- Continued positive broadband momentum
with 27,200 net broadband additions
- Delivered stable Connecticut revenue
performance
- Completed financing for the acquisition
of Verizon CA, FL and TX businesses
- Maintained an attractive and
sustainable dividend payout ratio of 46%, excluding acquisition
financing
Frontier Communications Corporation (NASDAQ:FTR) today reported
third quarter 2015 revenue of $1,424 million, operating income of
$207 million and net loss of $14 million, or $0.01 per share.
Excluding acquisition related interest expense of $52 million and
acquisition and integration costs of $58 million (combined
after-tax impact of $49 million, or $0.04 per share), non-GAAP
adjusted net income was $35 million, or $0.03 per share, for the
third quarter of 2015 (See attached Schedule B).
“Frontier executed well in the third quarter”, said Dan
McCarthy, Frontier’s President and Chief Executive Officer. “We
extended our consistent track record of strong broadband net
additions, achieved another quarter of sequential stability in our
Connecticut operations, and grew our Data and Internet services
revenue once again. In addition, we completed two very significant
debt transactions totaling $8.1 billion which, together with our
June 2015 equity offering, provides the permanent funding to
complete our acquisition of Verizon’s California, Texas and Florida
wireline operations.”
“Frontier continues to make good progress toward completing our
integration efforts for the Verizon acquisition” Mr. McCarthy said.
“We are in the process of expanding our infrastructure and adding
resources in order to have capabilities and capacity in place in
advance of the anticipated March 31, 2016 closing. We remain
confident in our ability to achieve the substantial synergies we
have targeted post-closing and have begun planning on additional
cost efficiency opportunities that will be a result of our
significantly larger scale. Our fourth quarter focus is all about
operational execution to improve our customer revenue, lower our
costs and prepare for the successful integration of the Verizon
businesses.”
Revenue for the third quarter of 2015 was $1,424 million,
an increase of $56 million, or 4.1%, from $1,368 million reported
in the second quarter of 2015. Subsidy revenue improved by $71
million during the third quarter due to incremental funding from
the Connect America Fund Phase II program. In the third quarter,
the $264 million in revenue attributable to our Connecticut
operations was unchanged from that reported for the second
quarter.
Customer revenue for the third quarter of 2015 of $1,223
million decreased 1.1% from $1,236 million in the second quarter of
2015. Total residential revenue was $606 million for the
third quarter of 2015, compared to $615 million in the second
quarter of 2015. Total business revenue was $617 million for
the third quarter of 2015, compared to $621 million in the second
quarter of 2015.
At September 30, 2015, Frontier had
3,147,000 residential customers. The third quarter of
2015 resulted in a net reduction of 0.9% of our residential
customers, compared to a net reduction of 0.6% in the second
quarter. The average monthly residential revenue per customer was
$63.83 in the third quarter of 2015, a decrease of $0.60, or 0.9%,
compared to the second quarter.
At September 30, 2015, Frontier had 294,000 business
customers. The third quarter of 2015 resulted in a net
reduction of 1.7% of our business customers, compared to a net
reduction of 0.6% in the second quarter. The average monthly
business revenue per customer was $693.58, an increase of 0.6% over
the second quarter, as the business customer decline was primarily
from the small business customer set.
At September 30, 2015, Frontier had 2,434,000 broadband
customers. We added 27,200 net broadband customers during the
third quarter of 2015 compared to 29,200 net additions in the
second quarter.
At September 30, 2015, Frontier had 560,000 video
customers. The third quarter of 2015 resulted in a net
reduction of 9,600 video customers, including 6,900 satellite video
customers, compared to the second quarter reduction of 5,000 video
customers, including 2,500 satellite video customers.
Network access expenses for the third quarter of 2015
were $159 million, compared to $161 million in the second quarter.
Network related expenses for the third quarter of 2015 were
$331 million, compared to $313 million in the second quarter.
Selling, general and administrative expenses (SG&A
expenses) for the third quarter of 2015 were $344 million, compared
to $331 million in the second quarter. Our cash operating expenses
increased during the third quarter due to storm-related costs,
higher compensation costs (related to increased headcount) and
outside services.
