- Strong quarter with 21,900 net
broadband additions and sequential customer revenue growth
- Successful closing of the Connecticut
acquisition on October 24, 2014
- Delivered “Day One” acquisition
synergies of $150 million – double initial expectations
- Signed $100 million 3-year contract to
supply Premium Technical Support to Intuit
- Launched the $10 million America’s Best
Communities Contest with DISH and CoBank
- Maintained a sustainable dividend
payout ratio
Frontier Communications Corporation (NASDAQ:FTR) today reported
third quarter 2014 revenue of $1,140.9 million, operating income of
$197.0 million and net income attributable to common shareholders
of $42.0 million, or $0.04 per share. Excluding acquisition and
integration costs of $41.6 million, acquisition-related interest
expense of $7.5 million, and severance costs of $0.4 million,
partially offset by the gain on sale of assets of $25.0 million and
certain tax benefit items of $10.0 million, net (combined impact of
$5.7 million after tax), non-GAAP adjusted net income attributable
to common shareholders, as defined by the Company in the attached
Schedule B, for the third quarter of 2014 was $47.7 million, or
$0.05 per share.
“We are very pleased to have achieved sequential growth both in
residential and in business customer revenue in the third quarter,”
said Maggie Wilderotter, Chairman and CEO. “This represents
continuing progress in our objective of improving our revenue
trajectory. We also delivered our seventh consecutive quarter of
strong broadband net additions, with market share improvements in
81% of local markets year-to-date. In addition, today we announced
an expansion of our strategic partnership with Intuit to provide
premium tech customer support to their small business customers and
accountants who use QuickBooks® Online, QuickBooks® desktop,
Payments and Payroll products. Finally, our “America’s Best
Communities” prize contest launched this quarter with DISH Networks
and CoBank as our key partners, providing small communities in the
Frontier footprint the opportunity to win up to $3 million for
submitting and implementing a strong economic development and
improved lifestyle plan. With this momentum, combined with the
potential we have in our newly-acquired Connecticut markets, we are
extremely well positioned to achieve our long-term objectives of
revenue growth, delivering strong free cash flow, and maintaining a
very attractive dividend payout ratio.”
“We have hit the ground running in Connecticut,” said Dan
McCarthy, President and COO. “The entire team did an exceptional
job in preparing for this acquisition, and we are now executing on
our well-laid plans to introduce Frontier’s offerings in
Connecticut, utilize our distribution channels, and expand
broadband capabilities. Our annualized cost savings already total
$150 million, and we’re driving further efficiencies for the
remainder of 2014 and into 2015. We also continued to make progress
in core business, with our second quarter in a row of sequential
growth in residential customer revenue, as well as sequential
growth in SME (small, medium, and enterprise) revenue. Our offers
continued to resonate in the market, and we are well-positioned for
the fourth quarter and as we prepare for 2015.”
Revenue for the third quarter of 2014 was $1,140.9
million as compared to $1,147.3 million in the second quarter of
2014 and $1,185.3 million in the third quarter of 2013. Revenue for
the third quarter of 2014 declined sequentially by $6.4 million, or
0.6%, from the second quarter of 2014 and by $44.4 million, or 4%,
from the third quarter of 2013.
Customer revenue for the third quarter of 2014 of
$1,016.6 million increased 0.3% sequentially as compared to
$1,013.3 million in the second quarter of 2014, primarily due to
the increase in data services revenue, partially offset by lower
non-switched access revenue resulting from the expected decline in
wireless backhaul revenue. Total residential revenue was
$498.0 million for the third quarter of 2014 as compared to $497.0
million in the second quarter of 2014, a 0.2% sequential increase.
Total business revenue was $518.6 million for the third
quarter of 2014 as compared to $516.3 million in the second quarter
of 2014, a 0.5% sequential increase.
