VALOR Communications Group, Inc. Reports Second Quarter 2005
Operating Results Cash Available to Pay Dividends Increases to
$37.5 Million; 8,936 DSL Subscribers Added in Q2 2005 IRVING,
Texas, July 27 /PRNewswire-FirstCall/ -- VALOR Communications
Group, Inc. (NYSE:VCG) today reported second quarter 2005
consolidated operating results. VALOR will host a conference call
today at 10 a.m. (EDT) to discuss these results and our business.
Highlights for the second quarter of 2005 include: * Cash available
to pay dividends (CAPD) of $37.5 million fueled by solid operating
results; * DSL subscribers of 40,144, an increase of 234% over the
prior year; * Long distance subscribers of 227,347, an increase of
12% over the prior year; * Average monthly revenue per access line
of $78.75, an increase of 3.5% over the prior year; * Increase in
total connections, defined as total access lines plus DSL
subscribers, of 0.9% over the prior year to 570,398 connections.
"VALOR continued to add DSL subscribers at a record pace during the
quarter, and we are well on our way to exceeding our internal
target. Based on the success of our DSL deployment, we are
accelerating our DSL rollout to reach 70% availability by the end
of 2005," said Jack Mueller, VALOR Communications Group president
and chief executive officer. "We also increased average revenue per
line in the quarter by 3.5% to $78.75 compared to a year ago and by
1.1% sequentially and increased our total connections by
approximately 1% compared to a year ago. "In addition, we
substantially increased our cash available to pay dividends
compared to the first quarter of 2005 on a pro forma basis,"
continued Mueller. "We paid our first full quarterly dividend of
$0.36 per share on July 15, which represents an annual rate of
$1.44 per share." Financial Results Second Quarter 2005 Financial
Highlights (Dollars in thousands except operating margin %) Three
Months Ended 06/30/05 06/30/04 % Change Operating revenues $126,068
$126,796 -0.6% Non-cash stock based compensation $1,956 $--- n/a
Operating income $44,881 $44,948 -0.1% Operating margin % 35.6%
35.4% Interest expense $18,864 $27,365 -31.1% Net income $18,242
$3,291 454.3% Adjusted EBITDA (1) $69,609 $71,342 -2.4% Cash
available to pay dividends (1) $37,533 n/a n/a (1) Adjusted EBITDA
and cash available to pay dividends are non-GAAP financial measures
and by definition are not measures of financial performance under
generally accepted accounting principles (GAAP). They should not be
considered an alternative to operating income or net income
reflected in the statement of operations or to cash flow as
reflected in the statement of cash flows and are not necessarily
indicative of cash available to fund all cash flow needs. Please
see the supplemental schedules for a reconciliation to the nearest
financial measure calculated in accordance with GAAP. Operating
revenue was $126.1 million, a decrease of 0.6% compared to the
prior year. Increases in revenue from data services and long
distance of 28.7% and 8.0%, respectively, were offset by reductions
in revenue from local services, access services and the universal
service fund of 1.4%, 7.8% and 2.1%, respectively, due to access
line losses and lower access rates. Sequentially, operating revenue
increased approximately $0.1 million, or 0.1%. Operating income for
the second quarter of 2005 was $44.9 million, a decrease of 0.1%
compared to the prior year. Excluding $2 million of non-cash stock
compensation expense recorded in the current quarter and a $5
million non-recurring expense booked in the second quarter of 2004,
operating income was $46.9 million and $49.9 million in the second
quarter of 2005 and 2004, respectively, and operating margins were
37.2% and 39.4%, respectively. VALOR reported net income of $18.2
million for the second quarter of 2005, compared to net income of
$3.3 million for the second quarter of 2004. Second quarter 2005
net income includes significantly reduced interest expense as a
result of VALOR's post-IPO capital structure, which affects
comparability to the prior year period. Comparability between 2005
and 2004 is also impacted by income taxes, minority interest, $23
million in one-time items in 2004 and $2.0 million in non-cash
stock compensation in 2005. As a result of our initial public
offering and reorganization, the operations of the company and all
wholly owned subsidiaries became reportable in a consolidated
corporate federal tax return, whereas, in 2004 only VALOR
Telecommunications Southwest II, LLC had elected to be taxed as a
corporation for federal income tax purposes. Additionally, in
