More Related Content
Similar to PAETEC in Review
Similar to PAETEC in Review (20)
PAETEC in Review
- 3. 4PAETECINREVIEW5
rangeofcapabilities.Inotherwords,we’ve
workedhardtocreateauniqueportfoliothat
allowsustobeyourtrustedpartnerandexpert
advisor.You’llfindmoredetailonourapproach
topartnershipthroughoutthispublication,but
I’dliketobrieflyhighlightwhatIseeasthree
ofPAETEC’smostsignificantdifferentiating
characteristics:personalizedsolutionsdelivered
nationwide,unmatchedcustomerservice,and
asolidfinancialposition.
PersonalizedSolutions,
DeliveredNationwide
Weworknationwidetodeliverreliableand
scalablesolutionsforyourdata,voice,and
Internetcommunicationsacross83ofthetop
Theonlyconstantforanyonerunningabusiness
orinstitutionseemstobeperpetualdisruptions
andever-morecomplexchallenges.
Inthisenvironment,data,voice,andInternet
communicationsplaysuchacentralrole
foranybusinessthatyourdecisionabouta
communicationsprovideriscritical.Great
communicationsprovidersserveaseffective
businesspartners,andfewpartnerswillbe
moreessentialtoyourorganization’snear-
termsurvivalandlong-termsuccessthanthe
companyyouentrustwithyourmission-critical
communications.
Formorethan10years,PAETEChaspursued
organicgrowthandstrategicacquisitionsthatgo
beyondtheordinarytocreateanextraordinary
Message
FromOur
CEO:
Themoderneconomycanmovefromboomto
bustandbackagainwithlittlewarning,while
advancingtechnologycanchangethecompetitive
landscapealmostovernight.
- 4. 6PAETECINREVIEW7
Iamalsoveryexcitedaboutthelaunchof
fixedwirelessservicesnationwide.PAETEC
hasacquiredacompanywith10yearsof
experienceusingfixedwirelesstosupplement
wirelinelocalnetworkaccessoreventobypass
theincumbentcarrier’slocalnetworkentirely.
It’sexcitingtoincreasethedepthofourone-
stopservicesbyofferingthiscapabilityatthe
nationallevel.
UnmatchedCustomerService
PAETECoperatesnationally,butwethink
andservelocally.Oneofourfirstmajoractions
afterachievingnationalstatusin2008wasto
createaregionalizedleadershipstructure.We
haveplacedaccountabilityforsales,order
fulfillment,andcustomerserviceinthehands
offourregionalpresidentswhoarecommitted
tomaintainingapositivelocaltouch.
100MSAs(MetropolitanStatisticalAreas)in
thenation.SinceourMcLeodUSAacquisition
inearly2008,we’veorganicallyexpanded
intoOregon,Maine,andNorthernCalifornia
includingSanFrancisco,Oakland,SanJose,
andSacramento.
WehavecombinedelementsofPAETEC’s
broadportfoliotocreateholisticsolutionsto
thecriticalchallengesofprimaryconnectivity,
businesscontinuity/disasterrecovery,and
security.Inaddition,wecanmanagekey
servicesend-to-end,allowingyoutodevote
moretimetoyourbusiness.
PAETECalsodeliversbusiness-intelligence
capabilitiesthatletyouaccuratelyunderstand
andmoreeffectivelymanagethelifecycleof
complexITresources.And,wehaveafinancing
solutionthatcansubsidizeandeveneliminate
yourcapitalcostforequipmentandsoftwareas
partofabroadernetworkservicescontract.
ArunasA.Chesonis
ChairmanandCEO,(inhisofficeinfrontofemployeephotowall)
MESSAGEFROMOURCEO
In2008,ouradjustedEBITDA*exceeded
$237.0million,andweendedtheyearwith
$164.5millionincashandequivalents.
Ultimately,whatmostdistinctlydifferentiates
PAETECisourpeople.Ourmissionistobe
themostcustomerandemployee-oriented
communicationsprovider.Wegotogreat
lengthstosolicityouropinions,andour
employeesgotheextramiletorespond.
Theresultisthatour3,600-plusemployees
serveascustomerambassadors,delivering
unmatchedserviceandpersonalizedsolutions
throughoutthecountry.Ourpeopletreatall
ofour47,000business-classcustomersasif
eachonewasouronlycustomer.Intheend,
that’swhatPAETECisallabout–personalized
solutions,designedforyou.
Sincerely,
ArunasA.Chesonis
ChairmanandCEO
Toensurethatwestayattunedtoour
customers’experience,wehaveformal
CustomerAdvisoryBoardsin50citieswith
over1,000members.Weusethiscustomer
feedbacktoimproveoperationsandrefine
ourproductroadmap.
Internally,weplaceatremendousemphasis
ondevelopingthePAETECworkforceso
ourpeoplehavetheexpertisetogiveyou
unmatchedcustomerservice.PCU(PAETEC
CommunicationsUniversity)includesextensive
coursesonsystems,productsolutions,sales
skills,andmore.In2009,forathirdconsecutive
year,ourTrainingDepartmentwasnamed
amongthetop125internationaltraining
organizations,accordingtoTrainingmagazine.
Alsoin2009,ourNOC(NetworkOperations
Center)wasnamedtheBack-OfficeCustomer
ServiceDepartmentoftheYearintheannual
StevieAwardsforSalesandCustomerService.
SolidFinancialPosition
Inavolatileeconomy,itisimportanttoknow
thatPAETEChasasolidfinancialposition.
Ourrevenuein2008exceeded$1.5billionin
justour10th
yearofoperation,andwehave
beenfreecashflowpositive*forthe24th
consecutivequarter.
*AdjustedEBITDA(earningsbeforeInterest,Taxes,DepreciationandAmortization)andfreecashflow(adjustedEBITDAlesscapital
expenditures),arenon-GAAPmeasuresthataredefinedandreconciledtoGAAPinthe“SelectedFinancialData”sectionherein.
- 6. 10PAETECINREVIEW11
CommunicationsSolutions
deliverreliableandscalableproductsfordata,
voiceandInternetservices.PAETECtailors
itsrangeofprimaryservicestoenhanceyour
internalandexternalcommunications.
BusinessContinuitySolutions
utilizePAETEC’seffectivetoolsfordisaster
preparedness,networkredundancy,and
applicationrecovery.Thesetoolshelp
yourecoverfromthelossorcorruption
ofdata,andhelpyoukeepoperating
duringandafteradisaster.
SecuritySolutions
protectcriticalcorporatefilesand
applications,mitigaterisks,andsupport
regulatorycompliance.
ManagedServicesSolutions
helpyoumanagebudgetaryconstraintsand
limitedITresourcesbyessentiallyoutsourcing
yourcommunicationsneeds.Wouldn’titbe
nicetoletsomebodyelseworryaboutthe
networksoyoucanfocusonyouroperations?
That’sexactlywhatPAETEC’sManagedServices
Solutionsdeliver.
FinancingSolutions
createanopportunityforyoutoacquirevital
businessequipmentorsoftwareatlittleor
nocapitalexpense.PAETEC’sEFS(Equipment
forServices)programincludesaninnovative
profit-sharingmechanismtoreduceand
subsidizecapitalexpensesaspartofan
overallnetworkservicescontract.
PAETECcanalsomakearrangementstorent
equipmenttoyourbusiness.Weareresponsible
forequipmentmaintenance,monitoring,and
supportforthelifeofthecontract.Whenthe
termexpires,youcaneithercontinuetorent
theequipment,orreturnitandupgradeto
amoreadvancedcommunicationssystem
withoutfacingthelossofembeddedcostsfor
ownedequipment.
SolutionsBuiltforYourNeeds
Havingconsultedwithourcustomersformanyyears,we’velearnedthatbusinessesneed
morethanacatalogofproductsandservices.Youneedsolutions.PAETEChasrespondedby
compilingkeyelementsofourportfoliointosolutionsthataddressspecificcategoriesofneeds.
LoriEwoldt,MichaelMills,KalebHarrison
NOC,CedarRapids,IA
- 7. 12PAETECINREVIEW13
VoiceCommunications.
