FTR Frontier Communications Corporation

• Twelfth consecutive quarter of strong broadband momentum with 28,500 net broadband additions; 102,000 total 2015 net broadband additions
• Maintained an attractive, sustainable full year dividend payout ratio of 49%
• On schedule for closing and integrating the Verizon transaction
• Increasing Day One synergy estimate to be in excess of $600 million

Frontier Communications Corporation (NASDAQ:FTR) today reported fourth quarter 2015 revenue of $1,413 million, operating income of $182 million and net loss of $103 million, or $0.09 per share. Excluding acquisition related interest expense of $178 million, acquisition and integration costs of $86 million, and certain tax items of $7 million, net (combined after-tax impact of $159 million, or $0.14 per share), non-GAAP adjusted net income was $56 million, or $0.05 per share, for the fourth quarter of 2015 (See attached Schedule B).

"For Frontier, 2015 represented a year of substantial accomplishments in ongoing operations, the successful integration of the State of Connecticut, including delivering synergies in excess of our targets, and the preparation for the acquisition of the Verizon California, Texas, and Florida properties,” said Dan McCarthy, Frontier President and Chief Executive Officer. “We achieved another year of very robust broadband growth, representing our third consecutive year of broadband additions in excess of 100,000. We embarked upon an enhancement of our capabilities, including the improvement of our broadband offerings in rural markets through the FCC’s Connect America Fund I and II, the increase of speeds in other markets through our own initiative, as well as the rollout of video capabilities to new markets. I believe that these endeavors will increase the competitive capabilities of Frontier’s offerings.”

“We anticipate that we will begin operating the Verizon California, Texas, and Florida markets with the commencement of our second quarter on April 1st, 2016. This transformative acquisition will expand Frontier’s operations into new markets with leading-edge capabilities, increase our economies of scale, and improve our competitive position. We have increased our Day One synergy estimate and are continuing to refine our target cost structure. We are also confident in our ability to maintain the sustainable, attractive dividend and dividend payout ratio that our investors have come to rely upon from Frontier. The entire leadership team is focused on delivering increased shareholder value.”

Revenue for the fourth quarter of 2015 was $1,413 million, a decrease of $11 million, or 1%, from $1,424 million reported in the third quarter of 2015. Regulatory revenue, which includes switched access and subsidy revenues, improved by $5 million during the fourth quarter due to additional revenue from the Connect America Fund Phase II program.

Customer revenue for the fourth quarter of 2015 of $1,207 million decreased 1% from $1,223 million in the third quarter of 2015 due to the continued decline in voice services revenue of $18 million. Total residential revenue was $594 million for the fourth quarter of 2015, compared to $606 million in the third quarter of 2015. Total business revenue was $613 million for the fourth quarter of 2015, compared to $617 million in the third quarter of 2015.

At December 31, 2015, Frontier had 3,124,200 residential customers. The fourth quarter of 2015 resulted in a net reduction of 0.7% of our residential customers, compared to a net reduction of 0.9% in the third quarter. The average monthly residential revenue per customer was $63.14 in the fourth quarter of 2015, a decrease of $0.69, or 1.1%, compared to the third quarter, due to the decline in voice services revenue.

At December 31, 2015, Frontier had 289,200 business customers. The fourth quarter of 2015 resulted in a net reduction of 1.7% of our business customers, similar to the net reduction of 1.7% in the third quarter. The average monthly business revenue per customer was $700.03, an increase of 0.9% over the third quarter, as the business customer decline continued to be driven by a decrease in the number of small business customers which have less revenue per customer.

At December 31, 2015, Frontier had 2,462,100 broadband customers. We added 28,500 net broadband customers during the fourth quarter of 2015 compared to 27,200 net additions in the third quarter. We added 102,000 net broadband customers during the full year of 2015 compared to 108,700 net additions in 2014.

At December 31, 2015, Frontier had 553,700 video customers. The fourth quarter of 2015 resulted in a net reduction of 5,800 video customers, including a reduction of 5,400 satellite video customers, compared to the third quarter net reduction of 9,600 video customers, including a reduction of 6,900 satellite video customers.

