- Six consecutive quarters of strong
broadband net additions
- Sequential quarter over quarter growth
in residential revenue
- Revenue stability for the SME
business
- Attractive dividend payout ratio of
46%; free cash flow of $216 million
- 2014 guidance reaffirmed
- Connecticut acquisition remains on
track for a Q4 2014 close
Frontier Communications Corporation (NASDAQ:FTR) today reported
second quarter 2014 revenue of $1,147.3 million, operating income
of $224.3 million and net income attributable to common
shareholders of $37.7 million, or $0.04 per share. Excluding
acquisition and integration costs of $19.9 million,
acquisition-related interest expense of $7.5 million and severance
costs of $0.8 million, partially offset by discrete tax items of
$1.9 million (combined impact of $16.0 million after tax), non-GAAP
adjusted net income attributable to common shareholders, as defined
by the Company in the attached Schedule B, for the second quarter
of 2014 is $53.7 million, or $0.05 per share.
“Frontier further improved our revenue trajectory with
sequential growth in residential customer revenue and revenue
stability in the Small, Medium and Enterprise portion of the
business,” said Maggie Wilderotter, Frontier Chairman and Chief
Executive Officer. “This was the sixth consecutive quarter of
strong broadband net additions and our broadband market share
expanded in 82% of all markets during the first half of this year.
We are executing well against our operating plan in order to
continue these trends. It is gratifying to see our continued
progress toward our long-term objectives of revenue growth,
delivering strong free cash flow and maintaining a very attractive
dividend payout ratio.”
Dan McCarthy, Frontier President and Chief Operating Officer
added, “We have been successful in maintaining solid execution in
our current business while simultaneously preparing for a fourth
quarter close and integration of our Connecticut acquisition. We
are pleased that initiatives we have undertaken across the business
have been yielding positive results, as illustrated by our improved
momentum since Q1 2013 all the way through the first half of
2014. Our current offers are resonating in the market and we
expanded the capacity and reach of our networks. Q2 broadband net
additions were strong as were CPE sales and Frontier Secure
bundles. We will stay the course in Q3 and I remain optimistic that
our positive trends and momentum will continue.”
Revenue for the second quarter of 2014 was $1,147.3
million as compared to $1,154.0 million in the first quarter of
2014 and $1,190.5 million in the second quarter of 2013. Total
revenue for the second quarter of 2014 declined sequentially by
$6.8 million, or 0.6%, from the first quarter of 2014 and by $43.3
million, or 4%, from the second quarter of 2013.
Customer revenue for the second quarter of 2014 of
$1,013.3 million declined 0.7% sequentially as compared to $1,020.9
million in the first quarter of 2014, primarily due to lower voice
revenue and lower non-switched access revenue resulting from the
expected decline in wireless backhaul revenue, partially offset by
the increase in data services revenue. Total residential
revenue was $497.0 million for the second quarter of 2014 as
compared to $496.0 million in the first quarter of 2014, a 0.2%
sequential increase. Total business revenue was $516.3
million for the second quarter of 2014 as compared to $525.0
million in the first quarter of 2014, a 2% decline.
At June 30, 2014, the Company had 2,762,100 residential
customers and 264,200 business customers. The
second quarter of 2014 resulted in a net loss of 31,800 residential
customers as compared to 9,600 customers in the three months ended
March 31, 2014 and 16,300 customers in the three months ended June
30, 2013. Residential customer losses increased by 22,200 in the
second quarter of 2014 as compared to the first quarter of 2014,
primarily due to fewer gross customer additions. The Company’s
marketing focused on bundled customer offers instead of its
standalone broadband product and anticipated seasonal disconnects
occurred in markets with colleges and universities. The average
monthly residential revenue per customer was $59.64 in the second
quarter of 2014, an increase of $0.57 as compared to $59.07 in the
first quarter of 2014 and $0.58 as compared to $59.06 in the second
quarter of 2013.
During the three months ended June 30, 2014, the Company
improved the rate of sequential decline in business customers by
51%, losing approximately 2,200 customers as compared to 4,400
customers in the three months ended March 31, 2014 and 2,900
customers in the three months ended June 30, 2013. During the most
recent quarter, the average monthly business revenue per customer
was $648.71, or 0.4% lower than the first quarter of 2014 and 0.5%
lower than the second quarter of 2013.