YearsofExperience+InnovativeThinking
dataandnetworkswhilefreeingupyour
ITresourcestofocusonyourbusiness.
AreyourITresourcesstrained?PAETEC’s
twogeographicallydiverse,Class-ACustomer
DataCenterscanhostyourapplicationsand
provideflexibleandsecureaccesstoyourdata,
freeingyoufromthehassleofmanagingyour
ownequipment.
Ifreducingexpenseswhileincreasing
competitivenessiswhatyou’reafter,then
ourDynamicIP(InternetProtocol)withSIP
(SessionInitiationProtocol)Trunkingsolution
setcangiveyourbusinesstheedgeyouneed.
PAETEC’sDynamicIPservicesconvergedata
andvoicecommunicationsontoasinglecircuit,
whichreducesexpenseswhiledelivering
IP-basedflexibilityandcapabilities.
VoiceCommunications
InaworldofTwitterandtexts,thereisoften
nosubstituteforthesoundofahumanvoice.
PAETEC’svoiceservicesincludelocal,long
distance,andtoll-freeservices.Whetheryou
choosetraditionalvoiceornext-generation
VoIPservices,wedeliverworld-classquality
builtuponourownvastindustryexpertiseand
theleadingtechnologyofourpartners.
DataServices
Canyouimagineadaywithoutdata
communications?Datanetworkingisessential
foreverybusinessmodelandeverytypeof
enterprise.PAETEC’srobustportfolioincludes
awidevarietyofdatasolutionsandapplications,
alldesignedwiththestrictestsecurityand
performancerequirementsinmind.
Doyouhavemultiplelocations?MPLSVPN
(Multi-ProtocolLabelSwitchingVirtualPrivate
Network)candramaticallyboostproductivity
whilehelpingyoumanageyourbandwidth
morecost-effectively.
Inaddition,EthernetLocalLoopisaflexible,
high-bandwidthaccesssolutionthatcan
supportbothvoiceanddatacommunications.
Thisproven,cost-effectivetechnologyisan
increasinglypopularaccesssolutionandcan
supportDedicatedInternet,MPLSVPN,and
VoIP(VoiceoverInternetProtocol).PAETEC
offersbandwidthoverEthernetLocalLoop
thatrangesfrom10Mbpsto1,000Mbps.
Areyouworriedaboutmalicioushackers?
ManagedCPE(CustomerPremises
Equipment)FirewallwithUTM(Unified
ThreatManagement)protectscorporate
MarcCross
CentralOffice,CedarRapids,IA
- 8. 14PAETECINREVIEW15
Ofcourse,ifyouwouldratherspeakwith
someoneatPAETEC,giveusacall.Weanswer
customercallswithaliveperson,typically
within20seconds.
FixedWireless
In2008,PAETECacquiredMPX,aNewYork-
basedcompanywith10yearsofexperience
inlicensedfixedwirelesssystemengineering
andfieldintegrations.In2009,wearetaking
thesecapabilitiesnationwide.
Weusecarrier-grademicrowaveequipment
andconsultativeengineeringtobuildreliable
“last-mile”accessloopsbetweenyourfacility
andalocalPAETECpoint-of-presence.Wecan
provisionyourwirelesslocalloopsatspeeds
rangingfromDS-3toGigabitEthernet,which
willsupportthefullrangeofvoiceandIP
servicesinourportfolio.
Thebenefitsaremany.FixedWirelessprovides
completephysicalinfrastructurediversityto
betterensureyourabilitytooperateduring
andafteracatastrophe.Youcouldeventotally
bypassthelocalwirednetworkifyouchoose.
Customershavealsobenefitedfromleveraging
PAETEC’sfibernetworkintandemwithFixed
Wirelessfacilities.Incaseswherecustomer
facilitieswereinobscuredlocations,without
adirectline-of-sitetothewirelessequipment,
PAETEChasbeenabletouseourextensive
ManybusinesseswillfindPAETEC’sAdvanced
Toll-Freeservicesparticularlyuseful.This
serviceoffers32distinctfeaturesthatinclude
AdvancedRouting(includingtimeofday
andgeographicrouting),hostedIntegrated
VoiceResponsefunctionality,andOnline
managementandreporttoolstoboostyour
marketingefforts.Thisnotonlyhelpsyou
efficientlymanageworkflows,italsosupports
businesscontinuityintheeventofadisaster.
PAETEC’scommitmenttopersonalization
doesn’tendwithcoreservices.Ourportfolio
deliverspowerfuloptionsthatincludeour
PAETECOnlinecustomerportal,Fixed
Wireless,telecommanagementsoftware,
equipment,andconsulting.
PAETECOnline
Togiveyougreatercontrolofyour
communicationsservices,PAETECOnline
offersanewworldofproactivepartnership.
Thinkofitasanonlinecustomerservice
representativethatsecurelyprovides
information,accountmanagement,and
problemresolutionfromanyInternet-
connectedcomputer.Thisfreecapability
allowsyoutodirectlyaddandchangefeatures,
reviewbillsandpaymenthistory,andeven
viewthestatusofyourtroubletickets.In
addition,youcanusePAETECOnlinetoanalyze
yourserviceusagepatterns,spottrendsbefore
theybecomeproblems,andplanforgrowth.
powercoverage,andredundantnetwork
connectivity.
Ournext-generationfacilitiesareonlypart
ofthestorythough.Combinedwithourfull
suiteofmanagedprofessionalservices,
includingadvancedmonitoringofdevice
andapplicationperformance,databackup
andrecoveryservices,andcomprehensive
24x7x365monitoring,youcanresteasy
knowingthatdedicatedPAETECpersonal
arealwaysmonitoringyourdata.
fibernetworktoextendourpoint-of-presenceto
anotherlocationthatdoeshaveaclearlinetothe
customer’sbuilding.PAETECwirelesssolutions
arealsoidealforcampussettingsthatrequire
high-bandwidthpoint-to-pointconnections
betweenbuildingsinaprivatenetwork.
DataCenterServices
PAETECDataCentersarehometomany
ofthelargestWebpropertiesandbusiness
collocationfacilitiesinthenation.Builtfor
themostdemandingofcustomers,ourdata
centersprovideasecureenvironmentto
developyourbusinesscontinuityandhosting
needs,eliminatingtheneedtobuildand
maintainyourownprivatedatacenter.
RobustanddedicatedInternetaccessonour
IPbackbone,acombinationofbothpublicand
privateInternetpeeringarrangement,andSAS
70TypeIIcertificationmeansyouneverhave
toworryaboutyourbusiness-criticaldata.
Whenit’stimetotakeyourbusinesstothe
nextlevel,PAETECdatacentersprovidethe
flexiblesolutionstoletyougrowyourbusiness.
PAETECoffersavarietyofcabinetrackspace
solutionsorcustomcagesbuilttoyour
specifications,allhousedwithinoursecured
facilitieswithbest-in-classfiresuppression,
- 9. 16PAETECINREVIEW17
FixedWirelessCaseStudy:
NEWYORKUNIVERSITY·LANGONEMEDICALCENTER
AsNYULMChasgrownanditscommunications
needshaveevolved,thecenterhasrepeatedly
chosenPAETECFixedWirelesstodeliver
apersonalizedsolution:
PAETECconnectedtheHospitalfor°
JointDiseaseswitharemotefacility
on2nd
Avenue.Thislinkprovided
155MbpsconnectivityoveraGigabit
Ethernetinterface.
ThecenterinstalledaGigabitEthernet°
linkbetweentheRuskInstituteonFirst
Avenueandofficeson34th
Street.
PAETECextendedtheRuskInstitute’s°
LAN(LocalAreaNetwork)toamedical
practiceofficeacrossthestreet.
PAETECdeployedaGigabitEthernetlink°
betweentheRuskInstituteandtheDay
SurgeryandMusculoskeletalCenter
onEast38th
Street.
AnotherGigabitlinkwentlivebetween°
SkirballInstituteand32nd
street.