connection with our initial public offering and reorganization, we
redeemed all outstanding minority interests. Indebtedness In April,
we repaid $10 million of debt under our credit facility, which
reduced our total long-term debt to $1.19 billion. We intend to
make an optional prepayment of $10 million on Friday, July 29,
2005, which, excluding debt repayments as a result of proceeds from
our recent offerings, will bring our year-to-date debt repayments
to $30 million. Cash Available to Pay Dividends (CAPD) (Dollars in
millions) Three Months Ended 03/31/05 Six Months Three Ended Months
06/30/05 Ended Adjust- Pro Pro 06/30/05 Actual ments Forma Forma
Adjusted EBITDA (1) $69.6 $68.4 $--- $68.4 $138.0 Adjustments:
Items excluded from Adj. EBITDA settled in cash: Other income and
(expense), net 0.5 0.1 --- 0.1 0.6 Transaction bonus (0.3) (1.7)
--- (1.7) (2.0) Transaction fees expensed (2) --- (0.5) 0.5 (2) ---
--- Cash interest (18.2) (26.5) 6.5 (3) (20.0) (38.2) Capital
expenditures (12.5) (17.4) --- (17.4) (29.9) Cash pension
contributions in excess of expense (1.6) --- --- --- (1.6) Cash
taxes --- --- (0.1)(4) (0.1) (0.1) Cash Available to Pay Dividends
(1) $37.5 $22.4 $6.9 $29.3 $66.8 (1) Adjusted EBITDA and Cash
Available to Pay Dividends are non-GAAP financial measures and by
definition are not measures of financial performance under
generally accepted accounting principles (GAAP). They should not be
considered an alternative to operating income or net income
reflected in the statement of operations or to cash flow as
reflected in the statement of cash flows and are not necessarily
indicative of cash available to fund all cash flow needs. Please
see the supplemental schedules for a reconciliation to the nearest
financial measure calculated in accordance with GAAP. (2) Legal
expenses charged to expense in connection with the modification of
our credit facility that we completed in conjunction with our IPO
and reorganization. (3) Cash interest expense in the quarter ended
March 31, 2005 is approximately $6.5 million higher than it would
have been had the IPO and the related debt reduction occurred at
the beginning of the quarter. (4) Reflects estimated cash taxes we
expect to pay on our taxable income. Q2 2005 Operating Statistics
Three months ended 6/30/05 3/31/05 6/30/04 Access lines (A) 530,254
537,002 553,316 Long distance subscribers 227,347 222,874 203,071
DSL subscribers (B) 40,144 31,208 12,028 Total connections (A+B)
570,398 568,210 565,344 Average monthly revenue per access line
(ARPU) (1) $78.75 $77.92 $76.11 Sequential Change % Access lines
(A) (6,748) -1.3% Long distance subscribers 4,473 2.0% DSL
subscribers (B) 8,936 28.6% Total connections (A+B) 2,188 0.4%
Average monthly revenue per access line (ARPU) (1) $0.83 1.1% Year
over Year Change % Access lines (A) (23,062) -4.2% Long distance
subscribers 24,276 12.0% DSL subscribers (B) 28,116 233.8% Total
connections (A+B) 5,054 0.9% Average monthly revenue per access
line (ARPU) (1) $2.64 3.5% (1) Average revenue per access line is
computed by dividing the total revenue for the period by the
average of the access lines at the beginning and end of the period.
Total access lines decreased by 6,748 lines, or 1.3%, sequentially,
and 4.2% compared to the second quarter of 2004. Total Connections
increased 0.4% sequentially and 0.9% compared to the prior year.
Average revenue per access line increased 3.5% compared to the
prior year. On a year-to-date basis, approximately 80% of VALOR's
access line loss occurred in markets with active cable-telephony
competition. Those markets represented approximately 11% of VALOR's
total access lines at June 30, 2005. "Our access line retention and
growth initiatives underway and the new initiatives we launched
during the quarter helped increase our average revenue per line,"
said Mueller. "Although we expect these initiatives to continue to
help mitigate line losses, we now expect our 2005 access line
losses to exceed last year's 2.9% loss rate. We continue to focus
on leveraging opportunities for bundling, long distance, satellite
and DSL to continue increasing our average revenue per access line,
penetration and total connections." Other Highlights In July 2005,
VALOR announced the commencement of an exchange offer for up to
$400 million of our unregistered 7-3/4% senior notes due 2015 for
notes that have been registered with the Securities and Exchange
Commission. Due to the timing of our second quarter earnings
announcement in relation to the original date of the lock-up
expiration, and according to the terms of the lock-up agreement,
the lock-up expiration has been extended to Sunday, Aug. 14, 2005.
