Allstream (NASDAQ:ALLSA)
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Allstream Announces First Quarter(1) 2004 Financial And Operating
Results
- Reports Quarterly Revenue of $297.0 Million and EBITDA(2) of $50.4 Million -
Achieves First Quarter Income From Operations of $26.6 million and Net Income
of $15.4 million - Generates $25.6 Million in Free Cash Flow(3) in the Quarter
and Ends Quarter with $269.9 Million in Cash On Hand - Shareholder Vote on
Strategic Business Combination With Manitoba Telecom to be Held May 12
TORONTO, May 12 /PRNewswire-FirstCall/ -- Allstream (TSX: ALR.A, ALR.B;
NASDAQ: ALLSA, ALLSB), a leading communication solutions provider, today
reported financial and operating results for the first quarter 2004.
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3 Months 3 Months 3 Months
Ended Ended Ended
(Millions) Mar 31 04 Dec 31 03 Mar 31 03
------------- ------------- -------------
(Predecessor)
Revenue $297.0 $301.9 $353.3
EBITDA(2) 50.4 52.5 66.3
Income From Operations 26.6 28.5 36.5
Net Income 15.4 16.3 229.8
Capital Expenditures 31.3 21.4 33.2
Free Cash Flow(3) 25.6 37.1 (44.0)
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Allstream's revenues in the quarter continued to show the positive impacts of
new service introduction and the expansion of its quota carrying sales force,
with growth relative to the fourth quarter in the Long Distance and IT Services
product categories. EBITDA in the quarter of $50.4 million includes certain
items that are expected to be lower in future quarters of 2004, including $8.0
million in employee severance costs, cross border settlement costs of $7.2
million and payroll taxes of $5.9 million. Offsetting these items in part was a
retroactive regulatory cost reduction of $4.1 million.
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John McLennan, Vice Chairman and Chief Executive Officer, Allstream made
the following comments with regard to the Company's performance in the
first quarter.
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"This is the fourth consecutive quarter that Allstream has generated
strong positive free cash flow. During the quarter we introduced new
services, won new business and expanded relationships with existing
customers as we continue to execute our business plan. The quarter was
highlighted by the announcement that Manitoba Telecom has offered to
acquire Allstream. This transaction will combine Allstream's national
portfolio of connectivity, infrastructure management and IT services with
Manitoba's pre-eminent full-service communications company. Together,
Allstream and Manitoba Telecom will create a formidable national provider
with service offerings across all segments of the telecommunications
industry. The combined financial and operating strengths of these two
Companies will create an even stronger national competitor. For Allstream
shareholders, this transaction crystallizes the value we have created
since April 1, 2003, and provides greatly improved liquidity. In
addition, it provides our shareholders with the opportunity to
participate in the future growth of the expanded company."
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Q1 Financial and Operating Results
----------------------------------
Total Revenue
-------------
-----------------------------------------------------------
(Millions) Q1-2004 Q4-2003 Q1-2003
-----------------------------------------------------------
Total Revenue $297.0 $301.9 $353.3(x)
Variance to Q1-2004 - ($4.9) ($56.3)
-----------------------------------------------------------
(x) Includes $11.7 million from divested subsidiaries Contour and Argos.
A chart has been provided at the end of this release that adjusts
revenues for this divestiture.
During the first quarter of 2004, Allstream was successful in its continuing
efforts to evolve its revenue base towards higher margin and higher growth
services. Gross margin improved to 43.9% of revenue from 38.8% in the same
period last year. While still impacted by soft enterprise spending in
telecommunications, revenue from next generation data and managed services are
growing at double-digit rates.
Revenues from all non-Long Distance services including Local, Data, Internet,
and IT Services represent 65% of total revenue in the current quarter similar
to the fourth quarter of 2003, and up from 62% in the first quarter of 2003.
Long Distance revenues represent 35% of total revenue the same as last quarter,
and down from 38% in the same period last year.
During the last six months, the Company has launched eight next generation
services, with more to be introduced in the coming months.
In addition the Company has expanded its addressable market for rapidly growing
Transparent LAN Ethernet Services from 5% to 54% of Canadian business
locations.