Depreciation and amortization for the third quarter of
2015 was $325 million, compared to $335 million in the second
quarter.
Acquisition and integration costs for the third quarter
of 2015 were $58 million compared to $35 million in the second
quarter. For the third quarter of 2015, these costs include $12
million related to the October 2014 Connecticut acquisition and $46
million related to the pending Verizon transaction.
Operating income for the third quarter of 2015 was $207
million and operating income margin was 14.6% compared to operating
income of $193 million and operating income margin of 14.1% in the
second quarter.
Interest expense for the third quarter of 2015 was $246
million compared to $260 million in the second quarter. Interest
expense decreased by $14 million in the third quarter, primarily
due to lower commitment fees for the Verizon transaction bridge
loan facilities, which were reduced after the second quarter with
the completion of the June 2015 equity offering.
Income tax expense/benefit for the third quarter of 2015
was a tax benefit of $24 million compared to a tax benefit of $38
million in the second quarter. Frontier’s effective tax rate for
the third quarter of 2015 was 63% due to additional state tax
benefits.
Net income/loss was a net loss of $14 million, or $0.01
per share, in the third quarter of 2015, compared to a net loss of
$28 million, or $0.03 per share, in the second quarter. The third
quarter of 2015 included acquisition related interest expense of
$52 million and acquisition and integration costs of $58 million
(combined after-tax impact of $49 million, or $0.04 per share).
Excluding the impact of these items, the non-GAAP adjusted net
income for the third quarter of 2015 was $35 million, or $0.03 per
share, as compared to $27 million, or $0.03 loss per share, in the
second quarter.
Capital expenditures for Frontier operations were $177
million for the third quarter of 2015 compared to $178 million for
the second quarter. In addition, acquisition related capital
expenditures were $63 million in the third quarter of 2015 and $28
million in the second quarter. Capital expenditures funded by the
Connect America Fund Phase I were $6 million and $7 million in the
third and second quarters of 2015, respectively.
Operating cash flow was $532 million for the third
quarter of 2015 resulting in an operating cash flow margin of
37.5%, compared to operating cash flow of $528 million and an
operating cash flow margin of 38.6% for the second quarter.
Operating cash flow for the third quarter of 2015, as adjusted, was
$588 million, or 41.4%, after excluding $58 million of acquisition
and integration costs, ($3) million of non-cash pension and other
postretirement benefit costs and $1 million of severance costs (See
attached Schedule A).
Free cash flow was $229 million for the third quarter of
2015 compared to $200 million in the second quarter (See attached
Schedule A). Our dividends on common stock represented an 81%
payout of free cash flow, as adjusted, for the third quarter of
2015 compared to 53% for the second quarter. Excluding the
additional dividends paid on the common and preferred stock issued
in the June 2015 equity offerings and interest costs on our
September 2015 private notes offering, our dividend represented a
46% payout of free cash flow for the third quarter of 2015.
Debt IssuanceOn September 25, 2015, Frontier completed a
private debt offering of $6.6 billion aggregate principal amount of
senior unsecured notes, including $1.0 billion of 8.875% senior
notes due 2020; $2.0 billion of 10.500% senior notes due 2022; and
$3.6 billion of 11.000% senior notes due 2025. Each was issued at a
price equal to 100% of its principal amount. Frontier will use the
proceeds from the offering to finance a portion of the cash
consideration payable in connection with the Verizon Transaction
and to pay related fees and expenses.
Term Loan AgreementOn August 12, 2015, Frontier entered
into a credit agreement for a new $1.5 billion senior secured
delayed-draw term loan facility. The term loan will be drawn at the
closing of the Verizon Transaction. The final maturity date is the
earlier of the fifth anniversary of the draw date or March 31,
2021.
Pension ContributionsCash contributions to the pension
plan were $22 million for the third quarter of 2015 and $62 million
during the first nine months of 2015. We expect that no further
contributions will be made in 2015.