At the VALOR Annual Meeting on May 24, shareholders elected 11
board members for a one-year term, including two board members who
were appointed to the board of directors in April: Norman W.
Alpert, managing director and a founder of Vestar Capital Partners
in New York, one of VALOR's original equity sponsors; Edward J.
Heffernan, executive vice president and chief financial officer of
Alliance Data Systems Corporation in Dallas, Texas. Alpert is a
member of the Compensation Committee, and Heffernan is a member of
the Audit Committee. In early May, the membership of Locals 6171
and 7019 of the Communications Workers of America ratified a new
three-year collective bargaining agreement between VALOR Telecom
and Communications Workers of America. The agreement affects
approximately 800 bargaining unit employees in VALOR's New Mexico,
Oklahoma and Texas Operations and Call Centers. The new contract
continues through Feb. 28, 2008. We have engaged Bank of America
Securities to explore the possibility of amending the terms of our
credit facility to take advantage of more favorable market
conditions. 2005 Outlook For the full year 2005, VALOR expects cash
available to pay dividends, as defined herein, of $128 million to
$133 million on a pro forma basis. As previously disclosed, we
expect full year 2005 capital expenditures of approximately $59
million. Conference Call Information As previously announced, we
will host a conference call and simultaneous Webcast to discuss
second quarter results at 10 a.m. (EDT) on July 27, 2005. During
the conference call, we may discuss and answer one or more
questions concerning our business and financial matters as well as
trends that affect us. Our responses to these questions, as well as
other matters discussed during the conference call, may contain
information that has not been previously disclosed. Simultaneously
with the conference call, an audio Webcast of the call will be
available via a link on our website, http://www.valortelecom.com/ ,
"Investor Relations," or at http://www.earnings.com/ . To access
the call, dial 1-800-299-7635, or outside the United States, dial
1-617-786-2901. The conference call pass code is 57606801. A replay
of the call will be available beginning at approximately 2 p.m.
(EDT), July 27, 2005, through Aug. 3, 2005, at the above Web sites
or by calling 1-888-286-8010 or, outside the United States,
1-617-801-6888. The pass code for the replay is 87714832. Non-GAAP
Measures VALOR uses certain non-GAAP financial measures in
evaluating our performance and liquidity. These include adjusted
earnings before interest, taxes, depreciation and amortization
(Adjusted EBITDA) and "Cash Available to Pay Dividends." These
non-GAAP financial measures are by definition not measures of
financial performance under generally accepted accounting
principles and are not alternatives to operating income or net
income reflected in the statement of operations or to cash flow as
reflected in the statement of cash flows and are not necessarily
indicative of cash available to fund all cash flow needs. VALOR
presents Adjusted EBITDA because covenants in our credit facility
contain ratios based on this measure. A reconciliation of the
differences between these non-GAAP financial measures to the most
comparable financial measures calculated and presented in
accordance with GAAP are included in the schedules that follow.
Adjusted EBITDA is defined in the credit facility as: (1)
consolidated adjusted net income, as defined therein; plus (2) the
following items, to the extent deducted from consolidated adjusted
net income: (a) interest expense; (b) provision for income taxes;
(c) depreciation and amortization; (d) certain expenses related to
our initial public offering of common stock, our recent debt
recapitalization and the other transactions described in "Use of
Proceeds" in our registration statement for our initial public
offering of common stock completed February 9, 2005; (e) other
nonrecurring or unusual costs or losses incurred after the closing
date of our new credit facility, to the extent not exceeding $10.0
million; (f) unrealized losses on financial derivatives recognized
in accordance with SFAS No. 133; (g) losses on sales of assets
other than in the ordinary course of business; and (h) all other
non- cash charges that represent an accrual for which no cash is
expected to be paid in a future period; minus (3) the following
items, to the extent any of them increases consolidated adjusted
net income; (v) income tax credits; (w) interest and dividend
income (other than in respect of Rural Telephone Finance
Cooperative patronage distribution); (x) gains on asset disposals
not in the ordinary course; (y) unrealized gains on financial
derivatives recognized in accordance with SFAS No. 133; and (z) all
other non-cash income. Cash Available to Pay Dividends is defined
herein as Adjusted EBITDA less the sum of (i) any item excluded
from the calculation of Adjusted EBITDA that has been or will be
settled in cash, (ii) cash interest expense, (iii) capital
expenditures and (iv) cash income taxes. VALOR considers Adjusted
EBITDA and Cash Available to Pay Dividends as important indicators
to investors in our common stock because they provide information
related to our ability to provide cash flows to service debt, fund
capital expenditures and pay dividends. If our Adjusted EBITDA were
to decline below certain levels, covenants in our credit facility
that are based on Adjusted EBITDA, including our interest coverage
ratio and total leverage ratio covenants, may be violated and could
cause, among other things, a default or mandatory prepayment under
our credit facility, or result in our inability to pay dividends.