Network access expenses for the fourth quarter of 2015 were $165 million, compared to $159 million in the third quarter. Network related expenses for the fourth quarter of 2015 were $318 million, compared to $331 million in the third quarter. Selling, general and administrative (SG&A) expenses for the fourth quarter of 2015 were $343 million, compared to $344 million in the third quarter.

Our cash operating expenses of $813 million during the fourth quarter of 2015 decreased from $836 million in the third quarter of 2015 due to reduced storm-related costs, decreased network services costs and lower cash pension and other post-retirement benefit costs (See attached Schedule C).

Depreciation and amortization for the fourth quarter of 2015 was $319 million, compared to $325 million in the third quarter.

Acquisition and integration costs for the fourth quarter of 2015 were $86 million compared to $58 million in the third quarter. For the fourth quarter of 2015, these costs include $2 million related to the October 2014 Connecticut acquisition and $84 million related to the pending Verizon transaction.

Operating income for the fourth quarter of 2015 was $182 million and operating income margin was 12.9% compared to operating income of $207 million and operating income margin of 14.6% in the third quarter.

Interest expense for the fourth quarter of 2015 was $362 million compared to $246 million in the third quarter. Interest expense increased by $116 million in the fourth quarter, primarily due to the additional interest on the $6.6 billion private debt financing completed in September 2015 in connection with the pending Verizon transaction, partially offset by lower commitment fees for the Verizon transaction bridge loan facilities, which were terminated after the third quarter with the completion of the private debt offering.

Income tax expense/benefit for the fourth quarter of 2015 was a tax benefit of $73 million compared to a tax benefit of $24 million in the third quarter. Frontier’s effective tax rate for the fourth quarter of 2015 was 41.5%.

Net income/loss was a net loss of $103 million, or $0.09 per share, in the fourth quarter of 2015, compared to a net loss of $14 million, or $0.01 per share, in the third quarter. The fourth quarter of 2015 included acquisition related interest expense of $178 million, acquisition and integration costs of $86 million, and certain tax items of $7 million, net (combined after-tax impact of $159 million, or $0.14 per share). Excluding the impact of these items, the non-GAAP adjusted net income for the fourth quarter of 2015 was $56 million, or $0.05 per share, as compared to $35 million, or $0.03 per share, in the third quarter.

Capital expenditures for Frontier operations were $185 million for the fourth quarter of 2015 compared to $177 million for the third quarter. In addition, acquisition related capital expenditures were $52 million in the fourth quarter of 2015 and $63 million in the third quarter. Capital expenditures funded by the Connect America Fund Phase I were $6 million in the third quarter of 2015.

Operating cash flow was $501 million for the fourth quarter of 2015 resulting in an operating cash flow margin of 35.4%, compared to operating cash flow of $532 million and an operating cash flow margin of 37.5% for the third quarter. Operating cash flow for the fourth quarter of 2015, as adjusted, was $600 million, or 42.5%, after excluding $86 million of acquisition and integration costs and $13 million of non-cash pension and other postretirement benefit costs, as compared to $588 million in the third quarter (See attached Schedule A).

Free cash flow, as adjusted, was $243 million for the fourth quarter of 2015 compared to $229 million in the third quarter (See attached Schedule A). Free cash flow, as adjusted, was $869 million for the full year of 2015, as compared to $793 million in 2014. 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 43% payout of free cash flow, as adjusted, for the fourth quarter of 2015 compared to 46% for the third quarter.

Pension Contributions

Cash contributions to the pension plan were $62 million during the full year of 2015. We expect that we will make contributions to our pension plan of approximately $15 million to $25 million in 2016, including the potential impact of the Verizon Transaction.