The Company’s broadband customer net additions were
27,700 and 64,900 during the second quarter and first half of 2014,
respectively. Since the beginning of 2013, the Company has added
177,100 net broadband customers. The Company had 1,931,500
broadband customers at June 30, 2014. The Company added 3,600 net
video customers during the second quarter of 2014. The Company had
393,900 video customers at June 30, 2014.
Network access expenses for the second quarter of 2014
were $106.2 million as compared to $107.1 million in both the first
quarter of 2014 and the second quarter of 2013.
Other operating expenses for the second quarter of 2014
were $523.4 million as compared to $528.9 million in the first
quarter of 2014 and $534.0 million in the second quarter of 2013.
Included in other operating expenses were severance costs of $0.8
million, $0.4 million and $4.3 million in the second quarter of
2014, the first quarter of 2014 and the second quarter of 2013,
respectively. Other operating expenses, excluding severance costs,
in the second quarter of 2014 were lower than in the second quarter
of 2013 by $7.2 million, primarily due to decreased compensation
and benefit costs resulting from reduced headcount.
Depreciation and amortization for the second quarter of
2014 was $273.5 million as compared to $281.4 million in the first
quarter of 2014 and $297.8 million in the second quarter of 2013.
Amortization expense decreased by $11.1 million in the second
quarter of 2014 as compared to the second quarter of 2013 due to
the amortization recognized on an accelerated method related to the
customer base.
Acquisition and integration costs for the second quarter
of 2014 were $19.9 million ($0.01 per share after tax) as compared
to $10.6 million ($0.01 per share after tax) in the first quarter
of 2014 in connection with the pending AT&T Connecticut
transaction, as previously announced on December 17, 2013.
Operating income for the second quarter of 2014 was
$224.3 million and operating income margin was 19.6 percent as
compared to operating income of $226.0 million and operating income
margin of 19.6 percent in the first quarter of 2014 and operating
income of $266.2 million and operating income margin of 22.4
percent in the second quarter of 2013, reflecting the gain of $14.6
million on sale of Mohave partnership interest.
Interest expense for the second quarter of 2014 was
$167.6 million as compared to $171.0 million in the first quarter
of 2014 and $166.5 million in the second quarter of 2013. Interest
expense increased by $1.1 million, as compared to the second
quarter of 2013, primarily due to the $7.5 million recognized
during the second quarter of 2014 related to commitment fees on the
bridge loan facility in connection with the pending AT&T
Connecticut transaction, mostly offset by lower average debt levels
resulting from the debt refinancing activities and debt retirements
during 2013.
Income tax expense (benefit) for the second quarter of
2014 was a tax expense of $19.0 million as compared to a tax
expense of $17.2 million in the first quarter of 2014 and a tax
benefit of $(18.8) million in the second quarter of 2013. Income
tax expense increased by $37.8 million in the second quarter of
2014 as compared to the second quarter of 2013, principally due to
losses of $159.8 million on the early extinguishment of debt
recognized in 2013. The Company had an effective tax rate for the
second quarter of 2014 and 2013 of 33.6% and 32.8%, respectively.
The second quarter of 2014 includes discrete tax items arising from
the net reversal of reserves for uncertain tax positions with an
impact of $1.9 million in reduced income tax expense.
Net income (loss) attributable to common shareholders of
Frontier was $37.7 million, or $0.04 per share, in the second
quarter of 2014, as compared to $39.3 million, or $0.04 per share,
in the first quarter of 2014 and net loss of $(38.5) million, or
$(0.04) per share, in the second quarter of 2013. The second
quarter of 2014 includes acquisition and integration costs of $19.9
million, acquisition related interest expense of $7.5 million and
severance costs of $0.8 million, partially offset by discrete tax
items of $1.9 million (combined impact of $16.0 million after tax).
Excluding the impact of the aforementioned items, non-GAAP adjusted
net income attributable to common shareholders of Frontier for the
second quarter of 2014 would be $53.7 million, or $0.05 per share,
as compared to $48.4 million, or $0.05 per share, in the first
quarter of 2014 and $61.3 million, or $0.06 per share, in the
second quarter of 2013.
Capital expenditures for Frontier business operations
were $125.5 million for the second quarter of 2014 and $260.6
million for the first six months of 2014, as compared to $137.5
million for the second quarter of 2013 and $326.5 million for the
first six months of 2013. The Company also incurred $31.2 million
in capital expenditures during the second quarter of 2014 related
to integration activities in connection with the pending AT&T
Connecticut transaction. In the second quarter of 2014, the Company
also used $18.2 million of the previously received Connect America
Fund funding, as compared to $7.4 million in the second quarter of
2013.