Adjusted EBITDA and Cash Available to Pay Dividends are not
measures in accordance with GAAP, and should not be considered a
substitute for operating income (loss), net income (loss) or any
other measure of financial performance reported in accordance with
GAAP. In addition, Adjusted EBITDA and Cash Available to Pay
Dividends should not be used as a substitute for our various cash
flow measures (e.g., operating, investing and financing cash
flows). The non-GAAP financial measures used by VALOR may not be
comparable to similarly titled measures of other companies. While
VALOR utilizes these non-GAAP financial measures in managing and
analyzing our business and financial condition and believes they
are useful to management and to investors for the reasons described
above, these non-GAAP financial measures have certain shortcomings.
In particular, Adjusted EBITDA does not represent the residual cash
flow available for discretionary expenditures, since items such as
debt repayments and interest payments are not deducted from such
measure. 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 documents filed periodically with the U.S.
Securities and Exchange Commission. This press release includes
management's estimate of pro forma cash available to pay dividends,
a non-GAAP financial measure, for the year ending December 31,
2005. We believe the most directly comparable GAAP measure would be
"Net cash provided by operating activities." Due to the difficulty
in forecasting and quantifying the amounts that would be required
to be included in this comparable GAAP measure, VALOR is not
providing an estimate of net cash provided by operating activities
for the year ending December 31, 2005 at this time. About VALOR
Communications Group VALOR Communications Group is one of the
largest providers of telecommunications services in rural
communities in the southwestern United States. The company, through
its subsidiary VALOR Telecom, offers to residential, business and
government customers a wide range of telecommunications services,
including: local exchange telephone services, which covers basic
dial-tone service as well as enhanced services, such as caller
identification, voicemail and call waiting; long distance services;
and data services, such as providing digital subscriber lines.
VALOR Communications Group is headquartered in Irving, Texas. For
more information, visit http://www.valortelecom.com/ . Information
contained on our website does not comprise a part of this press
release. VALOR Communications Group ("VALOR") is a holding company
and has no direct operations. VALOR was formed for the sole purpose
of reorganizing our corporate structure and consummation of our
offering in February 2005. VALOR's principal assets are the direct
and indirect equity interests in its subsidiaries. As a result, the
historical consolidated financial results prior to the offering in
February 2005 only reflect the operations of VALOR
Telecommunications, LLC. Safe Harbor Statement Certain matters
discussed in this press release may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act
of 1933, Section 21E of the Securities Exchange Act of 1934 and the
Private Securities Litigation Reform Act of 1995. Words such as
"believes," "anticipates," "expects," "intends," "estimates,"
"projects," "outlook" and other similar expressions, which are
predictions of or indicate future events and trends, typically
identify forward-looking statements. Statements in this press
release regarding VALOR Communications Group's business that are
not historical facts, including our intention to pay quarterly
dividends and our 2005 outlook, are forward-looking statements.
Forward-looking statements involve risks and uncertainties that
could cause actual results or the timing of events to differ
materially from those described in the forward-looking statements.