New Services Launched In Q1:
- Hosted Contact Centre solution offers enterprises the opportunity to
outsource management of contact centre technology and benefit from
Allstream's advanced Contact Centre technologies
- Managed LAN service extends Allstream's Managed WAN Service and
supports migration to Wi-Fi networking and Managed IP telephony
services, and
- Wireless High Speed Internet Access service targeted to the SOHO
market, small businesses, teleworkers and enterprise customers with
remote branch locations.
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John MacDonald, President and Chief Operating Officer Allstream said,
"With the important new products introduced during the quarter we have
greatly enhanced the capabilities we bring to the marketplace. Combined
with our expanded distribution channels including a doubling of our quota
carrying sales representatives, we have positioned ourselves for a return
to quarterly revenue growth in the second half of 2004. And we continue
to invest in our state of the art IP infrastructure through next
generation network development to enable the migration to
enterprise-grade converged services such as IP telephony, unified
messaging and video content services. In joining forces with Manitoba
Telecom, Allstream will operate from a position of enhanced financial
strength and credibility. We are building momentum and are confident in
our ability to capture market share."
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EBITDA(2)
---------
-----------------------------------------------------------
(Millions) Q1-2004 Q4-2003 Q1-2003
-----------------------------------------------------------
EBITDA $50.4 $52.5 $66.3
Variance to Q1-2004 - ($2.2) ($15.9)
-----------------------------------------------------------
Compared to fourth quarter 2003
-------------------------------
EBITDA of $50.4 million in the first quarter declined by $2.2 million from the
previous quarter. This decline can be attributed to:
- Gross margin decline of $8.1 million - revenues were lower by
$4.9 million; cross border settlement costs increased by $7.2 million
(from higher rates that are expected to decline starting in Q2 as
volume thresholds with U.S. carriers are reached); offset by lower
regulatory costs of $5.3 million ($4.1 million of which relates to
the resolution in the quarter of prior period regulatory items).
- SG&A expense decreased by $5.9 million - lower branding costs of
$5.8 million (branding effort substantially complete); lower variable
pay expense of $6.9 million; offset by higher payroll taxes of
$5.9 million (certain Company contributions to employee related
payroll taxes are made in the first quarter of the year); stock
option expense increase of $1.7 million (new accounting rules require
expensing of employee stock options effective January 1, 2004).
Compared to first quarter 2003
------------------------------
EBITDA declined by $15.9 million from the same quarter last year. This decline
can be attributed to:
- Gross margin decline of $6.9 million - while revenues were lower
compared to the first quarter last year, gross margin as a percent of
revenue improved by 510 basis points to 43.9%, the result of savings
from operating cost reductions, product mix changes and regulatory
cost reductions.
- SG&A expense increased by $9.0 million - increased severance costs of
$7.3 million; stock option and RSU expense increase of $3.7 million,
offset by the impact of the settlement of claims related to CCAA
proceedings of $2.8 million recorded in the first quarter of 2003.
Income From Operations
----------------------
-----------------------------------------------------------
(Millions) Q1-2004 Q4-2003 Q1-2003
-----------------------------------------------------------
Income Operations $26.6 $28.5 $36.5
Variance to Q1-2004 - ($1.9) ($9.9)
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This is the seventh consecutive quarter that the Company and its predecessor
has recorded positive income from operations.
Compared to fourth quarter 2003
-------------------------------
Income from operations of $26.6 million in the first quarter represents a
decline of $1.9 million from the fourth quarter that can be attributed to:
- EBITDA decline of $2.2 million
- Offset in part by lower depreciation and amortization costs of
$0.3 million
Compared to first quarter 2003
------------------------------
Income from operations declined $9.9 million from the same quarter last year
attributable to:
- EBITDA decline of $15.9 million
- Absence of the reversal of workforce reduction costs recorded in
first quarter 2003 of $11.8 million
- Offset by lower depreciation and amortization costs of $17.8 million
Net Income
----------
-----------------------------------------------------------
(Millions) Q1-2004 Q4-2003 Q1-2003
-----------------------------------------------------------
Net Income $15.4 $16.3 $229.8
Variance to Q1-2004 - ($0.9) ($214.4)
-----------------------------------------------------------
This represents the fifth consecutive quarter that the Company has generated
net income.