At September 30, 2014, the Company had
2,740,300 residential customers and
260,800 business customers. The third quarter of 2014
resulted in a net loss of 21,800 residential customers as compared
to 31,800 customers in the three months ended June 30, 2014 and
20,700 customers in the three months ended September 30, 2013. The
average monthly residential revenue per customer was $60.34 in the
third quarter of 2014, an increase of $0.70 as compared to the
second quarter of 2014.
During the three months ended September 30, 2014, the Company
had a net loss of approximately 3,400 business customers as
compared to a net loss of 2,200 customers in the three months ended
June 30, 2014 and a net loss of 3,500 customers in the three months
ended September 30, 2013. During the most recent quarter, the
average monthly business revenue per customer was $658.56, or 1.5%
higher than the second quarter of 2014.
The Company’s broadband customer net additions were
21,900 and 86,700 during the third quarter and first nine months of
2014, respectively. Since the beginning of 2013, the Company has
added 199,000 net broadband customers. The Company had 1,953,400
broadband customers at September 30, 2014. The Company added 2,000
net video customers during the third quarter of 2014. The Company
had 395,900 video customers at September 30, 2014.
Network access expenses for the third quarter of 2014
were $107.9 million as compared to $106.2 million in the second
quarter of 2014 and $104.0 million in the third quarter of
2013.
Other operating expenses for the third quarter of 2014
were $533.5 million as compared to $523.4 million in the second
quarter of 2014 and $549.1 million in the third quarter of 2013.
Other operating expenses in the third quarter of 2014 were lower
than in the third quarter of 2013 by $15.6 million, primarily due
to decreased employee benefit and overtime costs.
Depreciation and amortization for the third quarter of
2014 was $260.9 million as compared to $273.5 million in the second
quarter of 2014 and $285.7 million in the third quarter of 2013.
Amortization expense decreased by $11.1 million in the third
quarter of 2014 as compared to the third quarter of 2013 due to the
accelerated method of amortization related to the customer
base.
Acquisition and integration costs for the third quarter
of 2014 were $41.6 million ($0.03 per share after tax) as compared
to $19.9 million ($0.01 per share after tax) in the second quarter
of 2014 in connection with the AT&T Connecticut transaction,
which closed on October 24, 2014.
Operating income for the third quarter of 2014 was $197.0
million and operating income margin was 17.3% as compared to
operating income of $224.3 million and operating income margin of
19.6% in the second quarter of 2014 and operating income of $206.2
million and operating income margin of 17.4% in the third quarter
of 2013. The third quarter of 2013 reflects the inclusion of
pension settlement costs of $40.3 million and the absence of
acquisition and integration costs.
Investment and other income for the third quarter of 2014
includes the recognition of a gain of $25.0 million associated with
the sale of a passive minority investment in a wireless
partnership.
Interest expense for the third quarter of 2014 was $170.4
million as compared to $167.6 million in the second quarter of 2014
and $163.8 million in the third quarter of 2013. Interest expense
increased by $6.5 million, as compared to the third quarter of
2013, primarily due to the $7.5 million recognized during the third
quarter of 2014 related to commitment fees on the bridge loan
facility and additional interest on the debt financing described
below, both in connection with the AT&T Connecticut
transaction. These items were partially offset by lower average
debt levels resulting from the debt refinancing activities and debt
retirements during 2013.
Income tax expense for the third quarter of 2014 was $9.8
million as compared to $19.0 million in the second quarter of 2014
and $8.5 million in the third quarter of 2013. Income tax expense
increased by $1.3 million in the third quarter of 2014 as compared
to the third quarter of 2013, principally due to lower pretax
income in 2013 due to the pension settlement costs of $40.3
million. The Company had an effective tax rate for the third
quarter of 2014 and 2013 of 18.9% and 19.3%, respectively. The
third quarter of 2014 includes certain tax items arising from the
domestic production activities deduction, research and development
tax credits, and reserves for uncertain tax positions with a net
impact of $10.0 million in reduced income tax expense.