2015 GuidanceFor the full year of 2015, Frontier
continues to expect free cash flow of $825 million to $865
million and capital expenditures for Frontier operations,
excluding integration activities, of $700 million to $750 million.
Frontier expects that, absent any further legislative changes in
2015, our 2015 cash taxes will be $40 million to $50
million.
Non-GAAP MeasuresFrontier uses certain non-GAAP financial
measures in evaluating its performance. These include non-GAAP
adjusted net income, free cash flow, operating cash flow and
adjusted operating cash flow. A reconciliation of the differences
between these non-GAAP financial measures 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 (loss) 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 Frontier may not be
comparable to similarly titled measures of other companies.
We believe that the presentation of these non-GAAP financial
measures provides useful information to investors regarding our
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 our
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 Frontier and its results of operations. In addition, we
believe that non-GAAP adjusted net income, free cash flow,
operating cash flow and adjusted operating cash flow, as we define
them, can assist in comparing performance from period to period,
without taking into account factors affecting operating income or
net income (loss) as reflected in the statement of operations, or
cash flow as reflected in the statement of cash flows, including
changes in working capital and the timing of purchases and
payments. Frontier has shown adjustments to its financial
presentations to exclude certain tax items, acquisition and
integration costs, acquisition related interest expense, severance
costs and non-cash pension and other postretirement benefit costs,
as disclosed in the attached Schedules A and B, because investors
have indicated to management that such adjustments are useful to
them in assessing Frontier and its results of operations.
Management uses these non-GAAP financial measures to (i) assist
in analyzing Frontier’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 Frontier’s
ability to generate cash flow and, as a result, to plan for future
capital and operational decisions.
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 WebcastWe will host a conference call
today at 8:30 A.M. Eastern time. In connection with the conference
call and as a convenience to investors, Frontier furnished today,
on a Current Report on Form 8-K, additional materials regarding
third quarter 2015 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 noon Eastern time, Tuesday, November 3, 2015 through
Sunday, November 8, 2015 at noon 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. Use the passcode 6456058 to
access the replay. 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, 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. Frontier’s approximately 18,600 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 document contains "forward-looking statements," related to
future, not past, events. Forward-looking statements address our
expected future business and financial performance and financial
condition, and contain words such as "expect," "anticipate,"
"intend," "plan," "believe," "seek," "see," "will," "would," or
"target." Forward-looking statements by their nature address
matters that are, to different degrees, uncertain. For us,
particular uncertainties that could cause our actual results to be
materially different than those expressed in our forward-looking
statements include: risks related to the pending acquisition of
properties from Verizon, including our ability to complete the
acquisition of such operations, our ability to successfully
integrate operations, our ability to realize anticipated cost
savings, sufficiency of the assets to be acquired from Verizon, our
ability to migrate Verizon’s operations from Verizon owned and
operated systems and processes to our owned and operated systems
and processes successfully, 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,
failure to obtain, delays in obtaining or adverse conditions
contained in any required regulatory approvals for the acquisition,
and increased expenses incurred due to activities related to the
transaction; the ability of lenders to the delayed-draw term loan
facility to meet their obligations thereunder to fund such facility
in connection with the closing of the pending acquisition of
properties from Verizon; our ability to meet our debt and debt
service obligations; competition from cable, wireless and other
wireline carriers and the risk that we will not respond on a timely
or profitable basis; our ability to successfully adjust to changes
in the communications industry, including the effects of
technological changes and competition on our capital expenditures,
products and service offerings; reductions in revenue from our
voice customers that we cannot offset with increases in revenue
from broadband and video subscribers and sales of other products
and services; our ability to maintain relationships with customers,
employees or suppliers; the impact of regulation and regulatory,
investigative and legal proceedings and legal compliance risks;
continued reductions in switched access revenues as a result of
regulation, competition or technology substitutions; 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 effectively manage service quality in our territories and meet
mandated service quality metrics; our ability to successfully
introduce new product offerings; the effects of changes in
accounting policies or practices, including potential future
impairment charges with respect to our intangible assets; our
ability to effectively manage our operations, operating expenses,
capital expenditures, debt service requirements and cash paid for
income taxes and liquidity, which may affect payment of dividends
on our common and preferred shares; the effects of changes in both
general and local economic conditions on the markets that we serve;
the effects of increased medical expenses and pension and
postemployment expenses; 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, interest rates,
regulatory rules 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; 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
ability, or increase the cost, of financing to us; 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; the effects of severe weather events or
other natural or man-made disasters, which may increase our
operating expenses or adversely impact customer revenue; the impact
of potential information technology or data security breaches or
other disruptions; and the other factors that are described in our
filings with the U.S. Securities and Exchange Commission, including
our reports on Forms 10-K and 10-Q. These risks and uncertainties
may cause our actual future results to be materially different than
those expressed in our forward-looking statements. We do not
undertake to update or revise these forward-looking statements.