Non-GAAP Measures

Frontier uses certain non-GAAP financial measures in evaluating its performance. These include non-GAAP adjusted net income, free cash flow, adjusted free cash flow, operating cash flow, adjusted operating cash flow and cash operating expenses. 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, adjusted free cash flow, operating cash flow, adjusted operating cash flow and cash operating expenses, 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. We also believe that using the adjusted dividend payout ratio is a better metric than the unadjusted dividend payout ratio until the completion of the Verizon Transaction. The adjusted dividend payout ratio excludes both the cash flow from these to-be-acquired operations and the impact of the interest expense and dividends on the incremental capital that Frontier raised to finance the Verizon Transaction. Frontier has shown adjustments to its financial presentations to exclude certain tax items, acquisition and integration costs, acquisition related interest expense, severance costs, non-cash pension and other postretirement benefit costs and gain on sale of assets, as disclosed in the attached Schedules A, B and C, 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 Webcast

We 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 fourth 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, February 23, 2016 through Sunday, February 28, 2016 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 9446371 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 19,200 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, our ability to enter into or obtain, or delays in entering into or obtaining, agreements and consents necessary to operate the acquired business as planned on terms acceptable to us, and increased expenses incurred due to activities related to the transaction; the ability of the lenders to the $1.5 billion credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, to meet their obligations thereunder to fund such facility in connection with the closing of the acquisition of the Verizon properties; our ability to meet our debt and debt service obligations; competition from cable, wireless and wireline carriers and satellite companies 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 2016 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 year ended

($ in millions and shares in thousands, except per share)

December 31, September 30, December 31, December 31, 2015 2015 2014 2015 2014   Statement of Operations Data Revenue $ 1,413 $ 1,424 $ 1,330 $ 5,576 $ 4,772   Operating expenses: Network access expenses 165 159 144 640 465 Network related expenses (1) 318 331 320 1,287 1,118 Selling, general and administrative expenses (1) 343 344 300 1,348 1,088 Depreciation and amortization 319 325 323 1,320 1,139 Acquisition and integration costs (2)   86   58   70   236   142 Total operating expenses   1,231   1,217   1,157   4,831   3,952   Operating income 182 207 173 745 820   Investment and other income, net 4 1 13 7 39 Interest expense   362   246   188   1,113   696   Income (loss) before income taxes (176) (38) (2) (361) 163 Income tax expense (benefit)   (73)   (24)   (16)   (165)   30   Net income (loss) (2) (103) (14) 14 (196) 133   Less: Dividends on preferred stock 53 67 - 120 - Net income (loss) attributable to Frontier                     common shareholders $ (156) $ (81) $ 14 $ (316) $ 133   Weighted average shares outstanding - basic 1,161,148 1,161,207 994,541 1,084,606 994,418   Basic net income (loss) per common share (3) $ (0.14) $ (0.07) $ 0.01 $ (0.29) $ 0.13   Non-GAAP adjusted basic net income per common share (3)(4) $ 0.05 $ 0.03 $ 0.04 $ 0.13 $ 0.18   Other Financial Data Capital expenditures - Operations $ 185 $ 177 $ 159 $ 710 $ 572 Capital expenditures - Integration activities 52 63 34 153 116 Operating cash flow, as adjusted (4) 600 588 569 2,313 2,085 Free cash flow, as adjusted (4) 243 229 193 869 793 Free cash flow (4) 12 151 193 560 793 Dividends paid - Common Stock 123 122 100 456 401 Dividends paid - Preferred Stock 53 67 - 120 - Dividend payout ratio (5) 1146% 81% 52% 82% 51% Dividend payout ratio, as adjusted (6) 43% 46% 52% 49% 51%  

(1)

   

Includes severance costs of $1 million for the quarter ended September 30, 2015 and $2 million for each of the years ended December 31, 2015 and 2014, respectively.

(2)

Reflects acquisition and integration costs of $86 million($47 million or $0.04 per share after tax), $58 million ($27 million or $0.02 per share after tax) and $70 million ($44 million or $0.04 per share after tax) for the quarters ended December 31, 2015, September 30, 2015 and December 31, 2014, respectively, and $236 million ($133 million or $0.12 per share after tax) and $142 million ($90 million or $0.09 per share after tax) for the years ended December 31, 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 determined in Schedule A.

(6)

Represents dividends paid on shares outstanding prior to the June 2015 equity offerings divided by free cash flow, as adjusted, as determined in Schedule A.