Net income attributable to common shareholders of
Frontier was $42.0 million, or $0.04 per share, in the third
quarter of 2014, as compared to $37.7 million, or $0.04 per share,
in the second quarter of 2014 and $35.4 million, or $0.04 per
share, in the third quarter of 2013. The third quarter of 2014
includes acquisition and integration costs of $41.6 million,
acquisition related interest expense of $7.5 million and severance
costs of $0.4 million, partially offset by the gain on sale of
assets of $25.0 million and certain tax benefit items of $10.0
million, net (combined impact of $5.7 million after tax). Excluding
the impact of the aforementioned items, non-GAAP adjusted net
income attributable to common shareholders of Frontier for the
third quarter of 2014 was $47.7 million, or $0.05 per share, as
compared to $53.7 million, or $0.05 per share, in the second
quarter of 2014 and $56.5 million, or $0.06 per share, in the third
quarter of 2013.
Capital expenditures for Frontier business operations
were $152.4 million for the third quarter of 2014 and $413.0
million for the first nine months of 2014, as compared to $157.6
million for the third quarter of 2013 and $484.1 million for the
first nine months of 2013. The Company also incurred $40.7 million
in capital expenditures during the third quarter of 2014 and $82.3
million for the first nine months of 2014 related to integration
activities in connection with the AT&T Connecticut transaction.
The Company also used $16.4 million of the previously received
Connect America Fund funding in the third quarter of 2014 and $40.9
million during the first nine months of 2014 as compared to $11.8
million in the third quarter of 2013 and $21.0 million during the
first nine months of 2013.
Operating cash flow was $457.9 million for the third
quarter of 2014 resulting in an operating cash flow margin of
40.1%. Operating cash flow, as adjusted and defined by the Company
in the attached Schedule A, was $479.5 million, or 42.0%, after
excluding $41.6 million of acquisition and integration costs and
$0.4 million of severance costs, partially offset by $20.5 million
of cash pension contributions/OPEB payments in excess of pension
and other postretirement benefit expense.
Free cash flow, as defined by the Company in the attached
Schedule A, was $149.1 million for the third quarter of 2014 and
$600.1 million for the first nine months of 2014. The Company’s
dividend represents a payout of 67% of free cash flow for the third
quarter of 2014 and 50% for the first nine months of 2014.
Working Capital
At September 30, 2014, the Company had a working capital surplus
of $1,589.0 million, which includes restricted cash of $1,519.0
million resulting from the net proceeds of the debt financing
described below and the classification of certain debt maturing in
the first nine months of 2015 of $247.4 million as a current
liability. Excluding such restricted cash, our working capital
surplus was $70.0 million at September 30, 2014.
Debt Financing for AT&T Transaction
On September 17, 2014, the Company completed a registered debt
offering of $775.0 million aggregate principal amount of 6.250%
senior unsecured notes due 2021, and $775.0 million aggregate
principal amount of 6.875% senior unsecured notes due 2025. The
Company received net proceeds, after deducting underwriting fees,
of $1,519.0 million from the offering. The Company used the net
proceeds from the sale of the notes, together with $350.0 million
from the 2014 CoBank Term Loan and cash on hand, to finance the
AT&T Transaction that closed on October 24, 2014.
Pension Contributions
Cash contributions to the pension plan were $39.3 million for
the third quarter of 2014 and $70.5 million for the first nine
months of 2014. The Company made total cash contributions to its
pension plan for 2014 of $83.2 million, including cash
contributions of $12.7 million on October 15, 2014. Our 2014
pension contributions include the impact of the Highway and
Transportation Funding Act of 2014. The Company believes that there
are no further required contributions to be made in 2014.
