this press release is issued, and FairPoint undertakes no duty to update this information. FairPoint's results for the quarter ended September 30, 2007 are subject to the completion and filing with the Securities and Exchange Commission of its Quarterly Report on Form 10-Q for such period.

FairPoint has filed, and the SEC has declared effective, a registration statement in connection with the proposed merger. FairPoint urges investors to read this document and other materials filed and to be filed by FairPoint relating to the proposed merger because they contain and will contain important information. Investors can obtain copies of the registration statement, as well as other filed documents containing information about FairPoint and the proposed merger, at http://www.sec.gov/, the SEC's website. Investors may also obtain free copies of these documents and FairPoint's other SEC filings at http://www.fairpoint.com/ under the Investor Relations section, or by written request to FairPoint Communications, Inc., 521 E. Morehead Street, Suite 250, Charlotte, NC 28202, Attention: Investor Relations.

This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

Investor Contact: Brett Ellis (866) 377-3747, bellis@fairpoint.com Media Contact: Rose Cummings (704) 602-7304, rcummings@fairpoint.com FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets September 30, December 31, 2007 2006 (unaudited) (Dollars in thousands) Assets Current assets: Cash $8,842 $3,805 Current receivables, net 49,349 28,533 Other current assets 11,965 13,184 Deferred income tax, net 8,387 33,648 Total current assets 78,543 79,170 Property, plant, and equipment, net 248,365 246,264 Investments 6,529 12,057 Goodwill 498,913 499,184 Deferred income tax, net 38,162 23,830 Deferred charges and other assets 20,260 24,725 Total assets $890,772 $885,230 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $26,270 $14,337 Dividends payable 13,953 13,908 Current portion of long-term debt 743 714 Demand notes payable 260 312 Accrued interest payable 712 560 Other accrued liabilities 21,234 16,017 Liabilities of discontinued operations 475 486 Total current liabilities 63,647 46,334 Long-term liabilities: Long-term debt, net of current portion 607,294 607,272 Deferred credits and other long-term liabilities 16,176 6,897 Total long-term liabilities 623,470 614,169 Minority interest 7 8 Stockholders' equity: Common stock 353 352 Additional paid-in capital 491,325 530,536 Accumulated deficit (285,990) (311,545) Accumulated other comprehensive (loss) income, net (2,040) 5,376 Total stockholders' equity 203,648 224,719 Total liabilities and stockholders' equity $890,772 $885,230 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) Three months ended Nine months ended September 30, September 30, 2007 2006 2007 2006 (Dollars in (Dollars in thousands) thousands) Revenues $75,707 $70,700 $215,276 $199,687 Operating expenses: Operating expenses, excluding depreciation and amortization 54,846 40,362 155,716 112,242 Depreciation and amortization 12,624 12,839 37,873 39,826 Gain on sale of operating assets (2,164) - (2,164) - Total operating expenses 65,306 53,201 191,425 152,068 Income from operations 10,401 17,499 23,851 47,619 Other income (expense): Net gain on sale of investments and other assets 2,759 64 49,586 14,289 Interest and dividend income 294 211 805 3,138 Interest expense (9,924) (9,969) (29,932) (29,514) Loss on derivative instruments (5,669) - (5,669) - Equity in net earnings of investees 320 1,841 4,889 8,206 Total other (expense) income (12,220) (7,853) 19,679 (3,881) (Loss) income before income taxes (1,819) 9,646 43,530 43,738 Income tax expense (3,372) (3,668) (17,974) (16,965) Minority interest - (1) (1) (2) Net (loss) income $(5,191) $5,977 $25,555 $26,771 Weighted average shares outstanding: Basic 34,770 34,651 34,736 34,618 Diluted 34,770 34,796 34,967 34,711 Earnings (loss) per share: Basic $(0.15) $0.17 $0.74 $0.77 Diluted $(0.15) $0.17 $0.73 $0.77 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 2007 2006 (Dollars in thousands) Cash flows from operating activities: Net income $25,555 $26,771 Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: Deferred income taxes 19,411 15,159 Amortization of debt issue costs 1,159 1,200 Depreciation and amortization 37,873 39,826 Minority interest in income of subsidiaries 1 2 Income from equity method investments (4,889) (8,206) Net gain on sale of investments and other assets (49,586) (14,289) Gain on sale of operating assets (2,164) - Loss on derivative instruments 5,669 - Other non cash items 2,963 1,403 Changes in assets and liabilities arising from operations: Accounts receivable and other current assets (21,399) 2,838 Accounts payable and other accrued liabilities 12,771 (4,193) Income taxes (1,274) (520) Other assets/liabilities (1,942) (996) Total adjustments (1,407) 32,224 Net cash provided