Operating cash flow was $497.8 million for the second
quarter of 2014 resulting in an operating cash flow margin of
43.4%. Operating cash flow, as adjusted and defined by the Company
in the attached Schedule A, was $515.0 million, or 44.9%, after
excluding $19.9 million of acquisition and integration costs and
$0.8 million of severance costs, partially offset by a $3.5 million
credit for non-cash pension and other postretirement benefit
costs.
Free cash flow, as defined by the Company in the attached
Schedule A, was $215.9 million for the second quarter of 2014 and
$451.1 million for the first six months of 2014. The Company’s
dividend represents a payout of 46% of free cash flow for the
second quarter of 2014 and 44% for the first six months of
2014.
Working Capital
At June 30, 2014, the Company had a working capital surplus of
$129.0 million, which includes the classification of certain debt
maturing in the first half of 2015 of $232.2 million as a current
liability.
Renewal of Revolving Credit Facility
On June 2, 2014, the Company entered into a new $750.0 million
revolving credit facility that will expire on May 31, 2018. Upon
entering into the new facility, the existing facility was
terminated.
Delayed Draw Debt Financing
On June 2, 2014, the Company completed a bank financing for a
$350.0 million senior unsecured delayed draw term loan facility.
The term loans will be drawn upon closing of the AT&T
Connecticut transaction and proceeds will be used to partially
finance the acquisition. The final maturity date is the earlier of
the fifth anniversary of the draw date and December 15, 2019.
Pension Contributions
The Company made total cash contributions to its pension plan of
$19.6 million during the second quarter of 2014 and $31.2 million
during the first six months of 2014. We expect that we will make
contributions of cash and/or other assets to our pension plan of
approximately $100 million in 2014.
2014 Guidance Remains Unchanged
For the full year of 2014, the Company’s expectations for
capital expenditures and free cash flow for Frontier
business operations remain unchanged and are within a range of $575
million to $625 million and $725 million to $775 million,
respectively. Acquisition and integration costs for the pending
AT&T Connecticut transaction are excluded from this guidance.
The Company expects that absent any further legislative changes in
2014, its cash taxes guidance remains unchanged and will be
in the range of $130 million to $160 million for 2014 for our
current business operations, taking into account our estimated
pre-close integration expenditures. Our expectations to incur
additional operating expenses of $140 million to $170 million and
capital expenditures of $85 million to $105 million in 2014 related
to integration activities in connection with the pending AT&T
Connecticut transaction also remain unchanged.
Non-GAAP Measures
The Company uses certain non-GAAP financial measures in
evaluating its performance. These include non-GAAP adjusted net
income attributable to common shareholders of Frontier, free cash
flow, operating cash flow and adjusted operating cash flow. A
reconciliation of the differences between non-GAAP adjusted net
income attributable to common shareholders of Frontier, free cash
flow, operating cash flow and adjusted operating cash flow and the
most comparable financial measures calculated and presented in
accordance with GAAP is included in the tables that follow. The
non-GAAP financial measures are by definition not measures of
financial performance under GAAP, and are not alternatives to
operating income or net income attributable to common shareholders
of Frontier as 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. The non-GAAP financial measures used by the Company may not
be comparable to similarly titled measures of other companies.
The Company believes that the presentation of these non-GAAP
financial measures provides useful information to investors
regarding the Company’s financial condition and results of
operations because these measures, when used in conjunction with
related GAAP financial measures, (i) together provide a more
comprehensive view of the Company’s core operations and ability to
generate cash flow, (ii) provide investors with the financial
analytical framework upon which management bases financial,
operational, compensation and planning decisions and (iii) presents
measurements that investors and rating agencies have indicated to
management are useful to them in assessing the Company and its
results of operations. In addition, the Company believes that
non-GAAP adjusted net income attributable to common shareholders of
Frontier, free cash flow, operating cash flow and adjusted
operating cash flow, as the Company defines them, can assist in
comparing performance from period to period, without taking into
account factors affecting operating income or net income
attributable to common shareholders of Frontier in the statement of
operations, or cash flow reflected in the statement of cash flows,
including changes in working capital and the timing of purchases
and payments. The Company has shown adjustments to its financial
presentations to exclude investment gains, discrete tax items,
acquisition and integration costs, acquisition related interest
expense, severance costs, non-cash pension and other postretirement
benefit costs, losses on early extinguishment of debt and gain on
sale of Mohave partnership interest, as disclosed in the attached
Schedules A and B, because investors have indicated to management
that such adjustments are useful to them in assessing the Company
and its results of operations.