Compared to fourth quarter 2003
-------------------------------
Net income of $15.4 million in the first quarter represents a decline of $0.9
million from the fourth quarter that can be attributed to:
- Income from operations decline of $1.9 million
- Higher net interest costs of $1.0 million
- Higher other loss of $0.9 million
- Offset in part by lower non-cash taxes of $2.9 million - The
calculation of Net Income includes a Provision for Income Taxes of
$10.9 million for the current quarter. $10.0 million of this amount
does not give rise to any cash income tax liability, as the Company
is able to utilize its tax loss carry-forwards in offset. Accounting
rules require that the utilization of tax loss carry-forwards from
predecessor companies be recorded as contributed surplus on the
balance sheet. If this accounting treatment were not required, net
income would have been higher by $10.0 million.
Compared to first quarter 2003
------------------------------
Net Income declined by $214.4 million from the same quarter last year
attributable to:
- Absence of interest expense and non-cash foreign currency translation
gains recorded in the first quarter of 2003 of $193.6 million (net)
which the Company no longer incurs after emerging from restructuring
on April 1, 2003 with no long term public debt.
- Decline in Income from operations of $9.9 million
- Increase in non-cash taxes of $10.9 million
Free Cash Flow(3) and Cash Position
-----------------------------------
During the quarter Allstream generated Free Cash Flow (as outlined in the
attached supplementary financial information schedule) of $25.6 million
bringing total free cash flow in the twelve months since completing its
restructuring to $166.5 million. The Company ended the quarter with cash on
hand of $269.9 million, representing a decrease of $75.9 million from the
previous quarter. This change in cash on hand can be attributed to:
- Payment on January 6, 2004 of a special dividend in the amount of
$69.4 million
- 2003 variable pay payments and 2004 pension funding of $24.3 million
and $8.9 million respectively
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Outlook
-------
Mr. McLennan made the following remarks with respect to the financial
outlook for 2004. "With the revenue generating initiatives we announced
in 2003, and those in the pipeline for 2004, we expect to achieve
quarterly revenue growth in the second half of the year. From a margin
and expense standpoint, while the costs of our successful brand
transition are behind us, in 2004 our product development and new service
launch costs have increased in support of new revenue generating
initiatives. We have also adopted new accounting rules related to
expensing the cost of stock options. As a result, EBITDA for 2004 will be
relatively stable compared to 2003, and the Company will continue to
generate strong free cash flow. In addition we expect capital
expenditures will be approximately 10% of revenue in 2004."
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Note: Management Discussion & Analysis and Financial Statements for the
three months ended March 31, 2004, including a presentation to augment
management remarks during today's 8:30 a.m. conference call, are
available at http://www.allstream.com/investor/2004.html
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Other Developments
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MTS to Acquire Allstream, Creating Powerful National Provider
-------------------------------------------------------------
- On March 18 Manitoba Telecom Services (MTS) announced it had agreed
to acquire Allstream. Under the terms of the agreement MTS will
acquire all of the outstanding shares of Allstream at an offering
price per Allstream share of $23.00 in cash plus 1.0909 MTS shares.
This combination creates a formidable national provider that combines
Allstream's national portfolio of connectivity, infrastructure
management and IT services with Manitoba's pre-eminent full-service
communications company. In addition, shareholders of the combined
company will benefit from an intended substantial issuer bid of
approximately $800 million following the closing of the transaction.
MTS announced that it plans to establish its annual dividend at
$2.60 per share following completion of the Allstream transaction
representing a yield in excess of 5% at today's prices.