by operating activities of continuing operations 24,148 58,995 Cash flows from investing activities of continuing operations: Net capital additions (39,870) (25,636) Distributions from investments 2,640 7,901 Net proceeds from sales of investments and other assets 60,229 43,416 Acquisitions of telephone properties, net of cash acquired - (37,643) Other, net 265 (183) Net cash provided by (used in) investing activities of continuing operations 23,264 (12,145) Cash flows from financing activities of continuing operations: Loan origination costs (628) - Proceeds from issuance of long-term debt 115,945 94,450 Repayments of long-term debt (115,919) (99,583) Proceeds from exercise of stock options - 24 Dividends paid to common stockholders (41,763) (41,384) Net cash used in financing activities of continuing operations (42,365) (46,493) Cash flows of discontinued operations: Operating cash flows, net used in (10) (957) Net increase (decrease) in cash 5,037 (600) Cash, beginning of period 3,805 5,083 Cash, end of period $8,842 $4,483 FairPoint Communications, Inc. Non-GAAP Financial Measures Reconciliation For the Three and Nine Months Ended September 30, 2007 and 2006 Three Months Ended Three Months Ended 09/30/07 09/30/06 (Dollars in thousands) Net cash provided by operating activities from continuing operations $(194) $11,743 Adjustments: Depreciation and amortization (12,624) (12,839) Other non-cash items (7,226) (2,493) Changes in assets and liabilities arising from continuing operations, net of acquisitions 14,853 9,566 (Loss) income from continuing operations (5,191) 5,977 Adjustments: Interest expense 9,924 9,969 Provision for income taxes 3,372 3,668 Depreciation and amortization 12,624 12,839 EBITDA 20,729 32,453 Adjustments: Net gain on sale of investments and other assets (4,923) (64) Equity in net earnings of investees (320) (1,841) Distributions from investments 30 2,161 Non-cash stock based compensation 971 752 Merger transaction and transition expenses 12,452 - Other non-cash item 5,669 - Deferred patronage dividends (27) (13) Adjusted EBITDA $34,581 $33,448 Nine Months Ended Nine Months Ended 09/30/07 09/30/06 Net cash provided by operating activities from continuing operations $24,148 $58,995 Adjustments: Depreciation and amortization (37,873) (39,826) Other non-cash items 25,992 4,731 Changes in assets and liabilities arising from continuing operations, net of acquisitions 13,288 2,871 Income from continuing operations 25,555 26,771 Adjustments: Interest expense 29,932 29,514 Provision for income taxes 17,974 16,965 Depreciation and amortization 37,873 39,826 EBITDA 111,334 113,076 Adjustments: Net gain on sale of investments and other assets (51,750) (14,289) Equity in net earnings of investees (4,889) (8,206) Distributions from investments 2,640 7,901 Non-cash stock based compensation 3,012 2,036 Merger transaction and transition expenses 28,444 - Other non-cash item 5,669 (637) Deferred patronage dividends (41) 13 Adjusted EBITDA $94,419 $99,894 Plus (minus): Scheduled principal payments (511) (485) Cash interest expense (adjusted for amortization and swap interest) (29,133) (28,314) Capital expenditures and other (21,501) (26,732) Investments - (112) Cash received on account of non-cash income excluded from Adjusted EBITDA - 3,000 Gain on sale of investment/assets 5,313 14,498 Cash income taxes (2,270) (2,284) Cash Available for Dividends $46,317 $59,465 "EBITDA" means net income before income from discontinued operations, interest expense, income taxes, and depreciation and amortization. "Adjusted EBITDA" is defined in FairPoint's credit facility as (i) the sum of Consolidated Net Income (which is defined in FairPoint's credit facility and includes distributions from investments), plus the following to the extent deducted from Consolidated Net Income: provision for taxes, consolidated interest expense, depreciation, amortization, losses on sales of assets and other extraordinary losses, certain one-time charges recorded as operating expenses related to the transactions contemplated by the Company's Merger Agreement with Verizon Communications Inc. and certain other non-cash items, each as defined, minus (ii) gains on sales of assets and other extraordinary gains and all non-cash items increasing Consolidated Net Income. "Cash Available for Dividends" means Adjusted EBITDA, minus (i) cash interest expense (adjusted for amortization and swap interest), (ii) scheduled principal payments on indebtedness, (iii) capital expenditures, (iv) investments, (v) cash income taxes, and (vi) non-cash items excluded from Adjusted EBITDA and paid in cash, plus (i) the cash amount of any extraordinary gains and gains realized on asset sales other than in the ordinary course of business, and (ii) cash received on account of non-cash gains or non-cash income excluded from Adjusted EBITDA. FairPoint Communications, Inc.