Management uses these non-GAAP financial measures to (i) assist
in analyzing the Company’s underlying financial performance from
period to period, (ii) evaluate the financial performance of its
business units, (iii) analyze and evaluate strategic and
operational decisions, (iv) establish criteria for compensation
decisions, and (v) assist management in understanding the Company’s
ability to generate cash flow and, as a result, to plan for future
capital and operational decisions. Management uses these non-GAAP
financial measures in conjunction with related GAAP financial
measures.
These non-GAAP financial measures have certain shortcomings. In
particular, free cash flow does not represent the residual cash
flow available for discretionary expenditures, since items such as
debt repayments and dividends are not deducted in determining such
measure. Operating cash flow has similar shortcomings as interest,
income taxes, capital expenditures, debt repayments and dividends
are not deducted in determining this 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 our
documents filed with the U.S. Securities and Exchange
Commission.
Conference Call and Webcast
The Company will host a conference call today at 4:30 P.M.
Eastern time. In connection with the conference call and as a
convenience to investors, the Company furnished today on a Current
Report on Form 8-K certain materials regarding second quarter 2014
results. The conference call will be webcast and may be accessed
at:
http://investor.frontier.com/events.cfm
A telephonic replay of the conference call will be available for
one week beginning at 8:00 P.M. Eastern time, Tuesday, August 5,
2014 via dial-in at 888-203-1112 for U.S. and Canadian callers or,
outside the United States and Canada, at 719-457-0820, passcode
8662865. A webcast replay of the call will be available at
www.frontier.com/ir.
About Frontier Communications
Frontier Communications Corporation (NASDAQ:FTR) offers
broadband, voice, satellite video, wireless Internet data access,
data security solutions, bundled offerings and specialized bundles
for residential customers, small businesses and home offices, and
advanced communications for medium and large businesses in 27
states. Frontier’s approximately 13,900 employees are based
entirely in the United States. More information is available at
www.frontier.com and www.frontier.com/ir.
Forward-Looking Statements
This press release contains forward-looking statements that are
made pursuant to the safe harbor provisions of The Private
Securities Litigation Reform Act of 1995. These statements are made
on the basis of management’s views and assumptions regarding future
events and business performance. Words such as “believe,”
“anticipate,” “expect” and similar expressions are intended to
identify forward-looking statements. Forward-looking statements
(including oral representations) involve risks and uncertainties
that may cause actual results to differ materially from any future
results, performance or achievements expressed or implied by such
statements. These risks and uncertainties include, but are not
limited to: our ability to complete the acquisition of the
Connecticut operations from AT&T on the terms or timeline
currently contemplated, or at all; the ability to successfully
integrate the Connecticut operations into our existing operations
and the diversion of management’s attention from ongoing business
and regular business responsibilities to effect such integration;
the effects of increased expenses incurred due to activities
related to the AT&T Transaction; the risk that the cost savings
from the AT&T Transaction may not be fully realized or may take
longer to realize than expected or that our actual integration
costs may exceed our estimates; the sufficiency of the assets to be
acquired from AT&T to enable the combined company to operate
the acquired business; failure to enter into or obtain, or delays
in entering into or obtaining, certain agreements and consents
necessary to operate the acquired business as planned; the failure
to obtain, delays in obtaining or adverse conditions contained in
any required regulatory approvals for the AT&T Transaction;
disruption from the AT&T Transaction making it more difficult
to maintain relationships with customers or suppliers of the
Connecticut operations; the effects of greater than anticipated
competition from cable, wireless and other wireline carriers that
could require us to implement new pricing, marketing strategies or
new product or service offerings and the risk that we will not
respond on a timely or profitable basis; reductions in the number
of our voice customers that we cannot offset with increases in
broadband subscribers and sales of other products and services; our
ability to maintain relationships with customers, employees or
suppliers; the effects of ongoing changes in the regulation of the
communications industry as a result of federal and state
legislation and regulation, or changes in the enforcement or
interpretation of such legislation and regulation; the effects of
any unfavorable outcome with respect to any current or future
legal, governmental or regulatory proceedings, audits or disputes;
the effects of changes in the availability of federal and state
universal service funding or other subsidies to us and our
competitors; our ability to successfully adjust to changes in the
communications industry and to implement strategies for growth;
continued reductions in switched access revenues as a result of
regulation, competition or technology substitutions; our ability to
effectively manage service quality in our territories and meet
mandated service quality metrics; our ability to successfully
introduce new product offerings, including our ability to offer
bundled service packages on terms that are both profitable to us