- The Board of Directors of Allstream is recommending the transaction
for approval by its shareholders at a meeting to be held May 12 with
closing expected to occur in late May or early June, subject to
regulatory, and court approvals, required consents and other
customary closing conditions. The Information Circular was mailed to
shareholders on April 12 and is available at the Company's website by
clicking on the link below.
http://www.allstream.com/pdf/financial/
MTS-ALR_Merger_Information_Circular-Apr12-04.pdf
For more information about the transaction including pro-forma
financial information please click on:
http://www.allstream.com/pdf/financial/ATTCInvestorPPT.pdf
Allstream Introduces Managed LAN Service
----------------------------------------
- On April 7 Allstream launched its Cisco based Managed Local Area
Network (LAN) Service. This service is designed to allow customers to
outsource the management of their enterprise LAN infrastructure to
Allstream, assuring business continuity through a stable and secure
LAN environment. Managed LAN Service is built on Allstream's state of
the art IP infrastructure and is a key element in supporting customer
migration to enterprise-grade converged services such as IP
telephony, wireless LAN (Wi-Fi), unified messaging and video content
services. For more information visit:
http://www.allstream.com/products/infrastructure/network/managed_lan.html
Allstream Launches Innovative Hosted Contact Centre Solution
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- On March 30 Allstream launched its unique Hosted Contact Centre
solution. This innovative solution offers enterprises the opportunity
to outsource the management of their contact centre and to benefit
from Allstream's best-in-class contact centre technologies. This
solution is managed and maintained from an Allstream data centre,
enabling customers to gain access to the functionality of an
integrated system without the burden and cost of procuring,
operating, and managing complex contact centre platforms on their
own. With a per-seat pricing model, customers can pay predictable
monthly fees, avoid significant capital expenditures and avoid the
risk of technology obsolescence. In addition, technology platforms
are available in modular design for customized configurations, and
are scalable for a rapid response to changing capacity requirements.
For more information visit:
http://www.allstream.com/products/solutions/centres/hosted.html
Broadband Wireless Venture Launches Networks In Richmond and Cumberland
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- The new venture recently created by Allstream, Microcell and NR
Communications has launched test markets in communities near
Vancouver and Ottawa (Richmond & Cumberland) to offer integrated high
speed Internet, IP-based voice and local networking services.
Concurrent with the deployment of these networks, Microcell launched
iFido(TM), a residential wireless high speed Internet service, while
Allstream introduced a bundled wireless high speed service for SOHO,
small businesses, teleworkers and enterprise customers with remote
branch locations.
- In addition the venture has announced that AOL Canada is trialing the
venture's new wireless high-speed access technology in Toronto. For
more information on Allstream's Wireless High-Speed Internet Access
Service visit: http://micro.newswire.ca/release.cgi?rkey
(equal sign)1203046542&view(equal sign)82461-0&Start(equal sign)0
Allstream Selects Alcatel IP Router for National Gigabit Ethernet Network
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- On March 1 Allstream selected Alcatel's next-generation Internet
Protocol (IP) service router for its national switched gigabit
Ethernet network. This network enhancement supports Allstream's
ongoing investment in next generation IP services and improves its
capabilities to support GigE and future 10 GigE requirements.
Allstream can now deliver a wider range of service offerings and more
accurate service level agreement enforcement to attract and retain a
wider customer base. Allstream has been offering IP-based services
since 2000.
Regulatory
----------
- Allstream continues to pursue regulatory change to improve the
balance between incumbent providers and competitive entrants.
Allstream awaits further rulings from the CRTC concerning tariffed
access to incumbent next generation network facilities and services,
and broadened Competitive Digital Network Access (CDNA). Dialogue
with the CRTC continues on both issues and decisions in the next
quarter are anticipated.
- With respect to incumbent pricing behaviour in the marketplace,
Allstream has initiated an application seeking to have the CRTC deny
approval of the Bell bundles, and to place a moratorium on further
customer specific arrangements (CSA's) pending conclusion of the Bell
appeal of the CRTC's decision that these CSA's must be tariffed.
Allstream remains determined to ensure that the CRTC enforces ILEC
compliance with regulatory obligations.
- Allstream will also be an active participant in the recently
initiated CRTC proceeding to review the regulatory framework
applicable to Voice over Internet Protocol (VoIP). The views
initially expressed by the CRTC are consistent with Allstream's
position that the Regulator regulates services, not technology.