Incorporatingfixedwirelesstransporthas
improvedcommunicationsserviceforend
users,reducedoperatingcostsforthe
institution,andenhancedthedeliveryofquality
caretopatients.“Theresearch,clinical,and
administrativegroupswesupportarehappy
withtheresultstheysee,”Bridgemansaid.
“It’sawinningscenarioallaround.”
Buildingaprivatefibernetworkwouldinvolve
significantright-of-waychallengesinaddition
tobeingverycostlyandtechnicallycomplex.
Thebestalternative,Bridgemanconcluded,
wasalicensedfixedwirelesssystemthat
woulddeliverhighreliabilitywithoutthe
riskofinterferencefromneighboring
wirelessnetworks.
HeturnedtoPAETECforafixedwireless
systemthatdelivered100MbpsEthernetfor
data,withincrementalT-1circuitsforvoiceto
aremotefacilityonParkAvenue.ThePAETEC
engineeringteamworkedwithBridgeman
throughoutthedesignandimplementation
stages.ThePAETECteamdeterminedthe
physicalinstallationrequirementsateach
building,andalsohandledallaspectsof
FCClicensingonNYULMC’sbehalf.After
installation,PAETECconfiguredthesystem
interfacestooperatethelinkwithinthe
center’sbroadernetwork.
“Assoonasweputthemicrowavelink
intoservice,ourstaffnoticedasignificant
‘quickening’ofthenetwork,”Bridgemansaid.
“Wefeltlikewehadourownprivatefiberline,
butwithoutanyoftheassociatedheadaches.”
ThecenteralsocontractedwithPAETECfor
comprehensivemaintenance,emergency
response,andremotemonitoringservices
wheretechniciansproactivelycommunicate
withBridgeman’steamintheeventof
anyserviceissue.
CASESTUDY:NEWYORKUNIVERSITYLANGONEMEDICALCENTER
NewYorkUniversityLangoneMedicalCenter
(NYULMC)isamongtheworld’spremier
centersforhealthcare,biomedicalresearch,
andmedicaleducation.Andwith10,000people
onstaff,theinstitutionisoneofNewYork
City’slargestemployers.
Asthecentersteadilyexpandedinsizeand
scope,DirectorofITCharlesBridgemanfaced
atremendousrecurringchallengetoupgrade
thecenter’smulti-sitenetworkinfrastructure.
Crunchtimecamewhenthecenterbegan
movingfunctionsintoleasedfacilitiesremote
fromitsmain“Superblock”Manhattan
campus.Bridgemanrecognizedtheneed
formoredatacapacity,andhewantedthe
flexibilitytoincorporatevoiceservices.
CharlesBridgeman
DirectorofIT,NYULangoneMedicalCenter
- 10. 18PAETECINREVIEW19
NetworkDesign,
Deployment&Equipment
Allworx9224,apremierhigh-fidelitywideband
IPphone,aswellasAllworx’snext-generationof
communicationssystemsoftware.
Allworxsystemssupportbothtraditionaland
VoIPtelephoneservices,providinga“future-
proof”solutionthatallowscustomersto
managetheirtransitiontoVoIPattheirown
pace.WithAllworx,youreceiveallthebusiness
productivityenhancements,costsavings,and
flexibilityofVoIPwithnoriskofdisruptionto
yourbusiness.
NetworkDesign,Deployment
&Equipment
PAETECalsoisacertifiedpartnerwithCisco,
Nortel,Avaya,andADTRAN.Throughthese
establishedrelationships,weofferbusiness
telephonesystems,voicemail,voiceanddata
cabling,IPapplicationsandservices,routers,
andturnkeycablingsolutionstobusinesses
ofallsizes.
Ourdedicatedtechnicalandengineering
personnelarereadytohelpyouthroughevery
stepofcreatinganewnetworkorupgrading
yourcurrentfacilities.Oursupportincludes
projectmanagement,staging,configuration,
physicalinstallation,andend-to-endtesting.
Afterinstallation,wecanpartnerwithyouto
monitorandmanageyournetwork.
Quitesimply,PAETECisyourone-stopshop
foreverythingfromsalesandserviceto
installation,maintenance,andmanagement.
PINNACLESoftware
ThePINNACLECommunicationsManagement
Suiteestablishednewstandardsforusability,
flexibility,andintegrationopportunitiesin2008
withthereleaseofPINNACLECommunications
ManagementSuiteV6.
PINNACLEsimplifiesandautomatesIT
lifecyclemanagementbyintegrating
TelecomExpenseManagement,Service
Management,OperationsManagement,
andRegulatoryComplianceintoasingle,
platform-independentframework.
Themorecomplexyournetwork,themore
opportunitiesyouwillhavetosavemoneyand
increaseefficiency.PINNACLEV6helpsour
customerscapitalizeonthoseopportunitiesby
incorporatinginteractiveuser-friendlybusiness
intelligenceanalytics,context-sensitivemulti-
mediatrainingmaterials,andafullycustomizable
userinterfacethatwillallowyourorganizationto
dothingsthatwereneverbeforepossible.
Allworx
WinningInternetTelephony’sProductoftheYear
forthe3rdconsecutiveyearwasjustthestart
forAllworx,whichPAETECacquiredin2007as
awhollyownedsubsidiary.Theaward-winning
communicationsplatformthatPAETECacquired
wouldgoontowinProductoftheYearfrom
CommunicationsSolutions,receiverecognition
andaccoladesfromindustryheavyweightssuch
asTexasInstruments,andbringtomarketthe
PERSONALIZEDSOLUTIONS
TimothyBrotzman
SeniorManager,DatabaseApplications,Rochester,NY
- 11. 20PAETECINREVIEW21
IPserviceshavebecomemainstream,butnotallIPservice
providersarecreatedequally.Forstarters,it’simportanttoknow
thatusingIPtechnologydoesnotnecessarilymeanyouhaveto
entrustyourbusinesstothepublicInternet.Infact,relyingon
theInternetcanexposeyourbusinesstoseriousand
unnecessaryrisks.
Allsignatureandpatchupdatesaredelivered
automaticallytoensurethatyoualwayshave
themostrecentnetworkprotection.
Bothservicesaredesignedtoprotect
business-classcustomersfrommalicious
Internetattacksandnetwork-security
anomalies.Andmulti-locationcustomers
candeployManagedCPEFirewalland
HostedFirewalltogethertocreatelayered,
“defenseindepth”networksecurityfor
dispersedlocations.
CustomershavetoldusthatInternetsecurity
isextremelycomplexandtime-consuming.
Inresponse,wedevelopedthehostedand
managedfirewallsolutions,whichallowyou
todevoteyourITresourcestobuildingyour
businesswhilePAETECprotectsyourvital
dataandassets.
“IP”referstoanefficientandflexibletechnology
fortransportingdata,voice,andvideo.
PAETEC’sIPservicesarecarriedonourprivate
network,notthepublicInternet.Thisaddsan
importantlevelofsecuritycomparedwithmany
IPservicesforbusinessonthemarket.But
privatenetworkfacilitiesarejustthebeginning
ofourapproachtoensuringyoursecurity.
PAETEChascreatedUTMservicesthatdeliver
comprehensiveInternetsecuritysolutions.
TheseincludeHostedFirewall,aswellas
ManagedCPEFirewall.
HostedFirewallisidealformulti-site
customers.Itkeepsyourcorporateassets
andcustomerinformationsecure,whichis
essentialgiventheincreasinglystringent
regulatoryrequirementsfordatasecurity.
PAETEC’sHostedFirewallsolutionresides
withinournetworkratherthanatyourlocation.
Sincewe“host”yourfirewall,youarefreeto
devotemoreresourcesandtimetoyourcore
businessoperations.
Forsingle-sitecustomers,ManagedCPE
Firewalldeliversrobustsecuritywhile
eliminatingtheneedforyoutopurchaseand
maintainthemultipleappliances,servers,and
softwareneededforanin-housesolution.