We cannot assure you that the expectations discussed in these
forward-looking statements will be attained. Some of the factors
that could cause actual results or the timing of certain events to
differ from those described in these forward-looking statements
include, without limitation: our leverage and debt service
obligations; the terms of our credit facility and our rights and
obligations there under; any adverse changes in government
regulation; the risk that we may not be able to retain existing
customers or obtain new customers; the risk of increased
competition in the markets we serve; our financial position,
results of operations and availability of capital; and other risks
detailed from time to time in our filings with the Securities and
Exchange Commission, including, without limitation, the risks
described in our Prospectus dated July 1, 2005, relating to our
senior notes exchange offer and in our Annual Report on Form 10-K
filed on March 31, 2005 with the Securities and Exchange
Commission. We disclaim any obligation to publicly update or revise
any forward-looking statement, whether as a result of new
information, the occurrence of future events or otherwise, except
as required by law. Supplemental Schedules Schedule Consolidated
Statements of Operations A Condensed Consolidated Balance Sheets B
Condensed Consolidated Statements of Cash Flows C Selected
Financial and Operating Data D Non-GAAP Measures - Adjusted EBITDA
Calculation E Non-GAAP Measures - Cash Available to pay Dividends
Reconciliation F Historical Operating Statistics G Schedule A VALOR
Communications Group, Inc. Consolidated Statements of Operations
(Dollars, except per share amounts, in thousands) (Unaudited) Three
months ended Six months ended June 30, June 30, 2005 2004 % Change
2005 2004 % Change Operating revenues Local service $38,134 $38,678
-1.4% $76,784 $77,522 -1.0% Data services 7,929 6,163 28.7% 15,398
12,100 27.3% Long distance services 10,148 9,393 8.0% 20,516 18,155
13.0% Access services 30,098 32,629 -7.8% 60,390 65,676 -8.0%
Universal Service Fund 29,596 30,238 -2.1% 58,621 60,315 -2.8%
Other services 10,163 9,695 4.8% 20,285 18,880 7.4% Total operating
revenues 126,068 126,796 -0.6% 251,994 252,648 -0.3% Operating
expenses Cost of service (exclusive of depreciation and
amortization shown separately below) 25,987 25,451 2.1% 52,071
52,030 0.1% Selling, general and administrative 30,755 35,253
-12.8% 64,342 68,183 -5.6% Non-cash stock based compensation 1,956
--- n/a 8,343 --- n/a Depreciation and amortization 22,489 21,144
6.4% 44,724 41,971 6.6% Total operating expenses 81,187 81,848
-0.8% 169,480 162,184 4.5% Operating income 44,881 44,948 -0.1%
82,514 90,464 -8.8% Operating margin 35.6% 35.4% 32.7% 35.8% Other
income (expense) Interest expense (18,864) (27,365) -31.1% (44,912)
(55,095) -18.5% Gain (loss) on interest rate hedging arrangements
(516) 305 -269.2% (556) (37) 1402.7% Earnings from unconsolidated
cellular partnerships 32 343 -90.7% 61 668 -90.9% Loss on debt
extinguishment --- --- n/a (29,262) --- n/a Other income and
(expense), net 518 (18,287) -102.8% 601 (18,357) -103.3% Total
other income (expense) (18,830) (45,004) -58.2% (74,068) (72,821)
1.7% Income (loss) from continuing operations before income taxes
and minority interest 26,051 (56) n/m 8,446 17,643 -52.1% Income
tax expense (benefit) 7,809 (4,633) -268.6% 2,372 (4,066) -158.3%
Income from continuing operations before minority interest 18,242
4,577 298.6% 6,074 21,709 -72.0% Minority interest --- 1,286
-100.0% 468 2,804 -83.3% Net income $18,242 $3,291 454.3% $5,606
$18,905 -70.3% Earnings (loss) per share: Basic $0.26 n/m $(0.01)*
n/m Diluted $0.26 n/m $(0.01)* n/m Weighted average common shares
outstanding: Basic 69,367,027 n/m 69,367,020* n/m Diluted
69,402,496 n/m 69,367,020* n/m * Represents earnings per share and
weighted average shares outstanding for the period from the initial
public offering date of February 9, 2005 through June 30, 2005. n/m
= not meaningful Schedule B VALOR Communications Group, Inc.