(1) On April 1, 2003, AT&T Canada Inc. (the "Predecessor") implemented
the Consolidated Plan of Arrangement and Reorganization (the "Plan")
and emerged from protection under the Companies' Creditors
Arrangement Act (Canada) ("CCAA"). Pursuant to the Plan, a new parent
company ("New AT&T Canada Inc.") was incorporated under the Canada
Business Corporations Act (the "Act") and pursuant to Articles of
Reorganization dated April 1, 2003 (the "Articles of Reorganization")
became the sole shareholder of Predecessor. On June 18, 2003, New
AT&T Canada Inc. changed its name to Allstream Inc. (the "Company" or
"Allstream"). Accordingly the quarter ended March 31, 2004 is
referenced as the First Quarter of 2004 (calendar), but represents
the fourth reporting quarter of the "New" Company. The quarter ended
March 31, 2003 is referenced as the First Quarter of 2003 (calendar),
but represents the last quarter of the "Predecessor" Company. The
quarter ended December 31, 2003 is referenced as the Fourth Quarter
of 2003 (calendar), although it represents the third quarter of the
new company.
(2) EBITDA is a measure commonly used in the telecommunications industry
to evaluate operating results and is generally defined as earnings
before interest, income taxes, depreciation and amortization. The
Company has also excluded the provision for restructuring as this
item is not expected to be recurring in nature as the Company
completed the restructuring of its balance sheet and emerged from
protection under the CCAA proceeding on April 1, 2003. EBITDA is a
measure the Company believes is used by investors to evaluate the
Company's financial performance, although it does not have a
standardized meaning under Canadian Generally Accepted Accounting
Principles ("GAAP") and is not necessarily comparable to similar
measures disclosed by other issuers. Accordingly, EBITDA is not
intended to replace income/(loss) from operations, net income/(loss)
for the period, cash flow, or other measures of financial performance
and liquidity reported in accordance with Canadian GAAP.
(3) Free Cash Flow is a measure commonly used to evaluate operating and
financial results and is defined as net cash generated from operating
activities excluding changes in working capital less additions to
property, plant and equipment. Free Cash Flow is a measure the
Company believes is used by investors to evaluate the Company's
operating and financial performance, although it does not have a
standard meaning under Canadian GAAP, and is not necessarily
comparable to similar measures disclosed by other issuers.
Accordingly, Free Cash Flow is not intended to replace income/(loss)
from operations, Net cash generated by (used in) operating
activities, cash flow, or other measures of financial performance and
liquidity reported in accordance with Canadian GAAP.
Note to Investors
-----------------
This news release includes statements about expected future events and/or
financial results that are forward-looking in nature and subject to risks and
uncertainties. For those statements, we claim the protection of the safe harbor
for forward-looking statements provisions contained in the United States
Private Securities Litigation Reform Act of 1995. The Company cautions that
actual performance will be affected by a number of factors, many of which are
beyond the Company's control, and that future events and results may vary
substantially from what the Company currently foresees. Discussion of the
various factors that may affect future results is contained on page 1 of the
Company's Annual Information Form dated April 8, 2004, which is filed with the
Securities and Exchange Commission, the Ontario Securities Commission, and
SEDAR and is available on the company's website
http://www.allstream.com/pdf/financial/AIF.pdf . The Board of Directors of
Allstream reviewed this news release prior to it being issued.
About Allstream
---------------
Allstream is a leading communication solutions provider with a world- class
portfolio of Connectivity, Infrastructure Management and IT Services. Focused
on the business market, Allstream collaborates with customers to create
tailored solutions that meet their unique needs and help them compete more
effectively. Spanning more than 18,800 kilometres, Allstream has an extensive
broadband fibre-optic network and the greatest reach of any competitive
communication solutions provider in Canada, and provides international
connections through strategic partnerships and interconnection agreements with
other international service providers. Allstream is a public company with its
stock traded on the Toronto Stock Exchange under the symbols ALR.A and ALR.B
and the NASDAQ National Market system under the symbols ALLSA and ALLSB. Visit
Allstream's website, http://www.allstream.com/ for more information about the
company.
Allstream Inc.