JohnChapman
SeniorVicePresident,Marketing
- 12. 22PAETECINREVIEW23
Allworx
Equipment
Theinstallationalsoprovides“softphone”
service,whichletstravelingemployeesuse
theAllworxsystemtomakecallsthrough
alaptopcomputer.
“TheAllworxsystemisveryuser-friendly,
anditisareallywonderfulsystem,”said
CarltonScale’sPresident,ChrisTrevey.
“Isuggestthatanyonegoandtryit.The
systemhassomuchfunctionality,and
itissoeasytosetupconferencecalls.”
Thenewcommunicationssystemwasjustthe
beginningofbenefitsforCarltonScale.The
companyalsodecidedtomoveitsmanaged
communicationsservicesfromAT&Tto
PAETEC’sMPLSnetwork.Thisletsemployees
securelyaccesscompanydatafromvirtually
anywhere.Italsoprioritizesvoicetrafficto
betterensurethatcustomerscanstayin
touchwiththecompany,andthatcompany
employeescanstayincontactwitheachother.
Allworxsystemscanbepersonalizedtomeet
thespecificneedsofanybusiness.Andthe
systemsofferbuilt-inflexibilityandscalability
toaccommodatenewcommunications
requirementsasabusinessgrows.
Noneofthecompany’s85employeeshad
voicemailatwork.Therewasnooptionfor
officestocalleachotherthroughextension
dialing.Andrequestingmaintenanceand
repairwasachallengebecauseitinvolved
multipleservicetechniciansfromdiverse
equipmentproviders.In2007,CarltonScale’s
newpresidentdecideditwastimeforaunified
communicationssystem.
ThecompanysoughthelpfromHayes&
Associates,acommunicationsequipment
andnetworkresellerbasedinanearby
city.Fortunately,theheadofHayeshad
recentlydiscoveredandinstalledanAllworx
communicationssystemandallowedCarlton
ScaletoconnecttohisAllworxsystemfor
atestdrive.
Itdidn’ttakelongforCarltonScaletodecide
thatAllworxwasanexcellentandcost-
effectivechoice.Today,thecompanyusesthe
flagshipAllworx24xsystematitscorporate
headquartersandhasAllworx6xsystemsat
allbranchlocations.Inadditiontothiscore
equipment,CarltonScalepurchased86
Allworxofficephones.
Productivityhasincreasedbecauseevery
employeenowhasvoicemailaswellasthree-
digit,desktop-to-desktopdialingtoallsites.
Amongmanyotherfeatures,staffmembers
canforwardincomingcallstotheircellphones,
whichmeanscustomerscanbeservedmore
quicklyandefficiently.
ALLWORXEQUIPMENT,PAETECMPLSCASESTUDY:CARLTONSCALE
PAETECMPLSCASESTUDY:
CARLTONSCALE
CarltonScaledistributesandservicesindustrial
scalesfromitsheadquartersinGreensboro,NC,
andsevenbranchlocationsinNorthCarolina,
Tennessee,Virginia,andMaryland.Untilrecently,
eachofficeofthe60-plusyearoldcompanyhad
adifferentphonesystem.
ChrisTrevey
President,CarltonScale
- 14. 26PAETECINREVIEW27
Thecompellingpartofthisstory,though,is
howwe’veassembledandconfiguredthese
networkelementstosupportpersonalized
solutionsinallofourmarketsacrossthe
UnitedStates.InOctoberof2008–justseven
monthsaftertheMcLeodUSAacquisition
added26majormarketsin20states–PAETEC
announcedthesuccessfulunificationof
previouslyseparatenetworkfacilitiesto
createanintegrateddatanetworkacrossthe
company’snationalfootprint.
Thismilestoneestablishedtheplatformwe
usedtodeployanintegratedproductportfolio
availabletonewcustomersnationwide.We
alsousedourowninternalresourcestodevelop
asingleviewforNetworkManagementacross
ourfacilitiestoenhanceourownmonitoring
andtrouble-resolutioncapabilities.
Aspartofourcommitmenttobuildingand
developingworld-class,next-generation
communicationsnetworks,wehavepartnered
Today,ournetworkincludes88circuit-based
switches,32IP-basedsoftswitches,107
backbonerouters,and19,000routemilesof
fiber.Thesenetworkelementsaremonitored
bythreegeographicallydiverseNOCs.
Our
Network
PAETEC’snationalnetworkistheresultof
aggressiveorganicexpansioncombined
withstrategicacquisitionsmadeovermore
thanadecade.
CustomerCareCallCenter
Charlotte,NC
- 15. 28PAETECINREVIEW29
OURNETWORK
expensivetoinstall,maintain,andoperate.
PAETECunderstandshowchallengingthis
canbeforyou.Ourprovensolutionshelp
yourbusinessachievemaximumefficiency
andproductivitywhetheryouchoosenext-
generationcapabilities,traditionaltechnologies,
oramixofboth.
withleadingtechnologyprovidersincluding
Cisco,GENBAND,Alcatel-Lucent,andJuniper.
Weexpecttheseandotherkeypartnerstopush
theboundariesoftechnologyandflexibility
andtohelpusdeliverunparalleledreliability,
availability,andserviceability.
Throughourrelationshipswiththeseandother
strategictechnologycompanies,wehave
beenabletostreamlineouroperationswhile
helpingyousimultaneouslykeepasharpwatch
onexpensesandmaintainingourqualityof
customerservice.
Ournetworkissupportedandmonitored
24x7x365inourstate-of-the-artNOCs.
OurNOCtechniciansarecertifiedthrough
arigorousprogramwithfourlevelsof
proficiency.Thiscareerprogressionprogram
meansyoucanrestassuredthatyourbusiness
isgettingtheattentionitdeservesfrom
expertswhocareaboutyourbusiness.
Astechnology’sevolutioncontinues,traditional
voicenetworkshavebecomeincreasingly
JasonFava
NOCTechnician,Charlotte,NC
PeteHagstrom
NOC,CedarRapids,IA
- 16. 30PAETECINREVIEW31
ManycompaniesofferIPservices,butPAETEChasbuiltourIP
capabilitieswiththeexpresspurposeofgivingyoumaximum
flexibility.Forexample,withSIPTrunkingfromPAETEC,you
canchoosethebandwidththattrulymeetsyourrequirements,
rangingfromaT-1toGigabitEthernet.And,weoffernumerous
featurestoaddresssecurity,connectivity,businesscontinuity,
andothercriticalbusinessissues.
Otherbenefitsofchoosing
PAETECinclude:
VoIP-to-TDMconversionprovidedwithin°
PAETEC’snetwork.
Expandedfreelocalcallingareas.°
Site-to-sitevoiceanddatasharingthat°
issecurelyisolatedfromthepublicInternet.
Youalsohavemultipleoptionsforcertified
interoperableIP/PBXequipmentfrom
numerousworld-classvendorsincluding
Cisco,Toshiba,Allworx,andothers.Certifying
theinteroperabilityofcommunications
equipmentandIPnetworksmakesiteasierfor
youtoachievethefullbenefitsofadvanced
communicationscapabilities.
TelephonymagazinehasselectedPAETEC’s
DynamicIPwithSIPTrunkingastheindustry’s
MostInnovativeProductin2008.Injudging
PAETECagainsttelecomandcablecompanies,
wirelessserviceproviders,andahostofniche
communicationscompanies,TelephonyEditor-
in-ChiefCarolWilsonsaid,“Thejudgeswere
impressednotjustbythisservicebutalso
bywhatPAETECdeliverstoitscustomersin
supportofSIPTrunking.Inthisinstance,theyare
innovatinginthewaytheydeploySIPTrunking.”
Anotherjudge,CindyWhelanofCurrentAnalysis,
said,“WherePAETECshinesagainstthese
competitorsisinitsfocusoncustomerservice.”
SIPTrunkingconvergesdata,voice,and
Internetcommunicationsontoasingle
high-speed,IPcircuit.Thiscreates
apowerful,yetflexiblefoundationfor
advancedcommunicationscapabilities.
WeofferSIPTrunkingnationwide,which
freesmulti-sitecustomersfromdeveloping
patchworksolutionsthatinvolvemultiple
carriersfornetworkingacrossdiverselocations.