and attractive to customers; the effects of changes in accounting
policies or practices adopted voluntarily or as required by
generally accepted accounting principles or regulations; our
ability to effectively manage our operations, operating expenses
and capital expenditures, and to repay, reduce or refinance our
debt; the effects of changes in both general and local economic
conditions on the markets that we serve, which can affect demand
for our products and services, customer purchasing decisions,
collectability of revenues and required levels of capital
expenditures related to new construction of residences and
businesses; the effects of technological changes and competition on
our capital expenditures, products and service offerings, including
the lack of assurance that our network improvements in speed and
capacity will be sufficient to meet or exceed the capabilities and
quality of competing networks; the effects of increased medical
expenses (including as a result of the impact of the Patient
Protection and Affordable Care Act) and pension and postemployment
expenses, such as retiree medical and severance costs, and related
funding requirements; the effects of changes in income tax rates,
tax laws, regulations or rulings, or federal or state tax
assessments; our ability to successfully renegotiate union
contracts; changes in pension plan assumptions and/or the value of
our pension plan assets, which could require us to make increased
contributions to the pension plan in 2014 and beyond; the effects
of economic downturns which could result in difficulty in
collection of revenues and loss of customers; adverse changes in
the credit markets or in the ratings given to our debt securities
by nationally accredited ratings organizations, which could limit
or restrict the availability, or increase the cost, of financing to
us; our cash flow from operations, amount of capital expenditures,
debt service requirements, cash paid for income taxes and liquidity
may affect our payment of dividends on our common shares; the
effects of state regulatory cash management practices that could
limit our ability to transfer cash among our subsidiaries or
dividend funds up to the parent company; and the effects of severe
weather events such as hurricanes, tornadoes, ice storms or other
natural or man-made disasters, which may increase our operating
expenses or adversely impact customer revenue. These and other
uncertainties related to our business are described in greater
detail in our filings with the U.S. Securities and Exchange
Commission, including our reports on Forms 10-K and 10-Q, and the
foregoing information should be read in conjunction with these
filings. We do not intend to update or revise these forward-looking
statements to reflect the occurrence of future events or
circumstances.
Frontier Communications
Corporation
Consolidated Financial Data
For the quarter ended For the six months ended
($ in thousands,
except per share amounts)
June 30, March 31, June 30, June 30, 2014 2014 2013
2014 2013
Income Statement Data Revenue $
1,147,265 $ 1,154,046 $ 1,190,533 $ 2,301,311
$ 2,395,929 Operating expenses: Network access
expenses 106,224 107,092 107,114 213,316 216,512 Other operating
expenses (1) 523,385 528,926 534,015 1,052,311 1,075,514
Depreciation and amortization 273,463 281,407 297,849 554,870
601,524 Acquisition and integration costs (2) 19,851
10,596 - 30,447 -
Total operating expenses 922,923
928,021 938,978 1,850,944
1,893,550 Gain on sale of Mohave partnership interest
- - 14,601 -
14,601 Operating income 224,342 226,025
266,156 450,367 516,980 Investment and other income
(expense), net (17 ) 1,395 2,956 1,378 7,610 Losses on early
extinguishment of debt - - 159,780 - 159,780 Interest expense
167,611 170,957 166,547
338,568 337,967 Income (loss)
before income taxes 56,714 56,463 (57,215 ) 113,177 26,843 Income
tax expense (benefit) 19,034 17,189
(18,755 ) 36,223 14,520
Net income (loss) (2) 37,680 39,274 (38,460 ) 76,954 12,323
Less: Income attributable to the
noncontrolling interest in a partnership
- - - -
2,643
Net income (loss) attributable to
common shareholders of Frontier
$ 37,680 $ 39,274 $ (38,460 ) $ 76,954 $ 9,680
Weighted average shares outstanding 994,628 994,026
992,611 994,285 992,164
Basic net income (loss) per common
share attributable to common shareholders of Frontier
(3)
$ 0.04 $ 0.04 $ (0.04 ) $ 0.08 $ 0.01
Non-GAAP adjusted net income (loss) per
common share attributable to common shareholders of Frontier
(3)(4)
$ 0.05 $ 0.05 $ 0.06 $ 0.10 $ 0.11
Other Financial Data Capital expenditures -
Business operations $ 125,536 $ 135,059 $ 137,513 $ 260,595 $
326,522 Capital expenditures - Integration activities 31,227 10,348
- 41,575 - Operating cash flow, as adjusted (4) 515,031 521,469
557,286 1,036,500 1,119,218 Free cash flow (4) 215,899 235,154
175,873 451,053 382,080 Dividends paid 100,209 100,228 100,054
200,437 199,866 Dividend payout ratio (5) 46 % 43 % 57 % 44 % 52 %
(1) Includes severance costs of $0.8 million, $0.4 million
and $4.3 million for the quarters ended June 30, 2014, March 31,
2014 and June 30, 2013, respectively, and $1.2 million and $6.7
million for the six months ended June 30, 2014 and 2013,
respectively. (2) Reflects acquisition and integration costs of
$19.9 million ($12.6 million or $0.01 per share after tax) and
$10.6 million ($6.9 million or $0.01 per share after tax) for the
quarters ended June 30, 2014 and March 31, 2014, respectively, and
$30.4 million ($19.5 million or $0.02 per share after tax) for the
six months ended June 30, 2014. (3) Calculation based on weighted
average shares outstanding. (4) Reconciliations to the most
comparable GAAP measures are presented in Schedules A and B at the
end of these tables. (5) Represents dividends paid divided by free
cash flow, as defined in Schedule A.