Note: As of December 31, 2015, there were 1,168,200 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 December 31, 2015 September 30, 2015 December 31, 2014 ($ in millions) Connecticut Frontier Connecticut Frontier Connecticut Frontier Consolidated Operations Legacy Consolidated Operations Legacy Consolidated Operations Legacy   Selected Statement of Operations Data Revenue: Voice services $ 482 $ 82 $ 400 $ 500 $ 86 $ 414 $ 525 $ 74 $ 451 Data and internet services 589 106 483 589 105 484 555 88 467 Other   136   59   77   134   62   72   122   45   77 Customer revenue 1,207 247 960 1,223 253 970 1,202 207 995 Switched access and subsidy   206   10   196   201   11   190   128   9   119 Total revenue $ 1,413 $ 257 $ 1,156 $ 1,424 $ 264 $ 1,160 $ 1,330 $ 216 $ 1,114   Other Financial Data Revenue: Residential $ 594 $ 128 $ 466 $ 606 $ 132 $ 474 $ 601 $ 116 $ 485 Business   613   119   494   617   121   496   601   91   510 Customer revenue 1,207 247 960 1,223 253 970 1,202 207 995 Switched access and subsidy   206   10   196   201   11   190   128   9   119 Total revenue $ 1,413 $ 257 $ 1,156 $ 1,424 $ 264 $ 1,160 $ 1,330 $ 216 $ 1,114     For the year ended December 31, 2015 December 31, 2014 Connecticut Frontier Connecticut Frontier Consolidated Operations Legacy Consolidated Operations Legacy   Selected Statement of Operations Data Revenue: Voice services $ 2,022 $ 353 $ 1,669 $ 1,951 $ 74 $ 1,877 Data and internet services 2,337 424 1,913 1,948 88 1,860 Other   540   229   311   354   45   309 Customer revenue 4,899 1,006 3,893 4,253 207 4,046 Switched access and subsidy   677   43   634   519   9   510 Total revenue $ 5,576 $ 1,049 $ 4,527 $ 4,772 $ 216 $ 4,556   Other Financial Data Revenue: Residential $ 2,432 $ 531 $ 1,901 $ 2,092 $ 116 $ 1,976 Business   2,467   475   1,992   2,161   91   2,070 Customer revenue 4,899 1,006 3,893 4,253 207 4,046 Switched access and subsidy   677   43   634   519   9   510 Total revenue $ 5,576 $ 1,049 $ 4,527 $ 4,772 $ 216 $ 4,556            

Frontier Communications Corporation

Consolidated Financial and Operating Data

  For the quarter ended For the year ended December 31, September 30, December 31, December 31, 2015 2015 2014 2015 2014   Customers (in thousands) 3,413 3,441 3,510 (1) 3,413 3,510 (1) Residential customer metrics: Customers (in thousands) 3,124 3,147 3,205 (1) 3,124 3,205 (1) Average monthly residential revenue per customer $ 63.14 $ 63.83 $ 65.67 $ 63.93 $ 61.11 Customer monthly churn 1.76% 1.97% 1.62% 1.82% 1.73%   Business customer metrics: Customers (in thousands) 289 294 305 (1) 289 305 (1) Average monthly business revenue per customer $ 700.03 $ 693.58 $ 688.31 $ 690.88 $ 661.15   Employees 19,160 18,638 17,354 19,160 17,354 Broadband subscribers (in thousands) 2,462 2,434 2,360 (2) 2,462 2,360 (2) Video subscribers (in thousands) 554 560 582 (2) 554 582 (2) Switched access minutes of use (in millions) 3,761 3,755 3,853 15,327 15,193  

(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) December 31, 2015 December 31, 2014 ASSETS Current assets: Cash and cash equivalents $ 936 $ 682 Accounts receivable, net 571 614 Restricted cash 8,444 - Other current assets   180   119 Total current assets 10,131 1,415   Property, plant and equipment, net 8,493 8,566 Other assets - principally goodwill   8,460   8,829 Total assets $ 27,084 $ 18,810   LIABILITIES AND EQUITY Current liabilities: Long-term debt due within one year $ 384 $ 298 Accounts payable and other current liabilities   1,509   1,214 Total current liabilities 1,893 1,512   Deferred income taxes and other liabilities 4,069 4,247 Long-term debt 15,508 9,393 Equity   5,614   3,658 Total liabilities and equity $ 27,084 $ 18,810      