TABLES TO FOLLOW
Frontier Communications
Corporation
Consolidated Financial Data
For the quarter ended For the nine months
ended
($ in millions and
shares in thousands, except per share amounts)
September 30, June 30, September 30, September 30,
2015 2015 2014 2015 2014
Statement of Operations
Data Revenue $ 1,424 $ 1,368 $ 1,141 $ 4,163 $ 3,442
Operating expenses: Network access expenses 159 161 108 475 321
Network related expenses (1) 331 313 276 969 798 Selling, general
and administrative expenses (1) 344 331 257 1,005 788 Depreciation
and amortization 325 335 261 1,001 816 Acquisition and integration
costs (2) 58 35 42 150 72 Total
operating expenses 1,217 1,175 944
3,600 2,795 Operating income 207 193 197 563 647
Investment and other income, net 1 1 25 3 26 Interest
expense 246 260 170 751 508
Income (loss) before income taxes (38) (66) 52 (185) 165
Income tax expense (benefit) (24) (38) 10
(92) 46
Net income (loss) (2)
(14) (28) 42 (93) 119 Less: Dividends on preferred stock 67
- - 67 -
Net income (loss)
attributable to Frontier common shareholders $ (81) $ (28) $ 42
$ (160) $ 119 Weighted average shares outstanding - basic
1,161,207 1,037,407 994,647 1,061,644 994,393
Basic net
income (loss) per common share (3) $ (0.07) $ (0.03) $
0.04 $ (0.15) $ 0.12
Non-GAAP adjusted basic net
income per common share (3)(4) $ 0.03 $ 0.03 $
0.05 $ 0.08 $ 0.15
Other Financial Data Capital
expenditures - Operations $ 177 $ 178 $ 152 $ 525 $ 413 Capital
expenditures - Integration activities 63 28 40 101 82 Operating
cash flow, as adjusted (4) 588 561 480 1,713 1,516 Free cash flow
(4) 229 200 149 626 600 Free cash flow, as adjusted (4) 151 200 149
548 600 Dividends paid - Common Stock 122 106 101 333 301 Dividends
paid - Preferred Stock 67 - - 67 - Dividend payout ratio (5) 81%
53% 67% 61% 50% Dividend payout ratio, as adjusted (6) 46% 53% 67%
50% 50%
(1) Includes severance costs of $1 million for each of the
quarters ended September 30, 2015 and 2014, and $2 million for each
of the nine months ended September 30, 2015 and 2014.(2) Reflects
acquisition and integration costs of $58 million ($27 million or
$0.02 per share after tax), $35 million ($23 million or $0.02 per
share after tax), and $42 million ($27 million or $0.03 per share
after tax) for the quarters ended September 30, 2015, June 30, 2015
and September 30, 2014, respectively, and $150 million ($86 million
or $0.08 per share after tax) and $72 million ($46 million or $0.05
per share after tax) for the nine months ended September 30, 2015,
and 2014, respectively.(3) Calculation based on weighted average
shares outstanding-basic.(4) Reconciliations to the most comparable
GAAP measures are presented in Schedules A and B at the end of
these tables.(5) Represents total dividends paid on common shares
divided by free cash flow, as adjusted, as determined in Schedule
A.(6) Represents dividends paid on shares outstanding prior to the
June 2015 equity offerings divided by free cash flow, as determined
in Schedule A.