Inaddition,PAETECdeliversSIPTrunking
featuresacrossbothmodernIPplatforms
aswellastraditionalTDM(TimeDivision
Multiplexing)networktechnology.Youcan
makethejumptoanIPPBX(PrivateBranch
Exchange)withanativeIPconnection,or
youcanchooseanIntegratedAccessDevice
thatcanworkwithyourlegacyPBXs
orkeysystems.
Wealsousecompressiontechniquesthatcan
significantlyincreasethenumberofhigh-quality
voicecircuitswithinasingleT-1comparedwith
traditionalPRIs(PrimaryRateInterfaces).
Inaddition,ourQoS(QualityofService)
capabilitiesinstantlyadjustyourbandwidth
allocationasyourbusinessneedschange
dynamicallythroughouttheday.Voicesignals
receiveinstantpriorityoverdatatoensure
high-qualityvoiceserviceswhenyouneed
them.Yetwhennovoicetrafficispresent,
allofyouravailablebandwidthcanbe
usedfordata.
SanjayHiranandani
SeniorVicePresident,Engineering
- 17. 32PAETECINREVIEW33
Integration
manycompetitorsrelyondisparatecustomer-
billingsystems,PAETEC’screationofasingle
platformforallcustomersnationwideshould
increaseourinternalefficiency,aswellasour
externalflexibilitytoserveyourevolvingneeds.
Ahugemilestonecamelessthanayearafter
weacquiredMcLeodUSA,whenweannounced
anintegratedproductportfolioavailablein
allofourmarkets.PAETECisnowoneofthe
fewcarriersthatoffersaconsistentproduct
portfolionationally,andallnewcustomers
receiveasingleinvoiceeveniftheyhavesites
inmultipleregionsofthecountry.
Toenhancethespeedandaccuracyof
customerservice,wecreatedacommon
customerdatabaseforformerUSLECand
PAETECcustomers.McLeodUSAcustomers
willbeincorporatedintothisdatabaseas
quicklyaspossible.Thekeyvaluehereis
thatonceanaccountrepresentativeupdates
informationinonesystem,thechange
automaticallyflowsthroughtoourother
systemsincludingbilling.
Aswecontinuetodevelopandintegrate
newmarketsandcapabilities,weremain
focusedonputtingtherighttoolsinto
thehandsoftherightpeople–people
whoarededicatedtodeliveringthebest
andmostpersonalizedserviceinthe
communicationsindustry.
Weofferintegratedvoiceanddata
communicationstocost-effectivelyincrease
yourorganization’sproductivity.Wepartner
withyouasanintegratedproviderthatcanmeet
diverseneedsthatincludecommunications
servicesandequipment;networkdesign,
installation,andmanagement;andsoftware
thatallowsyoutoexpertlymanagethefull
lifecycleofcomplexITresources.And,wehave
incorporatedtheabilitytohelpyoufinance
capitalpurchasesaspartofyournetwork
servicescontract.
IntegrationalsoreferstoPAETEC’sunusually
aggressiveapproachtocreatingunifiednational
operationsandcapabilitiesfromourdiverse
acquisitionsandorganicgrowthstrategy.This
aspectof“integration”issignificant,because
PAETECessentiallytripledourrevenueand
geographicreachthroughtheacquisitionsof
USLECin2007andMcLeodUSAin2008.
Effectiveintegrationprocessesarehowweare
ensuringcustomersbenefitfromthisdramatic
expansionjustasmuchasthecompanydoes.
Forexample,thelastcriticalstepinthe
integrationofUSLECbeganinthefallof
2008whenweannouncedplanstounifythe
PAETECandformerUSLECbillingsystems.
Weexpecttocompletethisprojectinearly2010,
andintendtoconverttheMcLeodUSAbilling
systemwithinthefollowing12months.While
INTEGRATION
“Integration”isanimportantandfar-reaching
conceptatPAETEC.
- 18. 34PAETECINREVIEW35
Thecommondenominatorunderlyingthemanyfacetsof
“integration”withinPAETECisourpeople.Beforewebeginthe
processofintegratingsystems,productportfolios,ornetwork
elementsandcapabilities,ourfirstpriorityistointegrateour
people.Ourgoalistocreateacohesiveteamthatcaresjust
asmuchaboutyourbusinessasyoudo.
UnmatchedService
PAETECdoesnotpretendtobeperfect.
Nocompanyis.Butwedopledgetogive
ourcustomersthebestserviceinthe
telecommunicationsindustry.Inadditionto
thingswelearnfromtalkingwithcustomers,
wealsomeasureourselvesthroughthe
rigorousprocessofNPS(NetPromoterScore).
WeuseNPSasavaluabletooltomeasureour
serviceagainstcompetitors.It’sonemoreway
thatweevaluateourperformancewiththegoal
ofensuringyoursatisfaction.
PersonalizedSolutions
Wedesignanddeliversolutionstailoredto
yourspecificsituationandneeds.Thenwego
beyondexpectationsinordertobuildalong-
lastingrelationshipwithyourorganization.
Forinstance,whenaPAETECcustomercalls
oneofourcontactcenters,weanswerwitha
liveperson,typicallywithin20seconds.Wedo
notforcePAETECcustomersintoanautomated
answeringsystem,becauseyourcallisreally
importanttous!
Livinguptothesevalueshasledourpeople
totakeextraordinaryactionstoserveyour
businessandourcommunities.
Thefundamentalkeytooursuccessisinstilling
PAETEC’sculturethroughoutournational
operations.And,ourcultureisbasedonfour
corevaluesthathaveguidedourpeoplesince
thecompany’sinception:
CaringCulture
PAETECcaresaboutyouandthelocal
communitieswherewebothliveandwork.
Weknowthatcurrentconditionshavecreated
majorchallengesfornon-profitagencies
andinstitutions.Tohelptheseorganizations
maintainthevitalcommunityservicesthey
provide,PAETECismakingnetworkservices
availabletonon-profitgroupsatapproximately
halfpricefortwoyears.Anotheraspectof
caringcultureisPAETEC’scorporate-wide
GreenTeam,whichisworkingdiligentlyto
reduceourimpactontheenvironment.
OpenCommunication
FromCustomerAdvisoryBoardstoopen-doors
throughoutthecompany,werelyonfrankand
honestcommunicationstohelpusconstantly
improveourabilitytoserveyou.
SharonLaMantia
ExecutiveVicePresident,NetworkOperations
- 19. 36PAETECINREVIEW37
recovery,aswellasnewofferings,
includingvirtualserversandSoftware
asaService(SaaS).
Wewillcontinuetointegrateacquired
companiestofullydeliverthebenefitsofa
single,contiguouscompany.Byleveraging
ournationalnetwork,nationwidereach,and
unifiedsystems,ourbenchmarkcustomer
supportwillbecomeeverbetter.Weexpect
tocontinueexpandingorganicallyintonew
majormarkets.Buildingonourcurrentreach
into83ofthetop100largestUSMSAs,weare
exploringneworganicexpansionsinareas
suchasLasVegas,Cincinnati,andTulsa.
Overtime,weplantosteadilyincreaseour
on-net,last-mileconnectivity,whetherit’s
usingourfibernetworkassetsorourability
Sinceourfoundingin1998,PAETEChasbeen
askingcustomersquestionsjustlikethese.
Wethenusethatinformationtorefineour
processesanddevelopourproductroadmap.
OnPAETEC’sroadahead,wewillcontinue
turbo-chargingournetworkservicesincluding
ourMPLSVPN,VoIP,FixedWireless,data
centers,security,andmanagedservice
offerings.Ouruniquecombinationofassets
aredesignedtobethereforyourexpanding
communicationsneedsasyourbusiness
succeedsandgrows.
Additionally,overthenextthreeyearswe’re
expandingourdatacentersnationallytobetter
serveyourbusiness.Thesedatacenterswill
have“inthecloud”productportfoliowhich
includewebhostingservices,databackupand
TheRoad
Ahead
Whenyouthinkaboutyourbusiness,whatdoyou
needfromyourcommunicationssolutionsprovider?