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, certain tax items,
acquisition and integration costs, acquisition related interest
expense, severance costs, pension settlement costs, non-cash
pension and other postretirement benefit costs, losses on early
extinguishment of debt, gain on sale of Mohave partnership interest
and gain on sale of assets, 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 third 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
beginning at 8:00 P.M. Eastern time, Monday, November 3, 2014
through Saturday, November 8, 2014 at 8:00 PM Eastern time 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 3125987. 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 28
states, including Connecticut. Frontier’s approximately 17,000
employees, including the recently acquired Connecticut operations,
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: 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 or unanticipated liabilities 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; the sufficiency of the assets to be acquired from
AT&T to enable the combined company to operate all aspects of
the acquired business; disruption from the AT&T Transaction
making it more difficult to maintain relationships with customers
or suppliers of the Connecticut operations; our ability to meet our
debt and debt service obligations, which have increased as a result
of the AT&T Transaction; 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 2015 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 nine months
ended
($ in thousands,
except per share amounts)
September 30, June 30, September 30, September 30,
2014 2014 2013 2014 2013
Income Statement Data Revenue $ 1,140,874 $
1,147,265 $ 1,185,278 $ 3,442,185 $ 3,581,207
Operating expenses: Network access expenses 107,866
106,224 103,955 321,182 320,467 Other operating expenses (1)
533,469 523,385 549,141 1,585,780 1,624,655 Depreciation and
amortization 260,897 273,463 285,701 815,767 887,225 Pension
settlement costs (2) - - 40,309 - 40,309 Acquisition and
integration costs (3) 41,611 19,851
- 72,058 - Total
operating expenses 943,843 922,923
979,106 2,794,787 2,872,656
Gain on sale of Mohave partnership interest -
- - -
14,601 Operating income 197,031 224,342 206,172
647,398 723,152 Investment and other income (expense), net
25,106 (17 ) 1,524 26,484 9,134 Losses on early extinguishment of
debt - - - - 159,780 Interest expense 170,371
167,611 163,835 508,939
501,802 Income before income taxes 51,766 56,714
43,861 164,943 70,704 Income tax expense 9,773
19,034 8,461 45,996
22,981 Net income (3) 41,993 37,680 35,400 118,947
47,723 Less: Income attributable to the noncontrolling interest in
a partnership - - -
- 2,643
Net income
attributable to common shareholders of Frontier $ 41,993
$ 37,680 $ 35,400 $ 118,947 $ 45,080
Weighted average shares outstanding 994,647 994,628
993,115 994,393 992,480
Basic net income per common share
attributable to common shareholders of Frontier
(4) $ 0.04 $ 0.04 $ 0.04 $ 0.12
$ 0.04
Non-GAAP adjusted net income per common
share attributable to common shareholders of Frontier
(4)(5) $ 0.05 $ 0.05 $ 0.06 $ 0.15
$ 0.17
Other Financial Data Capital
expenditures - Business operations $ 152,446 $ 125,536 $ 157,560 $
413,041 $ 484,082 Capital expenditures - Integration activities
40,676 31,227 - 82,251 - Operating cash flow, as adjusted (5)
479,469 515,031 548,781 1,515,969 1,667,999 Free cash flow (5)
149,050 215,899 232,189 600,103 614,269 Dividends paid 100,208
100,209 99,956 300,645 299,822 Dividend payout ratio (6) 67 % 46 %
43 % 50 % 49 %
(1) Includes severance costs of $0.4 million, $0.8 million and
$2.6 million for the quarters ended September 30, 2014, June 30,
2014 and September 30, 2013, respectively, and $1.6 million and
$9.4 million for the nine months ended September 30, 2014 and 2013,
respectively.
(2) Reflects non-cash pension settlement charge of $40.3 million
($25.0 million or $0.02 per share after tax) during the quarter and
nine months ended September 30, 2013 for the accelerated
recognition of a portion of the unrecognized actuarial losses in
the Company’s pension plan as a result of the significant level of
lump sum retirement benefit payments made during 2013.
(3) Reflects acquisition and integration costs of $41.6 million
($26.6 million or $0.03 per share after tax) and $19.9 million
($12.6 million or $0.01 per share after tax) for the quarters ended
September 30, 2014 and June 30, 2014, respectively, and $72.1
million ($46.0 million or $0.05 per share after tax) for the nine
months ended September 30, 2014.
(4) Calculation based on weighted average shares
outstanding.