Note: As of September 30, 2015, there were 1,168,218 shares of
common stock and 19,250 shares of mandatory convertible preferred
stock (Series A) outstanding.
Frontier Communications
Corporation
Consolidated Financial Data
For the quarter ended September 30, 2015 June
30, 2015
($ in
millions)
Connecticut Frontier Connecticut
Frontier September 30, Consolidated Operations Legacy Consolidated
Operations Legacy 2014
Selected Statement of Operations
Data Revenue: Voice services $ 500 $ 86 $ 414 $ 515 $ 92
$ 423 $ 472 Data and internet services 589 105 484 584 106 478 469
Other 134 62 72 137 54 83
76 Customer revenue 1,223 253 970 1,236 252 984 1,017
Switched access and subsidy
201 11 190 132 12 120
124 Total revenue $ 1,424 $ 264 $ 1,160 $ 1,368 $ 264 $
1,104 $ 1,141
Other Financial Data Revenue:
Residential $ 606 $ 132 $ 474 $ 615 $ 133 $ 482 $ 498 Business
617 121 496 621 119 502
519 Customer revenue 1,223 253 970 1,236 252 984 1,017
Switched access and subsidy 201 11 190
132 12 120 124 Total revenue $ 1,424 $ 264 $
1,160 $ 1,368 $ 264 $ 1,104 $ 1,141 For the nine
months ended September 30, 2015 Connecticut Frontier September 30,
Consolidated Operations Legacy 2014
Selected Statement of
Operations Data Revenue: Voice services $ 1,540 $ 271 $
1,269 $ 1,426 Data and internet services 1,748 318 1,430 1,393
Other 404 170 234 232 Customer revenue
3,692 759 2,933 3,051 Switched access and subsidy 471
33 438 391 Total revenue $ 4,163 $ 792 $ 3,371 $
3,442
Other Financial Data Revenue:
Residential $ 1,838 $ 403 $ 1,435 $ 1,491 Business 1,854
356 1,498 1,560 Customer revenue 3,692 759
2,933 3,051 Switched access and subsidy 471 33
438 391 Total revenue $ 4,163 $ 792 $ 3,371 $ 3,442
Frontier Communications
Corporation
Consolidated Financial and Operating
Data
For the quarter ended For the nine months
ended September 30, June 30, September 30, September
30, 2015 2015 2014 2015 2014
Customers (in
thousands) (1) 3,441 3,474 3,001 3,441 3,001
Residential customer metrics: Customers (in thousands) (1)
3,147 3,175 2,740 3,147 2,740 Average monthly residential revenue
per customer $ 63.83 $ 64.43 $ 60.34 $ 64.18 $ 59.68 Customer
monthly churn 1.97% 1.78% 1.86% 1.84% 1.76%
Business
customer metrics: Customers (in thousands) (1) 294 299 261 294
261 Average monthly business revenue per customer $ 693.58 $ 689.21
$ 658.56 $ 687.63 $ 652.75
Employees 18,638 18,183
14,510 18,638 14,510
Broadband subscribers (in thousands)
(2) 2,434 2,406 1,953 2,434 1,953
Video subscribers (in
thousands) (2) 560 569 396 560 396
Switched access
minutes of use (in millions) 3,755 3,863 3,637 11,566 11,340
(1) Reflects 468,200 residential customers, 48,800 business
customers and 517,000 total customers attributable to the October
2014 Connecticut acquisition.(2) Reflects 384,800 broadband
subscribers and 191,600 video subscribers attributable to the
October 2014 Connecticut acquisition.