Frontier Communications
Corporation
Consolidated Financial and Operating
Data
For the quarter ended For the six months ended
(Amounts in
thousands, except operating data)
June 30, March 31, June 30, June 30, 2014 2014 2013
2014 2013
Selected Income Statement Data
Revenue: Voice services $ 471,570 $ 482,319 $ 513,800 $
953,889 $ 1,039,744 Data and internet services 462,730 461,496
467,428 924,226 922,264 Other 79,001 77,123
70,622 156,124 152,980
Customer revenue 1,013,301 1,020,938 1,051,850 2,034,239
2,114,988 Switched access and subsidy 133,964
133,108 138,683 267,072
280,941 Total revenue $ 1,147,265 $ 1,154,046
$ 1,190,533 $ 2,301,311 $ 2,395,929
Other Financial and Operating Data Revenue:
Residential $ 497,040 $ 495,964 $ 505,181 $ 993,004 $ 1,019,706
Business 516,261 524,974 546,669
1,041,235 1,095,282 Customer
revenue 1,013,301 1,020,938 1,051,850 2,034,239 2,114,988 Switched
access and subsidy 133,964 133,108
138,683 267,072 280,941
Total revenue $ 1,147,265 $ 1,154,046 $ 1,190,533
$ 2,301,311 $ 2,395,929
Customers 3,026,281 3,060,280 3,121,014 3,026,281 3,121,014
Residential customer metrics: Customers 2,762,099 2,793,908
2,842,883 2,762,099 2,842,883 Revenue $ 497,040 $ 495,964 $ 505,181
$ 993,004 $ 1,019,706 Average monthly residential revenue per
customer (1) $ 59.64 $ 59.07 $ 59.06 $ 59.35 $ 58.95 Customer
monthly churn 1.80 % 1.63 % 1.64 % 1.71 % 1.64 %
Business
customer metrics: Customers 264,182 266,372 278,131 264,182
278,131 Revenue $ 516,261 $ 524,974 $ 546,669 $ 1,041,235 $
1,095,282 Average monthly business revenue per customer $ 648.71 $
651.53 $ 651.75 $ 649.97 $ 648.02
Employees 13,910
13,676 14,069 13,910 14,069
Broadband subscribers 1,931,521
1,903,828 1,812,110 1,931,521 1,812,110
Video subscribers
393,901 390,334 380,180 393,901 380,180
Switched access minutes
of use (in millions) 3,760 3,943 4,109 7,703 8,399
(1) Calculation excludes the Mohave Cellular Limited
Partnership.
Note: As stated in our quarterly report for the period ended
March 31, 2014, prior period revenue and certain operating
statistics have been revised from the previously disclosed amounts
to reflect the immaterial reclassification of certain revenues from
residential to business and the related impact on average monthly
revenue per customer amounts.