Consolidated Statements of Operations and Retained Earnings (Deficit)
(in thousands of Canadian dollars, except per share amounts)
(unaudited)
Three Months Three Months Three Months
Ended Ended Ended
March 31 December 31 March 31
2004 2003 2003
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Restated(1) (Predecessor)
Revenue $ 297,022 $ 301,943 $ 353,325
Expenses:
Service costs 166,709 163,548 216,061
Selling, general and
administration 79,960 85,847 70,970
Workforce reduction costs and
provision for restructuring - - (11,822)
Depreciation, amortization
and accretion 23,757 24,068 41,625
-------------- -------------- --------------
Income from operations 26,596 28,480 36,491
Other income (expense):
Interest income 1,776 2,400 29
Interest expense (1,614) (1,222) (104,566)
Foreign exchange gain on debt - - 324,076
Reorganization expenses - - (26,250)
Loss from equity investment (524) - -
Other income - 430 24
-------------- -------------- --------------
Income before income taxes 26,234 30,088 229,804
Income taxes (10,860) (13,806) -
-------------- -------------- --------------
Net income 15,374 16,282 229,804
Retained earnings (deficit),
beginning of period,
as previously reported (3,823) 48,469 (4,888,505)
Adjustment for change in
accounting policy for asset
retirement obligations(1) (2,433) (1,622) -
-------------- -------------- --------------
Retained earnings (deficit),
beginning of period,
as restated (6,256) 46,847 (4,888,505)
Adjustment for change in
accounting policy for
stock-based compensation(2) (3,128) - -
Dividend declared - (69,385) -
-------------- -------------- --------------
Retained earnings (deficit),
end of period $ 5,990 $ (6,256) $(4,658,701)
-------------- -------------- --------------
-------------- -------------- --------------
Earnings per share:
Basic $ 0.78 $ 0.82 $ 2.14
Diluted $ 0.77 $ 0.81 $ 2.14
Weighted average number
of shares outstanding
(in thousands)
Basic 19,782 19,824 107,216
Diluted 19,921 20,066 107,216
(1) Effective January 1, 2004, the Company adopted retroactively with
restatement, the CICA Handbook Section 3110, Asset Retirement
Obligations. The Section establishes standards for the recognition,
measurement and disclosure of liabilities for statutory, contractual
or legal obligations, associated with the retirement of property,
plant and equipment. Accordingly, the Company's income for the nine
months ended December 31, 2003 has been reduced by $2.43 million, and
the income for the three months ended June 30, September 30 and
December 31, 2003 has been reduced by $0.81 million for each quarter
respectively.
(2) CICA Handbook Section 3870, Stock-based Compensation and Other
Stock-based Payments, permitted the Company to treat employee stock
options as capital transactions (the settlement method) until
January 1, 2004. Effective on this date, the Section required that
all stock-based compensation payments to both employees and
non-employees be accounted for using the fair value method. The
Company applied the new standard retroactively without restatement of
prior periods. Accordingly the opening deficit as at January 1, 2004
was increased to reflect the expensing of the fair value of
$3.1 million for awards granted on or after April 1, 2003.
Allstream Inc.
Supplementary Financial Information
(in thousands of Canadian dollars)
(unaudited)
Three Months Three Months Three Months
Ended Ended Ended
March 31 December 31 March 31
2004 2003 2003
-------------- -------------- --------------
Restated(1) (Predecessor)
Income from operations $ 26,596 $ 28,480 $ 36,491
Add:
Depreciation, amortization
and accretion 23,757 24,068 41,625
Workforce reduction costs and
provision for restructuring - - (11,822)
-------------- -------------- --------------
EBITDA(2) $ 50,353 $ 52,548 $ 66,294
-------------- -------------- --------------
-------------- -------------- --------------
Net Cash provided by
operating activities $ 27,319 $ 57,845 $ 21,346
Add/(Subtract):
Excluding Changes in
non-cash working capital 29,584 661 (32,139)
Addition to property,
plant and equipment (31,301) (21,384) (33,227)
-------------- -------------- --------------
Free cash flow(3) $ 25,602 $ 37,122 $ (44,020)
-------------- -------------- --------------
-------------- -------------- --------------
(1) Effective January 1, 2004, the Company adopted retroactively with
restatement, the CICA Handbook Section 3110, Asset Retirement
Obligations. The Section establishes standards for the recognition,
measurement and disclosure of liabilities for statutory, contractual
or legal obligations, associated with the retirement of property,
plant and equipment. Accordingly, the Company's income for the nine
months ended December 31, 2003 has been reduced by $2.43 million, and
the income for the three months ended June 30, September 30 and
December 31, 2003 has been reduced by $0.81 million for each quarter
respectively.