Frontier Communications
Corporation
Condensed Consolidated Balance Sheet
Data
($ in
millions)
September 30, 2015 December 31, 2014
ASSETS
Current assets: Cash and cash equivalents $ 1,011 $ 682 Accounts
receivable, net 554 614 Restricted cash 8,440 - Other current
assets 190 190 Total current assets 10,195 1,486
Property, plant and equipment, net 8,439 8,566 Other assets
- principally goodwill 8,731 8,922 Total assets $
27,365 $ 18,974
LIABILITIES AND
EQUITY
Current liabilities: Long-term debt due within one year $ 97 $ 298
Accounts payable and other current liabilities 1,331
1,214 Total current liabilities 1,428 1,512 Deferred income
taxes and other liabilities 4,066 4,318 Long-term debt 16,016 9,486
Equity 5,855 3,658 Total liabilities and equity $
27,365 $ 18,974
Frontier Communications
Corporation
Consolidated Cash Flow Data
($ in
millions)
For the nine months ended September 30, 2015 2014
Cash flows provided from (used by) operating
activities: Net income (loss) $ (93) $ 119 Adjustments to
reconcile net income (loss) to net cash provided by operating
activities: Depreciation and amortization 1,001 816 Pension/OPEB
costs (3) (21) Stock based compensation expense 19 18 Gains on sale
of assets - (25) Amortization of deferred financing costs 194 30
Deferred income taxes (163) (125) Change in accounts receivable 59
17 Change in accounts payable and other liabilities (46) 53 Change
in other current assets (7) 60
Net cash provided
from operating activities 961 942
Cash flows provided
from (used by) investing activities: Capital expenditures -
Business operations (525) (413) Capital expenditures - Integration
activities (101) (82) Network expansion funded by Connect America
Fund - Phase I (22) (41) Grant funds received for network expansion
from Connect America Fund - Phase I - 4 Proceeds on sale of assets
- 25 Cash transferred (to) from escrow (8,440) (1,508) Cash paid
for an acquisition, net of cash acquired (17) - Other (2)
27
Net cash used by investing activities (9,107)
(1,988)
Cash flows provided from (used by) financing
activities: Proceeds from long-term debt borrowings 6,603 1,561
Financing costs paid (119) (39) Long-term debt payments (274) (245)
Proceeds from issuance of common stock, net 799 - Proceeds from
issuance of preferred stock, net 1,866 - Dividends paid on common
stock (333) (301) Dividends paid on preferred stock (67) - Other
- (2)
Net cash provided from (used by) financing
activities 8,475 974 Increase / (Decrease) in cash and
cash equivalents 329 (72) Cash and cash equivalents at January 1,
682 880
Cash and cash equivalents at
September 30, $ 1,011 $ 808
Supplemental cash flow
information: Cash paid during the period for: Interest $
553 $ 464 Income taxes, net $ 27 $ 36
Schedule A
Frontier Communications
Corporation
Reconciliation of Non-GAAP Financial
Measures
For the quarter ended For the nine months
ended
($ in
millions)
September 30, June 30, September 30, September 30,
2015 2015 2014 2015 2014
Operating Income to
Adjusted Operating Cash Flow
to Free Cash
Flow
Revenue $ 1,424 $ 1,368
$ 1,141 $ 4,163 $ 3,442
Less: Total operating expenses 1,217 1,175 944
3,600 2,795
Operating income 207
193 197 563 647 Depreciation and
amortization 325 335 261 1,001
816
Operating cash flow 532 528 458 1,564 1,463 Add
back: Acquisition and integration costs 58 35 42 150 72
Pension/OPEB costs (1) (3) (2) (21) (3) (21) Severance costs
1 - 1 2 2
Adjusted operating cash
flow 588 561 480 1,713 1,516
Add back: Interest and dividend income 2 - - 3 1 Stock based
compensation 7 5 6 19 18 Subtract: Cash paid for income
taxes 7 3 22 27 36 Capital expenditures - Operations (2) 177 178
152 525 413 Interest expense (3) 184 185 163
557 486
Free cash flow $ 229
$ 200 $ 149 $ 626
$ 600 Dividends on preferred stock (67) - - (67) -
Incremental interest on new debt (11) - -
(11) -
Free cash flow, as adjusted $
151 $ 200 $ 149 $
548 $ 600 Operating income margin
(Operating income divided by revenue) As Reported 14.6%