Moreimportantly,whatdoyouwant?Whatwillyour
businessneednextyear,andfiveyearsafterthat?
- 20. 38PAETECINREVIEW39
THEROADAHEAD
Andthatisultimatelythesweetspotof
PAETEC’sbusinessmodel.Weworkhard
totreatcustomersthewaycustomerswant
tobetreated.
Inaworldwherecommunicationstechnologyis
constantlychangingandcompetitivepressures
areincreasinglyintenseandglobal,PAETEC
willcontinuetotakethetimetounderstand
yourbusiness.Ourgoalistogivecustomers
personalizedsolutionsandunmatched
customerservice,bothtodayandthrough
whateverchangesthefuturemightbring.
todeliverfixedwirelesslocalaccessanywhere
inthecountry,providingmorecost-effective
optionsforourcustomers.
In2008,PAETECbeganservingbusinesses
asanindependentenergyadvisor,currently
limitedtoourmarketsinupstateNewYork.
Buildingonexpertisewegainedthrougha
recentacquisition,wehelpcustomersfind
innovativeandflexibleenergyservicesthat
includerenewableaswellastraditional
sourcesofenergy.
Intheyearstocome,aswecontinueexpanding
ourgeographicreachandourabilitytohelp
customerssucceed,PAETECfullyexpectsto
becomeaFortune500company.Webelieve
thiswillhappenbecausethemarketultimately
willprovethatcustomerswantacompany
thatcares.
DaidreFanis
SeniorDirector,CustomerSolutions
NationalCustomerAdvisoryBoardMeeting,
Charlotte,NC
- 21. 40PAETECINREVIEW41
AsofDecember31.2008(1)
2007(2)
200620052004
CONSOLIDATEDBALANCESHEETDATA.(inthousands)
Cashandcashequivalents$164,528$112,601$46,885$49,394$45,882
Propertyandequipment,net638,941312,032167,566151,994132,776
Totalassets1,496,5201,166,356379,740355,230334,573
Long-termdebtandcapitalleaseobligations(including
currentportionandnetofdebtdiscount)
930,833795,557373,786111,886132,126
SeriesAconvertibleredeemablepreferredstock–––193,164178,067
YearEndedDecember31.2008(1)
2007(2)
200620052004
OTHERFINANCIALDATA.(inthousands)
Netcashprovidedby(usedin)financingactivities127,767290,275(8,202)(29,131)(25,236)
Netcashprovidedbyoperatingactivities152,131113,11653,55564,45157,894
Netcashusedininvestingactivities(227,971)(337,675)(47,862)(31,808)(38,600)
AdjustedEBITDA(5)
237,725196,17891,79882,07273,650
AsofDecember31.2008(1)
2007(2)
200620052004
OPERATINGDATA:
Geographicmarketsserved(6)
8053292927
Numberofswitchesdeployed(7)
11840131211
TotaldigitalT1transmissionlinesinstalled(8)
215,768119,98752,37140,62130,346
Totalaccesslineequivalentsinstalled(8)
5,178,4322,879,6881,256,904974,904728,304
Totalemployees3,6852,4321,3121,2311,124
(1)IncludesresultsofMcLeodUSAsubsequenttotheMcLeodUSAmergerclosingdateofFebruary8,2008.
(2)IncludesresultsofUSLECsubsequenttotheUSLECmergerclosingdateofFebruary28,2007.
(3)Basicanddilutednet(loss)incomepercommonsharefortheyearsendedDecember31,2005and2004werecalculatedusingthe“two-
class”methodinaccordancewithEmergingIssuesTaskForceBulletinNo.03-06,ParticipatingSecuritiesandtheTwo-ClassMethodunderFASB
StatementNo.128,EarningsPerShare,bydividingundistributed(loss)incomeallocatedtocommonstockholdersbytheweightedaverage
numberofcommonsharesandpotentialcommonsharesoutstandingduringtheperiod,aftergivingeffecttotheparticipatingsecurity,which
wasPAETEC’sconvertibleredeemablepreferredstockthatwasoutstandinginthoseperiods.Duringthesecondquarterof2006,aspartofa
leveragedrecapitalization,PAETECconvertedorrepurchasedallofitsoutstandingpreferredstock.AtandafterJune30,2006,therewereno
participatingsecuritiesoutstandingand,therefore,the“two-class”methodofcalculatingbasicanddiluted(loss)incomepersharedoesnot
applytothoseperiods.
(4)Potentialcommonshares,whichunderthetreasurystockmethodconsistofstockoptions,warrants,andrestrictedstockunits,andpreferred
stockassumingthefullconversionofsuchpreferredstock,areexcludedfromthedilutednetlosspercommonsharecalculationsfor2005,2006
and2008becausetheeffectoftheirinclusionwouldhavebeenanti-dilutive.AsofDecember31,2006,andthereafter,therewerenosharesof
convertibleredeemablepreferredstockoutstanding.
(5)AdjustedEBITDAisnotafinancialmeasurementpreparedinaccordancewithGAAP.AdjustedEBITDA,asdefinedbyPAETECfortheperiods
presentedbelow,representsnet(loss)incomebeforedepreciationandamortization,interestexpense,provisionfor(benefitfrom)incometaxes,
stock-basedcompensation,impairmentcharge,integrationandseparationcosts,lossonextinguishmentofdebt,leveragedrecapitalization
relatedcosts,withdrawninitialpublicofferingandrelatedterminatedseniorsecuredcreditfacilityexpenses,andchangeinfairvalueofSeries
Aconvertibleredeemablepreferredstockconversionright.See“Management’sDiscussionandAnalysisofFinancialConditionandResultsof
Operations—Overview—AdjustedEBITDAPresentation”inPAETEC’sAnnualReportonForm10-Kforour2008fiscalyearforPAETEC’sreasonsfor
includingadjustedEBITDAdataandformateriallimitationswithrespecttotheusefulnessofthismeasurement.Thefollowingtablesetsforth,for
theperiodsindicated,areconciliationofadjustedEBITDAtonet(loss)income,asnet(loss)incomeiscalculatedinaccordancewithGAAP:
SelectedFinancialData
Theselectedconsolidatedstatementsofoperationsdata,consolidatedbalancesheetdata,otherfinancialdataandoperatingdatareflectthe
financialresultsofPAETECCorp.,aspredecessortoPAETECHoldingCorp.,andPAETECCorp.’swhollyownedsubsidiaries.AfterFebruary28,
2007,thedateofcompletionofthemergertransactionwithUSLECCorp.,or“USLEC,”theaccompanyingselecteddataincludetheaccountsof
PAETECHoldingCorp.anditswhollyownedsubsidiaries,includingPAETECCorp.andPAETECCorp.’swhollyownedsubsidiariesandUSLECCorp.
andUSLECCorp.’swhollyownedsubsidiaries.AfterFebruary8,2008,thedateofcompletionofthemergertransactionwithMcLeodUSA,the
accompanyingselecteddataincludetheforegoingaccountsaswellastheaccountsofMcLeodUSAandMcLeodUSA’swhollyownedsubsidiaries.
Thefollowingtablesshowtheselectedconsolidatedstatementsofoperationsdata,consolidatedbalancesheetdata,otherfinancialdataand
operatingdataofPAETECCorp.asofandforeachoftheyearsendedDecember31,2004,2005and2006,andofPAETECHoldingasofandfor
theyearsendedDecember31,2007and2008.Theselectedconsolidatedstatementsofoperationsdata,otherfinancialdata,andtheselected
consolidatedbalancesheetdataarederivedfromPAETEC’sauditedconsolidatedfinancialstatementspreparedinaccordancewithaccounting
principlesgenerallyacceptedintheUnitedStatesofAmerica,or“GAAP.”PAETEC’shistoricalresultsarenotnecessarilyindicativeofitsresults
foranyfutureperiod.