Frontier Communications
Corporation
Condensed Consolidated Balance Sheet
Data
($ in
thousands)
June 30, 2014 December 31, 2013
ASSETS
Current assets: Cash and cash equivalents $
801,697
$
880,039
Accounts receivable, net 463,932 479,210 Restricted cash 3,200
11,411 Other current assets 142,426 248,179
Total current assets 1,411,255 1,618,839 Restricted
cash 2,000 2,000 Property, plant and equipment, net 7,162,649
7,255,762 Other assets - principally goodwill 7,603,374
7,758,883 Total assets $ 16,179,278 $
16,635,484
LIABILITIES AND
EQUITY
Current liabilities: Long-term debt due within one year $ 262,527 $
257,916 Accounts payable and other current liabilities
1,019,727 1,043,671 Total current liabilities
1,282,254 1,301,587 Deferred income taxes and other
liabilities 3,303,041 3,404,749 Long-term debt 7,650,833 7,873,667
Equity 3,943,150 4,055,481 Total
liabilities and equity $ 16,179,278 $ 16,635,484
Frontier Communications
Corporation
Consolidated Cash Flow Data
($ in
thousands)
For the six months ended June 30, 2014 2013
Cash flows provided by (used in) operating activities: Net
income $ 76,954 $ 12,323
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 554,870 601,524 Losses on early
extinguishment of debt - 159,780 Pension/OPEB costs (417 ) 8,608
Stock based compensation expense 11,892 8,927 Gain on sale of
Mohave partnership interest - (14,601 ) Other non-cash adjustments
19,567 5,568 Deferred income taxes (66,493 ) (19,148 ) Change in
accounts receivable 15,278 43,202 Change in accounts payable and
other liabilities (34,881 ) (75,159 ) Change in other current
assets 64,349 (50,317 )
Net cash provided
by operating activities 641,119 680,707
Cash flows
provided from (used by) investing activities: Capital
expenditures - Business operations (260,595 ) (326,522 ) Capital
expenditures - Integration activities (41,575 ) - Network expansion
funded by Connect America Fund (24,568 ) (9,233 ) Grant funds
received for network expansion from Connect America Fund 3,748
5,998 Proceeds on sale of Mohave partnership interest - 17,755 Cash
transferred from escrow 8,211 21,790 Other assets purchased and
distributions received, net 21,986 1,721
Net cash used by investing activities (292,793 )
(288,491 )
Cash flows provided from (used by) financing
activities: Long-term debt borrowings 10,801 750,000 Financing
costs paid (6,140 ) (19,360 ) Long-term debt payments (229,626 )
(1,534,074 ) Premium paid to retire debt - (159,429 ) Dividends
paid (200,437 ) (199,866 ) Other financing activities (1,266
) (7,389 )
Net cash used by financing activities
(426,668 ) (1,170,118 ) Decrease in cash and cash
equivalents (78,342 ) (777,902 ) Cash and cash equivalents at
January 1, 880,039 1,326,532
Cash and cash equivalents at June 30, $ 801,697 $
548,630
Supplemental cash flow information:
Cash paid during the period for: Interest $ 319,326 $
348,459 Income taxes, net $ 14,408 $ 83,462
Schedule A
Frontier Communications
Corporation
Reconciliation of Non-GAAP Financial
Measures
For the quarter ended For the six months ended
($ in
thousands)
June 30, March 31, June 30, June 30, 2014 2014 2013
2014 2013
Operating Income to
Adjusted Operating Cash Flow to Free Cash Flow
Revenue $ 1,147,265 $
1,154,046 $ 1,190,533 $
2,301,311 $ 2,395,929 Less: Total operating
expenses 922,923 928,021 938,978 1,850,944 1,893,550 Add: Gain on
sale of Mohave partnership interest - -
14,601 - 14,601
Operating income 224,342 226,025
266,156 450,367 516,980 Depreciation
and amortization 273,463 281,407
297,849 554,870 601,524
Operating cash flow 497,805 507,432 564,005 1,005,237
1,118,504 Add back: Acquisition and integration costs 19,851
10,596 - 30,447 - Pension/OPEB costs (non-cash) (1) (3,470 ) 3,053
3,590 (417 ) 8,608 Severance costs 845 388 4,292 1,233 6,707
Subtract: Gain on sale of Mohave partnership interest -
- 14,601 -
14,601
Adjusted operating cash flow 515,031
521,469 557,286 1,036,500 1,119,218
Add back: Interest and dividend income 110 1,122 120 1,232
1,886 Stock based compensation 5,741 6,151 5,042 11,892 8,927