14.1% 17.3% 13.5% 18.8% As Adjusted (4) 18.5% 16.6% 19.2% 17.1%
20.3%
Operating cash flow margin (Operating cash flow
divided by revenue) As Reported 37.5% 38.6% 40.1% 37.6%
42.5% As Adjusted 41.4% 41.0% 42.0% 41.2% 44.0%
(1) Reflects pension and other postretirement benefit (OPEB)
expense, net of capitalized amounts, of $19 million, $18 million
and $13 million for the quarters ended September 30, 2015, June 30,
2015 and September 30, 2014, respectively, less cash pension
contributions and certain OPEB costs/payments of $21 million, $20
million and $34 million for the quarters ended September 30, 2015,
June 30, 2015 and September 30, 2014, respectively. Reflects
pension and OPEB expense, net of capitalized amounts, of $57
million and $42 million for the nine months ended September 30,
2015 and 2014, respectively, less cash pension contributions and
certain OPEB costs/payments of $59 million and $63 million for the
nine months ended September 30, 2015 and 2014, respectively.(2)
Excludes capital expenditures for integration activities.(3)
Excludes interest expense of $52 million, $73 million and $8
million for the quarters ended September 30, 2015, June 30, 2015
and September 30, 2014, respectively, and $184 million and $23
million for the nine months ended September 30, 2015 and 2014,
respectively, related to commitment fees on bridge loan facilities.
Also excludes $11 million for the quarter and nine months ended
September 30, 2015 of interest expense related to the September
2015 private debt offering in connection with financing the pending
Verizon transaction.(4) Excludes acquisition and integration costs,
pension/OPEB costs and severance costs.
Schedule B
Frontier Communications
Corporation
Reconciliation of Non-GAAP Financial
Measures
($ in millions,
except per share amounts)
For the quarter ended
September 30, 2015 June 30, 2015 September 30, 2014
Net income
(loss)
Net Income(Loss)
BasicEarnings(Loss) PerShare
Net Income(Loss)
BasicEarnings(Loss) PerShare
Net Income
Basic EarningsPer Share
GAAP, as reported Net income (loss) $ (14) $ (0.01) $ (28) $
(0.03) $ 42 $ 0.04 Dividends on preferred stock (67)
(0.06) - - - - Net income (loss)
attributable to Frontier common shareholders (81) (0.07) (28)
(0.03) 42 0.04 Acquisition and integration costs 27 0.02 23 0.02 27
0.03 Severance costs - - - - - - Acquisition related interest
expense (1) 22 0.02 47 0.05 5 - Gain on sale of assets - - - - (16)
(0.02) Certain tax items (2) - - (15) (0.01) (10) (0.01) Dividends
on preferred stock 67 0.06 - - -
-
Non-GAAP, as adjusted (3) $ 35 $ 0.03 $ 27 $
0.03 $ 48 $ 0.05 For the nine months ended September 30,
2015 September 30, 2014
Net income
(loss)
Net Income(Loss)
BasicEarnings(Loss) PerShare
Net Income
Basic EarningsPer Share
GAAP, as reported Net income (loss) $ (93) $ (0.09) $ 119 $ 0.12
Dividends on preferred stock (67) (0.06) - -
Net income (loss) attributable to Frontier common shareholders
(160) (0.15) 119 0.12 Acquisition and integration costs 86 0.08 46
0.05 Severance costs 1 - 1 - Acquisition related interest expense
(1) 105 0.10 14 0.01 Gain on sale of assets - - (16) (0.02) Certain
tax items (2) (15) (0.01) (14) (0.01) Dividends on preferred stock
67 0.06 - -
Non-GAAP, as
adjusted (3) $ 84 $ 0.08 $ 150 $ 0.15
(1) Represents interest expense related to commitment fees on
bridge loan facilities in connection with the pending Verizon
transaction and the October 2014 Connecticut acquisition.(2)
Includes impact arising from state law changes, state filing method
change, federal research and development credits, the domestic
production activities deduction and the net impact of uncertain tax
positions.(3) Non-GAAP, as adjusted may not sum due to
rounding.
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version on businesswire.com: http://www.businesswire.com/news/home/20151103005930/en/
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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