YoushouldreadthedatasetforthbelowtogetherwithPAETEC’sconsolidatedfinancialstatementsandtherelatednotesand“Management’s
DiscussionandAnalysisofFinancialConditionandResultsofOperations,”andtheotherfinancialinformationappearinginPAETEC’sAnnual
ReportonForm10-Kforour2008fiscalyear.
YearEndedDecember31,2008(1)
2007(2)
200620052004
CONSOLIDATEDSTATEMENTSOFOPERATIONSDATA:(inthousandsexceptpersharedata)
Revenue:
Networkservicesrevenue$1,237,668$855,833$460,347$400,717$316,731
Carrierservicesrevenue271,279144,92488,28476,68570,767
Integratedsolutionsrevenue61,43340,25637,67132,02226,173
Totalrevenue1,570,3801,041,013586,302509,424413,671
Costofsales(exclusiveofoperatingitemsshown
separatelybelow)
781,347491,684282,169237,809168,115
Litigationsettlement––1,500(860)–
Retroactivenetworkcostdiscount–––(1,750)–
Selling,generalandadministrativeexpense.(exclusiveof
operatingitemsshownseparatelybelowandinclusiveof
stock-basedcompensation)
572,180373,715219,516193,846172,075
Impairmentcharge355,000––––
Integrationandseparationcosts12,7003,665–––
Leveragedrecapitalizationrelatedcosts––15,153––
Withdrawninitialpublicofferingandrelatedterminated
seniorsecuredcreditfacilityexpenses
–––4,553–
Depreciationandamortization174,25175,23734,61829,07622,808
(Loss)incomefromoperations(325,098)96,71233,34646,75050,673
Otherincome,net(663)(4,784)(4,509)(3,098)(715)
Interestexpense73,66368,37327,31910,47210,911
Lossonextinguishmentofdebt–14,5585,081––
ChangeinfairvalueofSeriesAconvertible
redeemablepreferredstockconversionright
––(10,778)10,778–
(Loss)incomebeforeincometaxes(398,098)18,56516,23328,59840,477
Provisionfor(benefitfrom)incometaxes89,7978,0378,43014,124(37,158)
Net(loss)income$(487,895)$10,528$7,803$14,474$77,635
(Loss)incomeallocatedtocommonstockholders$(487,895)$10,528$(33,155)$(623)$39,495
Basicnet(loss)incomepercommonshare(3)
$(3.48)$0.12$(1.05)$(0.02)$1.35
Dilutednet(loss)incomepercommonshare(3)(4)
$(3.48)$0.10$(1.05)$(0.02)$1.25
- 22. 42PAETECINREVIEW43
Whatadifferenceayearmakes.2008wasanimportantyearin
thelong-termevolutionofPAETEC.Wesuccessfullyclosedthe
acquisitionofMcLeodUSAandtransformedtheCompanyinto
theleadingnationalcompetitivecommunicationssolutionto
theincumbents.
Thecostofthedebtcamedownasinterest
expenseincreased7.7%duringtheyear,
despiteahigherincreaseindebtdueto
afavorableinterestrateenvironmentand
improvedoverallcostofcapitalrealizedby
increasedscopeandscale.
PAETECremainedwellwithinthesolefinancial
maintenancecovenantonourdebt.Infact,
duetothestrongsupportinthedebtcapital
marketsforPAETEC,weopportunistically
re-financed$350.0millionindebtduringthe
firsthalfof2009andextendedmaturitiesto
2017.Therefinancingoftheseniorsecured
notes,whichhadacouponof87
⁄8%,isanother
exampleofPAETECconservativelymanaging
ourbalancesheet.
Duringthefirstquarterof2009,wecontinued
ourstockrepurchaseprogram,which
authorizedtheCompanytobuybackupto
$30.0millionofourcommonstockthrough
themiddleofAugust2009.Attheendofthe
firstquarterof2009,wehadrepurchaseda
cumulativetotalof6.5millionsharesforan
aggregatepriceofapproximately$13.8million.
PAETEC’ssolidfinancialpositionisatestament
tothehardworkofouremployeesand
thesupportofourcustomersandpartners.
Wesincerelythankeachofthemfortheir
dedicationandcustomercommitment.
Wealsowanttothankallofourcustomers
andshareholdersforyourconfidenceand
support.Wewillcontinueworkinghardto
keepearningyourtrusteveryday.
Ourscaleandhistoricallyconservative
financialmanagementenabledPAETECto
marchaheaddespitetheturbulenteconomy.
Dueinlargeparttotheadditionofthe27newly
acquiredmarketsthroughoutthecentraland
westernUS,PAETEC’srevenuesgrew50.9%to
$1.57billion,andourAdjustedEBITDAgrewto
$237.7million,up21.2%from2007.Cashfrom
operationswasparticularlystrong,increasing
34.5%during2008to$152.1million.
Despitethehealthyfinancialperformance
during2008,PAETECdidreflectanetlossfor
theyearof$487.9million.Whiletheheadline
numberisquitesubstantial,thereweretwovery
significantnon-cashchargesthatwererequired
tobetakenduetoourdisciplinedadherence
toGAAP(GenerallyAcceptedAccounting
Principles).Wewerecompelledtotakea
non-cashchargeof$355.0million,duetothe
dropinourstock.Thisreflectedthedeclinein
goodwillassociatedwithrecentacquisitions.
Additionally,duetothesizableloss,we
recognizeda$104.3millionnon-cashwrite
downofadeferredtaxasset.Bothofthese
chargeswerenon-cashinnatureanddidnot
impactourcoreoperatingresults.
Thesolidoperatingperformanceenabled
PAETECtobolsteritsbalancesheet,andwe
endedtheyearwith$164.5millionofcashand
equivalents.Wealsoclosedouttheyearwith
the24th
consecutivequarterofpositivefree
cashflow.Netdebtincreasedamodest12.2%
duringtheyearprimarilyduetotheacquisition
ofMcLeodUSA.
KeithWilson
ChiefFinancialOfficer,ExecutiveVicePresident,andTreasurer
- 23. 44PAETECINREVIEW45
YearendedDecember31.2008(1)
2007(2)
200620052004
(inthousands)
Net(loss)income$(487,895)$10,528$7,803$14,474$77,635
Addbacknon-EBITDAitemsincludedinnet(loss)income:
Depreciationandamortization174,25175,23734,61829,07622,808
Interestexpense,netofinterestincome71,85763,60724,9959,06710,365
Provisionfor(benefitfrom)incometaxes89,7978,0378,43014,124(37,158)
EBITDA(151,990)157,40975,84666,74173,650
Stock-basedcompensation22,01520,5466,496––
Impairmentcharge355,000––––
Integrationandseparationcosts12,7003,665–––
Lossonextinguishmentofdebt–14,5585,081––
Leveragedrecapitalizationrelatedcosts––15,153––
Withdrawninitialpublicofferingandrelatedterminated
seniorsecuredcreditfacilityexpenses–––4,553–
ChangeinfairvalueofSeriesAconvertibleredeemable
preferredstockconversionright––(10,778)10,778–
AdjustedEBITDA$237,725$196,178$91,798$82,072$73,650
(6)EachmarketrepresentsageographicareainwhichPAETECoffersitsnetworkservices.
(7)SwitchesarecomputersthatconnectcustomerstoPAETEC’snetworkandtransmitvoiceanddatacommunicationsoverthenetwork.