(2) EBITDA is a measure commonly used in the telecommunications industry
to evaluate operating results and is generally defined as earnings
before interest, income taxes, depreciation, amortization and
accretion. The Company has also excluded the workforce reduction
costs and provision for restructuring as these items are not expected
to be recurring in nature as the Company completed the restructuring
of its balance sheet and emerged from protection under the CCAA
proceeding on April 1, 2003. EBITDA is a measure the Company believes
is used by investors and management to evaluate the Company's
financial performance, although it does not have a standardized
meaning under Canadian Generally Accepted Accounting Principles
("GAAP") and is not necessarily comparable to similar measures
disclosed by other issuers. Accordingly, EBITDA is not intended to
replace income/(loss) from operations, net income/(loss) for the
period, cash flow, or other measures of financial performance and
liquidity reported in accordance with Canadian GAAP.
(3) Free Cash Flow is a measure commonly used to evaluate operating and
financial results and is defined as net cash generated from operating
activities excluding changes in working capital less additions to
property, plant and equipment. Free Cash Flow is a measure the
Company believes is used by investors to evaluate the Company's
operating and financial performance, although it does not have a
standard meaning under Canadian GAAP, and is not necessarily
comparable to similar measures disclosed by other issuers.
Accordingly, Free Cash Flow is not intended to replace income/(loss)
from operations, Net cash generated by (used in) operating
activities, cash flow, or other measures of financial performance and
liquidity reported in accordance with Canadian GAAP.
Allstream Inc.
Consolidated Balance Sheets
(in thousands of Canadian dollars)
(unaudited)
March 31 December 31
2004 2003
-------------- --------------
Restated(1)
Assets
Current assets:
Cash and cash equivalents $ 269,852 $ 345,734
Accounts receivable 119,266 120,598
Other current assets 30,186 28,401
-------------- --------------
419,304 494,733
Property, plant and equipment 547,986 550,665
Long-term investments 5,185 5,709
Other assets, net 20,645 20,546
-------------- --------------
$ 993,120 $ 1,071,653
-------------- --------------
-------------- --------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 26,047 $ 39,623
Accrued liabilities 150,580 163,845
Dividends payable - 69,385
Current portion of capital
lease obligations 5,343 5,222
-------------- --------------
181,970 278,075
Long-term portion of capital
lease obligations 15,618 15,618
Other long-term liabilities 59,599 60,735
Accrued pension liability 87,383 95,766
Shareholders' equity (deficiency):
Share capital:
Class A Voting Shares and Class B
Limited Voting Shares 581,031 581,000
Contributed surplus 61,529 46,715
Retained earnings (deficit) 5,990 (6,256)
-------------- --------------
648,550 621,459
-------------- --------------
$ 993,120 $ 1,071,653
-------------- --------------
-------------- --------------
(1) Effective January 1, 2004, the Company adopted retroactively with
restatement, the CICA Handbook Section 3110, Asset Retirement
Obligations. The Section establishes standards for the recognition,
measurement and disclosure of liabilities for statutory, contractual
or legal obligations, associated with the retirement of property,
plant and equipment. Accordingly, the Company's consolidated balance
sheet at December 31, 2003 has been restated. Property, plant and
equipment, other long-term liabilities, and the deficit has increased
by $7.31 million, $9.74 million, and $2.43 million respectively.
