High Speed Drives RCN


Overbuilder RCN last Thursday reported a strong fourth quarter and said that it would spread that good fortune to shareholders, possibly through a special dividend.

Revenue in the quarter rose 13% to $158 million and cash flow increased by about 54% to $34 million, despite a slight increase in total customers to 425,000 in the period versus 424,000 in the third quarter. For the full year, total customers rose by 6,000, reversing a loss of 6,000 subscribers in 2005.

Driving those increases were gains in high-speed data customers — RCN added 6,000 data customers in the period, while video and voice subscribers fell by 1,000 customers each. RCN's average revenue per customer rose to $107 from $103 in the same period in 2005.

RCN said it would return between $350 million and $400 million — most likely in the form of a dividend — to shareholders at a later date. The company will fund that initiative through cash on hand and additional borrowings. As a result, RCN's total indebtedness would rise to $500 million (from $202.8 million in 2006), or about 4 times fourth quarter 2006 annualized cash flow. The company had not previously issued dividends to shareholders.

Given RCN has about 42.3 million shares — including bonds that could be converted into 5 million shares — the dividend could be as large as $8.21 to $9.38 per share.