Condensed Consolidated Balance Sheets (Dollars in thousands)
(Unaudited) June 30, 2005 December 31, 2004 ASSETS Cash & cash
equivalents $60,129 $17,034 Accounts receivable, net 58,513 62,757
Prepayments and other current assets 9,019 10,221 TOTAL CURRENT
ASSETS 127,661 90,012 NET PROPERTY, PLANT AND EQUIPMENT 735,146
749,984 INVESTMENTS AND OTHER ASSETS 1,111,672 1,131,171 TOTAL
ASSETS $1,974,479 $1,971,167 LIABILITIES AND EQUITY Total current
liabilities $93,940 $74,916 Long-term debt, net of current
maturities 1,190,556 1,599,177 Other long-term liabilities 125,252
290,603 TOTAL LIABILITIES 1,409,748 1,964,696 TOTAL STOCKHOLDERS'
EQUITY 564,731 6,471 TOTAL LIABILITIES AND EQUITY $1,974,479
$1,971,167 Schedule C VALOR Communications Group, Inc. Condensed
Consolidated Statements of Cash Flows (Dollars in thousands)
(Unaudited) Three months ended Six months ended June 30, June 30,
2005 2004 2005 2004 Cash flow from operating activities: Net income
$18,242 $3,291 $5,606 $18,905 Adjustments to reconcile net income
to net cash provided by operating activities: Depreciation and
amortization 22,489 21,144 44,724 41,971 Loss on debt
extinguishment --- --- 29,262 --- Expense incurred related to cash
payment to minority shareholders in connection with reorganization
--- 17,988 --- 17,988 Non-cash stock compensation expense 1,956 ---
8,343 --- Changes in working capital 4,358 (9,405) 534 (898) Other,
net 11,143 (2,463) 10,208 2,698 Net cash provided by operating
activities 58,188 30,555 98,677 80,664 Cash flow from investing
activities: Payments for property, plant and equipment (12,510)
(19,109) (29,889) (35,763) Redemption of RTFC capital certificate
--- --- 24,445 --- Other, net (209) (395) 89 (464) Net cash used in
investing activities (12,719) (19,504) (5,355) (36,227) Cash flow
from financing activities: Payments of long-term debt, net of
proceeds from issuance of debt (10,049) 5,968 (410,214) (27,809)
Proceeds from issuance of common stock, net of offering costs
(1,339) --- 411,407 --- Prepayment fees paid in connection with IPO
--- --- (19,393) --- Payments of debt issuance costs (588) (124)
(16,794) (124) Cash dividends paid (12,486) --- (12,486) --- Cash
payment to minority interest holders in connection with
reorganization --- (18,646) --- (18,646) Other, net --- (1,223)
(2,747) 1,513 Net cash used in financing activities (24,462)
(14,025) (50,227) (45,066) Net increase (decrease) in cash and cash
equivalents from continuing operations 21,007 (2,974) 43,095 (629)
Net operating cash used in discontinued operations --- (7) --- (16)
Net increase (decrease) in cash and cash equivalents 21,007 (2,981)
43,095 (645) Cash and cash equivalents at beginning of period
39,122 3,750 17,034 1,414 Cash and cash equivalents at end of
period $60,129 $769 $60,129 $769 Schedule D VALOR Communications
Group, Inc. Selected Financial and Operating Data (Dollars, except
revenue per access line amounts, in thousands) (Unaudited) Three
months ended Six months ended June 30, % June 30, % 2005 2004
Change 2005 2004 Change Adjusted EBITDA (1) $69,609 $71,342 -2.4%
$138,057 $138,214 -0.1% Cash available to pay dividends (1) (2)
$37,533 $--- n/a $60,041 $--- n/a Other financial and operating
data Capital expenditures $12,510 $19,109 -34.5% $29,889 $35,763
-16.4% Access lines: Primary lines 480,717 501,655 -4.2% 480,717
501,655 -4.2% Secondary lines 49,537 51,661 -4.1% 49,537 51,661
-4.1% Total access lines 530,254 553,316 -4.2% 530,254 553,316
-4.2% Long distance subscribers 227,347 203,071 12.0% 227,347
203,071 12.0% DSL subscribers 40,144 12,028 233.8% 40,144 12,028
233.8% Average revenue per access line per month $78.75 $76.11 3.5%
$78.46 $75.87 3.4% (1) Reconciliations of Adjusted EBITDA and Cash
available to pay dividends to the most comparable GAAP measure are
presented at the end of these tables. (2) For the periods prior to
our initial public offering and reorganization that occurred on
February 9, 2005, we had higher outstanding debt and did not pay
dividends on our equity. Therefore, we do not believe calculation
and presentation of "Cash Available to Pay Dividends" to be
comparable or useful for these historical periods. Schedule E VALOR