(5) Reconciliations to the most comparable GAAP measures are
presented in Schedules A and B at the end of these tables.
(6) 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 nine months
ended
(Amounts in
thousands, except operating data)
September 30, June 30, September 30, September 30,
2014 2014 2013 2014 2013
Selected Income Statement Data Revenue: Voice
services $ 471,786 $ 471,570 $ 510,080 $ 1,425,675 $ 1,549,824 Data
and internet services 468,796 462,730 471,211 1,393,022 1,393,475
Other 76,045 79,001 68,772
232,169 221,752 Customer revenue
1,016,627 1,013,301 1,050,063 3,050,866 3,165,051 Switched access
and subsidy 124,247 133,964
135,215 391,319 416,156 Total
revenue $ 1,140,874 $ 1,147,265 $ 1,185,278 $
3,442,185 $ 3,581,207
Other Financial and
Operating Data Revenue: Residential $ 498,009 $ 497,040
$ 505,624 $ 1,491,013 $ 1,525,330 Business 518,618
516,261 544,439 1,559,853
1,639,721 Customer revenue 1,016,627 1,013,301
1,050,063 3,050,866 3,165,051 Switched access and subsidy
124,247 133,964 135,215
391,319 416,156 Total revenue $ 1,140,874
$ 1,147,265 $ 1,185,278 $ 3,442,185 $
3,581,207
Customers 3,001,101 3,026,281
3,096,794 3,001,101 3,096,794
Residential customer metrics:
Customers 2,740,278 2,762,099 2,822,141 2,740,278 2,822,141 Revenue
$ 498,009 $ 497,040 $ 505,624 $ 1,491,013 $ 1,525,330 Average
monthly residential revenue per customer $ 60.34 $ 59.64 $ 59.50 $
59.68 $ 59.14
(1)
Customer monthly churn 1.86 % 1.80 % 1.81 % 1.76 % 1.70 %
Business customer metrics: Customers 260,823 264,182 274,653
260,823 274,653 Revenue $ 518,618 $ 516,261 $ 544,439 $ 1,559,853 $
1,639,721 Average monthly business revenue per customer $ 658.56 $
648.71 $ 656.60 $ 652.75 $ 650.83
Employees 14,510
13,910 13,937 14,510 13,937
Broadband subscribers 1,953,376
1,931,521 1,838,915 1,953,376 1,838,915
Video subscribers
395,899 393,901 377,915 395,899 377,915
Switched access minutes
of use (in millions) 3,637 3,760 4,091 11,340 12,490
(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)
September 30, 2014 December 31, 2013
ASSETS
Current assets: Cash and cash equivalents $ 808,518 $ 880,039
Accounts receivable, net 462,299 479,210 Restricted cash 1,519,000
11,411 Other current assets 137,532 248,179 Total
current assets 2,927,349 1,618,839 Property, plant and
equipment, net 7,152,461 7,255,762 Other assets - principally
goodwill 7,559,878 7,760,883 Total assets $
17,639,688 $ 16,635,484
LIABILITIES AND
EQUITY
Current liabilities: Long-term debt due within one year $ 262,534 $
257,916 Accounts payable and other current liabilities
1,075,835 1,043,671 Total current liabilities 1,338,369
1,301,587 Deferred income taxes and other liabilities
3,223,197 3,404,749 Long-term debt 9,185,603 7,873,667 Equity
3,892,519 4,055,481 Total liabilities and equity $
17,639,688 $ 16,635,484
Frontier Communications
Corporation
Consolidated Cash Flow Data
($ in
thousands)
For the nine months ended September 30, 2014
2013
Cash flows provided by (used in) operating
activities: Net income $ 118,947 $ 47,723 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation and amortization 815,767 887,225 Losses on early
extinguishment of debt - 159,780 Pension settlement costs - 40,309
Pension/OPEB costs (20,875 ) 22,558 Stock based compensation
expense 18,350 12,561 Gain on sale of assets (25,000 ) (14,601 )
Other non-cash adjustments 29,508 7,353 Deferred income taxes
(124,757 ) (43,310 ) Change in accounts receivable 16,911 57,474
Change in accounts payable and other liabilities 53,392 (91,322 )
Change in other current assets 59,823 (10,409
)
Net cash provided by operating activities 942,066
1,075,341
Cash flows provided from (used by) investing
activities: Capital expenditures - Business operations (413,041
) (484,082 ) Capital expenditures - Integration activities (82,251