Subtract: Cash paid (refunded) for income taxes 19,336
(4,928 ) 82,515 14,408 83,462 Capital expenditures - Business
operations (2) 125,536 135,059 137,513 260,595 326,522 Interest
expense (3) 160,111 163,457
166,547 323,568 337,967
Free
cash flow $ 215,899 $
235,154 $ 175,873 $
451,053 $ 382,080
Operating income margin (Operating
income divided by revenue)
As Reported 19.6 % 19.6 % 22.4 % 19.6 % 21.6 %
As Adjusted (4)
21.1 % 20.8 % 21.8 % 20.9 % 21.6 %
Operating cash flow margin (Operating
cash flow divided by revenue)
As Reported 43.4 % 44.0 % 47.4 % 43.7 % 46.7 % As Adjusted 44.9 %
45.2 % 46.8 % 45.0 % 46.7 % (1) Reflects pension and other
postretirement benefit (OPEB) expense, net of capitalized amounts,
of $14.2 million, $14.3 million and $20.5 million for the quarters
ended June 30, 2014, March 31, 2014 and June 30, 2013,
respectively, less cash pension contributions and certain OPEB
costs/payments of $17.7 million, $11.2 million and $16.9 million
for the quarters ended June 30, 2014, March 31, 2014 and June 30,
2013, respectively. Reflects pension and OPEB expense, net of
capitalized amounts, of $28.5 million and $41.0 million for the six
months ended June 30, 2014 and 2013, respectively, less cash
pension contributions and certain OPEB costs/payments of $28.9
million and $32.4 million for the six months ended June 30, 2014
and 2013, respectively. (2) Excludes capital expenditures for
integration activities. (3) Excludes interest expense of $7.5
million for the quarters ended June 30, 2014 and March 31, 2014,
and $15.0 million for the six months ended June 30, 2014, related
to commitment fees on the bridge loan facility in connection with
the pending AT&T Connecticut transaction. (4) Excludes
acquisition and integration costs, pension and OPEB costs
(non-cash), severance costs and gain on sale of Mohave partnership
interest.
Schedule B
Frontier Communications
Corporation
Reconciliation of Non-GAAP Financial
Measures
($ in thousands,
except per share amounts)
For the quarter ended June 30, 2014 March 31, 2014
June 30, 2013
Earnings Per
Earnings Per
Net Income
Earnings (Loss)
Net income (loss)
attributable to common shareholders of Frontier
Net Income
Share
Net Income
Share
(Loss)
Per Share
GAAP, as reported $ 37,680 $
0.04
$ 39,274 $
0.04
$ (38,460 ) $ (0.04 ) Losses on early extinguishment of debt - - -
- 98,888 0.10 Gain on sale of Mohave partnership interest - - - -
(8,591 ) (0.01 ) Gain on investment in Adelphia - - - - (94 ) -
Acquisition and integration costs 12,595 0.01 6,855 0.01 - -
Severance costs 537 - 251 - 2,756 - Acquisition related interest
expense (1) 4,730 0.01 4,852 - - - Discrete tax items (2)
(1,861 ) - (2,866 ) -
6,800 0.01
Non-GAAP, as adjusted
(3)
$ 53,681 $ 0.05 $ 48,366 $ 0.05 $
61,299 $ 0.06 For the six months ended June
30, 2014 June 30, 2013
Earnings Per
Earnings Per
Net income (loss)
attributable to common shareholders of Frontier
Net Income
Share
Net Income
Share
GAAP, as reported $ 76,954 $ 0.08 $ 9,680 $ 0.01 Losses on
early extinguishment of debt - - 98,888 0.10 Gain on sale of Mohave
partnership interest - - (8,591 ) (0.01 ) Gain on investment in
Adelphia - - (889 ) - Acquisition and integration costs 19,450 0.02
- - Severance costs 788 - 4,238 - Acquisition related interest
expense (1) 9,582 0.01 - - Discrete tax items (2) (4,727 )
- 6,800 0.01
Non-GAAP, as adjusted
(3)
$ 102,047 $ 0.10 $ 110,126 $ 0.11 (1)
Represents interest expense related to commitment fees on
the bridge loan facility in connection with the pending AT&T
Connecticut transaction. (2) Includes impact arising from state law
changes, the net reversal of uncertain tax positions, settlement of
an IRS audit and changes in certain deferred tax balances. (3)
Non-GAAP, as adjusted may not sum due to rounding.
Frontier Communications CorporationINVESTORS:Luke Szymczak,
203-614-5044Vice President, Investor
Relationsluke.szymczak@FTR.comorMEDIA:Brigid
Smith, 203-614-5042AVP, Corporate
Communicationsbrigid.smith@FTR.com
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