Communications Group, Inc. Non-GAAP Measures - Adjusted EBITDA
Calculation (Dollars in thousands) (Unaudited) Three months ended
Six months ended June 30, June 30, 2005 2004 2005 2004 Net income
$18,242 $3,291 $5,606 $18,905 Adjustments: Income tax expense
(benefit) 7,809 (4,633) 2,372 (4,066) Interest expense 18,864
27,365 44,912 55,095 Depreciation and amortization 22,489 21,144
44,724 41,971 Minority interest --- 1,286 468 2,804 Gain (loss) on
interest rate hedging arrangements 516 (305) 556 37 Earnings from
unconsolidated cellular partnerships (32) (343) (61) (668) Other
income and (expense), net (518) 18,287 (601) 18,357 Loss on debt
extinguishment --- --- 29,262 --- Management fees paid to equity
sponsors --- 250 --- 500 Non-cash stock based compensation 1,956
--- 8,343 --- Excluded items (a) 283 5,000 2,476 5,279 Total
adjustments 51,367 68,051 132,451 119,309 Adjusted EBITDA $69,609
$71,342 $138,057 $138,214 (a) Excluded items, as defined in the
credit agreement: Termination benefits associated with workforce
reduction $--- $--- $--- $279 CEO transition payment --- 5,000 ---
5,000 IPO cash bonuses 283 --- 1,976 --- Expenses related to credit
facility amendment --- --- 500 --- Total excluded items, as defined
in the credit agreement $283 $5,000 $2,476 $5,279 Schedule F VALOR
Communications Group, Inc. Non-GAAP Measures - Cash Available to
Pay Dividends Reconciliation (Dollars in thousands) (Unaudited)
Three months Three months Six months ended ended ended March 31,
June 30, June 30, 2005 2005 2005 Net cash provided by operating
activities $40,489 $58,188 $98,677 Adjustments: Interest expense
26,048 18,864 44,912 Amortization of debt issuance costs (910)
(942) (1,852) Provision for doubtful accounts receivable (1,093)
(1,358) (2,451) Changes in working capital 3,824 (4,358) (534)
Other, net (2,020) (588) (2,608) Income tax expense (benefit)
(5,437) 7,809 2,372 Deferred income taxes 5,437 (7,771) (2,334)
Other income and (expense), net (83) (518) (601) Excluded items (a)
2,193 283 2,476 Total adjustments 27,959 11,421 39,380 Adjusted
EBITDA 68,448 69,609 138,057 Cash income (expenses) excluded from
Adjusted EBITDA (b) (2,110) 235 (1,875) Cash interest expense
(26,451) (18,201) (44,652) Cash pension contributions in excess of
estimate expense --- (1,600) (1,600) Capital expenditures (17,379)
(12,510) (29,889) Cash available to pay dividends $22,508 $37,533
$60,041 (a) Excluded items, as defined in the credit agreement: IPO
cash bonuses $1,693 $283 $1,976 Expenses related to credit facility
amendment 500 --- 500 Total excluded items, as defined in the
credit agreement $2,193 $283 $2,476 (b) Represents cash income
(expenses) reflected above under Other income and expense, net, and
Excluded items that were excluded from the calculation of Adjusted
EBITDA. These items were received or (paid) by us in cash and would
have impacted the amount of cash that would have been available to
pay dividends. Schedule G Historical Operating Statistics 6/30/05
3/31/05 12/31/04 9/30/04 6/30/04 Access lines (A) 530,254 537,002
540,337 547,925 553,316 Long distance subscribers 227,347 222,874
216,437 214,048 203,071 DSL subscribers (B) 40,144 31,208 22,884
16,521 12,028 Total connections (A+B) 570,398 568,210 563,221
564,446 565,344 Average monthly revenue per access line (ARPU) (1)
(2) $78.75 $77.92 $78.43 $76.66 $76.11 (1) ARPU is computed by
dividing the total revenue for the quarter by the average of the
access lines at the beginning and end of the quarter. (2) ARPU for
quarter ending 12/31/04 includes out-of-period revenue recorded in
the fourth quarter 2004 from the favorable resolution of a
regulatory proceeding Valor had pending before the Texas Public
Utility Commission related to expanded local calling. Excluding ELC
recovery revenue, ARPU is $76.31 DATASOURCE: VALOR Communications
Group, Inc. CONTACT: investor relations, Keith Terreri or Sheryl
Seyer, +1-972-373-1296, or fax, +1-972-373-1150, or , or media,
Cynthia T. Cruz, +1-972-373-1134, or fax, +1-469-420-2540, or , all
of VALOR Communications Group, Inc. Web site:
http://www.earnings.com/ Web site: http://www.valortelecom.com/
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