(8)AnaccesslineisatelephonelinethatextendsfromoneofPAETEC’scentralofficestoacustomer’spremises.PAETECconnects
customerstoitsnetworkbyleasingdigitalT1telephoneanddatatransmissionlineslinkingitscustomerstothecentraloffice.Eachdigital
T1transmissionlineprovidesthecustomerwith24channelsfortelephoneordataservice,althoughsomecustomersdonotuseorpayfor
all24channels.PAETECcalculatesthenumberofaccesslineequivalentsithasinstalledbymultiplyingthenumberofdigitalT1transmission
linesithasinstalledby24.TheincreaseindigitalT1transmissionlinesandaccesslineequivalentsin2008wastheresultof82,109digital
T1transmissionlinesor1,970,616accesslineequivalentsacquiredthroughPAETEC’smergerwithMcLeodUSAcompletedonFebruary8,
2008.ThedigitalT1transmissionlinesreportedbyPAETECsinceitsacquisitionofMcLeodUSAhavebeenadjustedtoreflectconsistent
applicationofPAETEC’sreportingmethodology.Theadjustmenthasresultedintheinclusionofapproximatelyanadditional48,000digital
T1transmissionlines,representing1,152,000accesslineequivalents,tothosepreviouslyreportedasoftheMcLeodUSAmergerclosingdate
ofFebruary8,2008.TheadditionaldigitalT1transmissionlinesrepresenthighcapacitytransmissionlinesacquiredthroughtheMcLeodUSA
merger.TheincreaseindigitalT1transmissionlinesandaccesslineequivalentsin2007wastheresultof50,444digitalT1transmissionlines
or1,210,656accesslineequivalentsacquiredthroughPAETEC’smergerwithUSLECcompletedonFebruary28,2007.
SelectedConsolidatedFinancial&OperatingDataContinued
SELECTEDFINANCIALDATA
2008(1)
2007(2)
200620052004
AdjustedEBITDA$237,725$196,178$91,798$82,072$73,650
Purchasesofpropertyandequipment(119,492)(81,455)(41,032)(29,607)(24,034)
Freecashflow$118,233$114,723$50,766$52,465$49,616
Purchasesofpropertyandequipment119,49281,45541,03229,60724,034
Interestexpense,netofinterestincome(71,857)(63,607)(24,995)(9,067)(10,365)
Other(2,045)(754)(1,264)(1,081)(707)
Integrationandseparationcosts(12,700)(3,665)–––
Amortizationofdebtissuancecosts2,0621,9201,5132,1081,794
Amortizationofdebtdiscount1,006––––
Changeinfairvalueofinterestrateswaps––10(1,449)178
Withdrawninitialpublicofferingandrelatedterminated
seniorsecuredcreditfacilityexpenses–––(4,553)–
Leveragedrecapitalizationrelatedcosts––(12,531)––
Lossonextinguishmentofdebt–(2,000)(826)––
Changeinoperatingassetsandliabilities(2,060)(14,956)(150)(3,579)(6,656)
Netcashprovidedbyoperatingactivities$152,131$113,116$53,555$64,451$57,894
ReconciliationofFreeCashFlowtoGAAPMeasure
Freecashflow,asdefinedbyPAETEC,consistsofadjustedEBITDAlesscapitalexpenditures(purchasesofpropertyandequipment).Freecash
flow,asdefinedbyPAETEC,isnotafinancialmeasurementpreparedinaccordancewithGAAP.
PAETEChasincludeddatawithrespecttofreecashflowbecauseitsmanagementbelievesfreecashflowprovidesameasureofthecash
generatedbyPAETEC’soperationsbeforegivingeffecttonon-cashaccountingcharges,changesinoperatingassetsandliabilities,acquisition-
relateditems,taxitemsandsimilaritemsthatdonotdirectlyrelatetotheday-to-daycashexpensesofPAETEC’soperations,andaftergiving
effecttoapplicationofcapitalexpenditures.PAETEC’smanagementusesfreecashflowtomonitortheeffectofPAETEC’sdailyoperations
onitscashreservesanditsabilitytogeneratesufficientcashflowtofundPAETEC’sscheduleddebtmaturitiesandotherfinancingactivities,
includingpotentialrefinancingsandretirementsofdebt,andothercashitems.
PAETEC’smanagementbelievesthatconsiderationoffreecashflowshouldbesupplemental,however,becausefreecashflowhaslimitations
asananalyticalfinancialmeasure.Theselimitationsincludethefollowing:
·freecashflowdoesnotreflectPAETEC’scashexpendituresforscheduleddebtmaturitiesandotherfixedobligations,suchascapital
leases,vendorfinancingarrangementsandtheothercashitemsexcludedfromfreecashflow;and
·freecashflowmaybecalculatedinadifferentmannerbyothercompaniesinPAETEC’sindustry,whichlimitsitsusefulnessasa
comparativemeasure.
PAETEC’smanagementcompensatesfortheselimitationsbyrelyingprimarilyonPAETEC’sresultsunderGAAPtoevaluateitsoperating
performanceandbyconsideringindependentlytheeconomiceffectsoftheforegoingitemsthatarenotreflectedinfreecashflow.Asaresult
oftheselimitations,freecashflowshouldnotbeconsideredasanalternativetonetcashprovidedbyoperatingactivities,investingactivities,
financingactivitiesorchangesincashandcashequivalentsascalculatedinaccordancewithGAAP,norshoulditbeusedasameasureofthe
amountofcashavailablefordebtserviceorforthepaymentofdividendsorotherdiscretionaryexpenditures.
Followingisareconciliationoffreecashflowtonetcashprovidedbyoperatingactivities,asnetcashprovidedbyoperatingactivitiesis
calculatedinaccordancewithGAAP:
- 24. 46PAETECINREVIEW47
ADDRESSES
ISORegistrar
BSI,Inc.
12110SunsetHillsRoad
Suite200
Reston,VA20190
Phone:800.862.4977
Fax:703.437.9001
Accountants
Deloitte&ToucheLLP
2200ChaseSquare
Rochester,NY14604
Phone:585.238.3300
Fax:585.232.2890
http://www.deloitte.com
LegalCounsel
Hogan&HartsonL.L.P.
8300GreensboroDrive
Suite1100
McLean,VA22102
Phone:202.637.5600
Fax:202.637.5910
http://www.hhlaw.com
TransferAgent
AmericanStockTransfer&
TrustCompany
10150MallardCreekRoad
Suite#307
Charlotte,NC28262
DirectDial:718.921.8317
TollFree:877.248.641
CORPORATEINFO
EXECUTIVETEAM
ArunasA.Chesonis
ChiefExecutiveOfficer
EdwardJ.Butler,Jr.
ChiefOperatingOfficer,
ExecutiveVicePresident
KeithM.Wilson
ChiefFinancialOfficer,
ExecutiveVicePresident,
andTreasurer
AlgimantasK.Chesonis
SeniorVicePresident,
ChiefAccountingOfficer,
andController
RobertD.Moore,Jr.
SeniorVicePresident,
ChiefInformationOfficer
MaryO’Connell
SeniorVicePresident,
Secretary,andGeneralCounsel
LaurieZaucha
SeniorVicePresident,
HumanResources
JohnChapman
SeniorVicePresident,
Marketing
MarioDeRiggi
ExecutiveVicePresident,
President,NationalSales
andService
DougDerstine
SeniorVicePresident,
WholesaleBusinessUnit
KevinErrity
SeniorVicePresident,
President,EastRegion
SanjayHiranandani
SeniorVicePresident,
Engineering
JimHvisdas
ExecutiveVicePresident,
SwitchOperations
SharonLaMantia
ExecutiveVicePresident,
NetworkOperations
JohnLeach
SeniorVicePresident,
President,SouthRegion
SeanPflaging
SeniorVicePresident,
NetworkServices
DanReinbold
SeniorVicePresident,
President,CentralRegion
J.ChrisRyan
SeniorVicePresident,
ServiceDelivery
ReginaldScales
SeniorVicePresident,
President,WestRegion
DonnaB.Wenk
SeniorVicePresident,
SalesOperations,and
CustomerCare
AsofJune30,2009
BOARDOFDIRECTORS
ArunasA.Chesonis
ChairmanoftheBoard
RichardT.Aab
ViceChairmanandDirector
ShelleyDiamond
Director
H.RussellFrisby,Jr.
Director
TansukhV.Ganatra
Director
MichaelC.MacDonald
Director
WilliamR.McDermott
Director
AlexStadler
Director
KeithM.Wilson
Director
MarkZupan
Director
Design:
CoreyVance,ArtDirector
Suthida(Fon)Sakulsurarat,GraphicDesigner
Photography:
RobAnderson,KurtBrownell,OnSitePhotography,Suthida(Fon)Sakulsurarat,CoreyVance,BertVanderVeen