Sequential Financial Information for the Quarters ending September 30, June

30, March 31, 2007, December 31, and September 30, 2006 Three Three Three Three Three Months Months Months Months Months (Dollars in thousands) Ended Ended Ended Ended Ended September June March December September 30, 2007 30, 2007 31, 2007 31, 2006 30, 2006 Consolidated Results: Revenues (1): Local calling services $17,453 $17,532 $17,504 $17,784 $16,586 USF - high cost loop support 5,245 4,445 4,616 5,380 5,116 Interstate access revenue 18,360 18,134 18,404 18,774 19,402 Intrastate access revenue 13,541 9,606 9,725 9,328 10,545 Long distance services 7,843 7,542 7,121 6,155 6,694 Data and internet services 8,805 8,225 7,832 7,520 7,106 Other services 4,460 4,413 4,470 5,441 5,251 Total revenues 75,707 69,897 69,672 70,382 70,700 Operating expenses 65,306 63,948 62,171 56,631 53,201 Income from operations 10,401 5,949 7,501 13,751 17,499 Other income (expense) (12,220) 39,036 (7,137) (7,113) (7,853) Earnings from continuing operations before income taxes (1,819) 44,985 364 6,638 9,646 Income taxes (3,372) (14,205) (397) (2,893) (3,668) Minority interest in income of subsidiaries - (1) - - (1) Income from discontinued operations - - - 574 - Net income (loss) $(5,191) $30,779 $(33) $4,319 $5,977 Cash Available for Dividends: Adjusted EBITDA $34,581 $29,904 $31,394 $33,271 $33,448 Plus (minus): Scheduled principal payments (173) (170) (168) (166) (164) Cash interest expense (adjusted for amortization and capitalized interest) (9,781) (9,705) (9,647) (9,780) (9,594) Capital expenditures and other (6,849) (7,759) (6,893) (6,412) (8,100) Investments - - - - - Cash received on account of non-cash income excluded from Adjusted EBITDA - - - 1,000 1,000 Gain on sale of investment/assets 5,165 75 73 350 59 Cash income taxes (1,423) (263) (584) (85) (1,160) Cash Available for Dividends $21,520 $12,082 $14,175 $18,178 $15,489 Cumulative Cash Available for Dividends: (2) Beginning Balance $43,637 $45,504 $45,246 40,964 39,331 Add: Cash Available for Dividends generated during the quarter 21,520 12,082 14,175 18,178 15,489 Less: Dividends declared and/or paid after July 30, 2005 (13,943) (13,949) (13,917) (13,896) (13,856) Cumulative Cash Available for Dividends $51,214 $43,637 $45,504 $45,246 $40,964 Other information: Gross property, plant and equipment $869,999 $856,999 $837,221 $829,234 $815,543 Capital expenditures 16,295 15,832 7,743 6,354 8,100 Cash Interest expense (adjusted for amortization and swap interest) (9,781) (9,705) (9,647) (9,780) (9,594) Access line equivalents (3) 309,857 312,494 310,180 311,150 308,858 Residential access lines 186,304 190,417 191,571 194,119 194,002 Business access lines 56,575 56,945 56,795 57,587 57,761 High Speed Data subscribers 66,978 65,132 61,814 59,444 57,095 DSL subscribers 61,548 59,880 56,851 54,752 52,655 Other HSD subscribers (Wireless and Cable modems) 5,430 5,252 4,963 4,692 4,440 (1) During the second quarter of 2007, the Company re-categorized certain revenues to more accurately reflect the nature of those revenues. Total revenues did not change as a result of this re-categorization. Revenue categories for prior quarters have been re-classified to present on a comparable basis. (2) Cumulative Cash Available for Dividends means the amount of Cash Available for Dividends generated beginning on April 1, 2005, minus the aggregate amount of dividends paid after July 30, 2005, minus the aggregate amount of investments made after April 1, 2005 using such cash, plus the aggregate amount of distributions received from such investments (not to exceed the amount originally invested). (3) In the third quarter of 2006, the Company began including access lines and HSD subscribers from its two competitive local exchange carrier (CLEC) companies. Historically, these access lines have not been included in the Company's access line and subscriber counts.