) - Network expansion funded by Connect America Fund (40,934 )
(21,042 ) Grant funds received for network expansion from Connect
America Fund 3,748 5,998 Proceeds on sale of assets 25,000 17,755
Cash transferred (to)/from escrow (1,507,589 ) 21,788 Other assets
purchased and distributions received, net 27,043
3,536
Net cash used by investing activities
(1,988,024 ) (456,047 )
Cash flows provided from (used
by) financing activities: Long-term debt borrowings 1,560,801
750,000 Financing costs paid (39,271 ) (19,360 ) Long-term debt
payments (244,780 ) (1,548,548 ) Premium paid to retire debt -
(159,429 ) Dividends paid (300,645 ) (299,822 ) Other financing
activities (1,668 ) (7,670 )
Net cash provided
from (used by) financing activities 974,437 (1,284,829 )
Decrease in cash and cash equivalents (71,521 ) (665,535 ) Cash and
cash equivalents at January 1, 880,039
1,326,532
Cash and cash equivalents at September
30, $ 808,518 $ 660,997
Supplemental
cash flow information: Cash paid during the period for:
Interest $ 464,334 $ 493,427 Income taxes, net $ 36,086 $ 82,675
Non-cash investing and financing activities:
Financing obligation for contributions of real property to pension
plan $ - $ 18,216 Reduction of pension obligation $ - $ (18,216 )
Schedule A Frontier Communications
Corporation Reconciliation of Non-GAAP Financial
Measures For the quarter ended For the
nine months ended
($ in
thousands)
September 30, June 30, September 30, September 30,
2014 2014 2013 2014 2013
Operating Income to
Adjusted Operating Cash Flow
to Free Cash
Flow
Revenue $ 1,140,874 $
1,147,265 $ 1,185,278 $
3,442,185 $ 3,581,207 Less: Total operating
expenses 943,843 922,923 979,106 2,794,787 2,872,656 Add: Gain on
sale of Mohave partnership interest - -
- - 14,601
Operating
income 197,031 224,342 206,172
647,398 723,152 Depreciation and amortization
260,897 273,463 285,701
815,767 887,225
Operating cash
flow 457,928 497,805 491,873 1,463,165 1,610,377 Add
back: Acquisition and integration costs 41,611 19,851 - 72,058 -
Pension/OPEB costs (1) (20,458 ) (3,470 ) 13,950 (20,875 ) 22,558
Pension settlement costs (2) - - 40,309 - 40,309 Severance costs
388 845 2,649 1,621 9,356 Subtract: Gain on sale of Mohave
partnership interest - - -
- 14,601
Adjusted operating
cash flow 479,469 515,031 548,781
1,515,969 1,667,999 Add back: Interest and
dividend income 118 110 382 1,350 2,268 Stock based compensation
6,458 5,741 3,634 18,350 12,561 Subtract: Cash paid
(refunded) for income taxes 21,678 19,336 (787 ) 36,086 82,675
Capital expenditures - Business operations (3) 152,446 125,536
157,560 413,041 484,082 Interest expense (4) 162,871
160,111 163,835 486,439
501,802
Free cash flow $ 149,050
$ 215,899 $ 232,189
$ 600,103 $ 614,269
Operating income margin (Operating income
divided by revenue) As Reported 17.3 % 19.6 % 17.4 % 18.8 %
20.2 % As Adjusted (5) 19.2 % 21.1 % 22.2 % 20.3 % 21.8 %
Operating cash flow margin (Operating cash flow divided
by revenue) As Reported 40.1 % 43.4 % 41.5 % 42.5 % 45.0 % As
Adjusted 42.0 % 44.9 % 46.3 % 44.0 % 46.6 %
(1) Reflects pension and other postretirement benefit (OPEB)
expense, net of capitalized amounts, of $13.4 million, $14.2
million and $20.6 million for the quarters ended September 30,
2014, June 30, 2014 and September 30, 2013, respectively, less cash
pension contributions and certain OPEB costs/payments of $33.9
million, $17.7 million and $6.6 million for the quarters ended
September 30, 2014, June 30, 2014 and September 30, 2013,
respectively. Reflects pension and OPEB expense, net of capitalized
amounts, of $42.0 million and $61.6 million for the nine months
ended September 30, 2014 and 2013, respectively, less cash pension
contributions and certain OPEB costs/payments of $62.9 million and
$39.0 million for the nine months ended September 30, 2014 and
2013, respectively.