Allstream Inc.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)
Three Months Three Months Three Months
Ended Ended Ended
March 31 December 31 March 31
2004 2003 2003
-------------- -------------- --------------
Restated(1) (Predecessor)
Cash provided by (used in):
Operating activities:
Net income $ 15,374 $ 16,282 $ 229,804
Adjustments required to
reconcile net income to
cash flows from operating
activities:
Depreciation, amortization
and accretion 23,757 24,068 41,625
Accretion of interest and
amortization of fair
value decrements 903 88 34,220
Amortization of debt
issuance costs - - 1,893
Amortization of deferred
gain on termination of
cross currency swaps and
forward contracts - - (7,459)
Stock-based compensation
expense 3,772 2,413 -
Benefit of tax loss
carryforwards 10,039 13,301 -
Gain on sale of investments - (430) -
Unrealized foreign exchange
loss (gain) 189 (1) (318,530)
Pension expense 2,345 2,785 7,752
Loss from equity investment 524 - -
Other - - (98)
-------------- -------------- --------------
56,903 58,506 (10,793)
Changes in non-cash
working capital (29,584) (661) 32,139
-------------- -------------- --------------
Net cash provided by
operating activities 27,319 57,845 21,346
Investing activities:
Additions to property,
plant and equipment (31,301) (21,384) (33,227)
Proceeds from dispositions
of investments - 683 -
Proceeds from sale of assets - 1,300 -
Long-term equity investment (2,000) (100) -
(Additions) Dispositions
to other assets (100) 199 (16)
-------------- -------------- --------------
Net cash used in investing
activities (33,401) (19,302) (33,243)
Financing activities:
Proceeds from stock
options exercised 26 - -
Share repurchase cost - - (150)
Payment of dividend (69,385) - -
Payment of capital
leases obligations (252) (573) -
-------------- -------------- --------------
Net cash used in
financing activities (69,611) (573) (150)
Effect of exchange rate
changes on cash (189) 101 (243)
-------------- -------------- --------------
Increase (decrease) in cash
and cash equivalents (75,882) 38,071 (12,290)
Cash and cash equivalents,
beginning of period 345,734 307,663 420,542
-------------- -------------- --------------
Cash and cash equivalents,
end of period $ 269,852 $ 345,734 $ 408,252
-------------- -------------- --------------
-------------- -------------- --------------
Supplemental Information:
Income taxes paid $ 822 $ 555 $ 750
Interest paid $ 493 $ 1,143 $ -
(1) Effective January 1, 2004, the Company adopted retroactively with
restatement, the CICA Handbook Section 3110, Asset Retirement
Obligations. The Section establishes standards for the recognition,
measurement and disclosure of liabilities for statutory, contractual
or legal obligations, associated with the retirement of property,
plant and equipment. Accordingly, the Company's income for the nine
months ended December 31, 2003 has been reduced by $2.43 million, and
the income for the three months ended June 30, September 30 and
December 31, 2003 has been reduced by $0.81 million for each quarter
respectively.
Allstream Inc.
Quarterly Revenues and Selected Operational Data
(in thousands of Canadian dollars)
(unaudited)
Excluding
As Reported As Reported As Reported Contour/Argos
March 31 December 31 March 31 March 31
Revenue 2004 2003 2003 2003
------- ------------------------------------------------------
(Predecessor) (Predecessor)
Data $ 95,578 $ 100,600 $ 112,256 $ 109,077
Internet 30,088 30,542 29,739 29,739
IT Services 13,115 11,281 16,440 16,440
Local 50,810 52,249 56,912 54,364
Other 2,021 2,526 4,111 1,773
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$ 191,612 $ 197,198 $ 219,458 $ 211,393
Long Distance 105,410 104,745 133,867 130,232
Total $ 297,022 $ 301,943 $ 353,325 $ 341,625
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Capital
Expenditures $ 31,301 $ 21,384 $ 33,227 $ 33,209
Access lines
in service 477,039 486,192 530,692 515,066
Full-time employees 3,488 3,621 3,964 3,859
Long distance
minutes of use
(Qtr) 1,849,845 1,770,550 2,014,825 1,979,178
DATASOURCE: Allstream Inc.
CONTACT: Media: May Chong, (416) 345-2342, ;
Investors and Analysts: Brock Robertson, (416) 345-3125,
; Dan Coombes, (416) 345-2326,