(2) Reflects non-cash pension settlement charge of $40.3 million
during the quarter and nine months ended September 30, 2013 for the
accelerated recognition of a portion of the unrecognized actuarial
losses in the Company’s pension plan as a result of the significant
level of lump sum retirement benefit payments made during 2013.
(3) Excludes capital expenditures for integration
activities.
(4) Excludes interest expense of $7.5 million for the quarters
ended September 30, 2014 and June 30, 2014, and $22.5 million for
the nine months ended September 30, 2014, related to commitment
fees on the bridge loan facility in connection with the AT&T
Connecticut transaction.
(5) Excludes acquisition and integration costs, pension/OPEB
costs (non-cash), pension settlement costs, severance costs and
gain on sale of Mohave partnership interest.
Schedule B Frontier Communications Corporation
Reconciliation of Non-GAAP Financial Measures
($ in thousands,
except per share amounts)
For the quarter ended
September 30, 2014 June 30, 2014 September 30, 2013
Net income
attributable to commonshareholders of
Frontier
Net Income
Earnings PerShare
Net Income
Earnings PerShare
Net Income
Earnings PerShare
GAAP, as reported $ 41,993 $ 0.04 $ 37,680 $ 0.04 $ 35,400 $
0.04 Pension settlement costs - - - - 24,992 0.02 Gain on sale of
assets (15,973 ) (0.02 ) - - - - Acquisition and integration costs
26,588 0.03 12,595 0.01 - - Severance costs 248 - 537 - 1,626 -
Acquisition related interest expense (1) 4,793 - 4,730 0.01 - -
Certain tax items (2) (9,998 ) (0.01 ) (1,861
) - (5,557 ) (0.01 )
Non-GAAP, as
adjusted (3) $ 47,651 $ 0.05 $ 53,681
$ 0.05 $ 56,461 $ 0.06 For the nine
months ended September 30, 2014 September 30, 2013
Net income
attributable to commonshareholders of
Frontier
Net Income
Earnings PerShare
Net Income
Earnings PerShare
GAAP, as reported $ 118,947 $ 0.12 $ 45,080 $ 0.04 Pension
settlement costs - - 24,992 0.02 Gain on sale of assets (15,973 )
(0.02 ) - - 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 46,038 0.05 - - Severance costs 1,036 - 5,864
0.01 Acquisition related interest expense (1) 14,375 0.01 - -
Certain tax items (2) (14,725 ) (0.01 ) 1,243
-
Non-GAAP, as adjusted (3) $
149,698 $ 0.15 $ 166,587 $ 0.17
(1) Represents interest expense related to commitment fees on
the bridge loan facility in connection with the AT&T
Connecticut transaction.
(2) Includes impact arising from state law changes, the net
impact of uncertain tax positions, the domestic production
activities deduction, research and development tax credits,
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 CorporationINVESTOR:Luke SzymczakVice
President, Investor Relations(203)
614-5044luke.szymczak@FTR.comorMEDIA:Brigid SmithAVP,
Corporate Communications(203)
614-5042brigid.smith@FTR.com
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