Frontier Communications Corporation

Consolidated Cash Flow Data

 

($ in millions)

For the year ended December 31, 2015 2014   Cash flows provided from (used by) operating activities: Net income (loss) $ (196) $ 133 Adjustments to reconcile net income (loss) to net cash provided from operating activities: Depreciation and amortization 1,320 1,139 Pension/OPEB costs 10 (18) Stock based compensation expense 27 23 Gains on sale of assets - (37) Amortization of deferred financing costs 191 10 Other non-cash adjustments - 22 Deferred income taxes (167) (78) Change in accounts receivable 62 (61) Change in accounts payable and other liabilities 102 90 Change in other current assets   (48)   47 Net cash provided from operating activities 1,301 1,270   Cash flows provided from (used by) investing activities: Cash paid for the Connecticut Acquisition - (2,018) Capital expenditures - Operations (710) (572) Capital expenditures - Integration activities (153) (116) Network expansion funded by Connect America Fund - Phase I (22) (56) Grant funds received for network expansion from Connect America Fund - Phase I - 4 Proceeds on sale of assets 22 39 Cash transferred (to) from escrow (8,444) 11 Cash paid for an acquisition, net of cash acquired (17) - Other   2   32 Net cash used by investing activities (9,322) (2,676)   Cash flows provided from (used by) financing activities: Proceeds from long-term debt borrowings 6,603 1,911 Financing costs paid (119) (40) Long-term debt payments (298) (260) Proceeds from issuance of common stock, net 799 - Proceeds from issuance of preferred stock, net 1,866 - Dividends paid on common stock (456) (401) Dividends paid on preferred stock (120) - Other   -   (2) Net cash provided from financing activities 8,275 1,208   Increase / (Decrease) in cash and cash equivalents 254 (198) Cash and cash equivalents at January 1,   682   880   Cash and cash equivalents at December 31, $ 936 $ 682   Supplemental cash flow information: Cash paid during the period for: Interest $ 728 $ 656 Income taxes, net $ 28 $ 70   Non-cash investing and financing activities: Increase (decrease) in capital expenditures due to changes in accounts payable $ (56) $ (15)  

Schedule A

           

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

  For the quarter ended For the year ended

($ in millions)

December 31, September 30, December 31, December 31, 2015 2015 2014 2015 2014  

Operating Income to Adjusted Operating Cash Flow

to Free Cash Flow

  Revenue $ 1,413 $ 1,424 $ 1,330 $ 5,576 $ 4,772 Less: Total operating expenses   1,231   1,217   1,157   4,831   3,952 Operating income 182 207 173 745 820   Depreciation and amortization   319   325   323   1,320   1,139 Operating cash flow 501 532 496 2,065 1,959   Add back: Acquisition and integration costs 86 58 70 236 142 Pension/OPEB costs (1) 13 (3) 3 10 (18) Severance costs   -   1   -   2   2 Adjusted operating cash flow 600 588 569 2,313 2,085   Add back: Interest and dividend income 4 2 - 7 1 Stock based compensation 8 7 5 27 23   Subtract: Cash paid for income taxes 1 7 34 28 70 Capital expenditures - Operations (2) 185 177 159 710 572 Interest expense (3)   183   184   188   740   674 Adjusted free cash flow $ 243 $ 229 $ 193 $ 869 $ 793 Dividends on preferred stock (53) (67) - (120) - Incremental interest on new debt   (178)   (11)   -   (189)   - Free cash flow $ 12 $ 151 $ 193 $ 560 $ 793   Operating income margin (Operating income divided by revenue) As Reported 12.9% 14.6% 13.0% 13.4% 17.2% As Adjusted (4) 19.9% 18.5% 18.4% 17.8% 19.8%   Operating cash flow margin (Operating cash flow divided by revenue) As Reported 35.4% 37.5% 37.3% 37.0% 41.0% As Adjusted 42.5% 41.4% 42.7% 41.5% 43.7%  

(1)

   

Reflects pension and other postretirement benefit (OPEB) expense, net of capitalized amounts, of $18 million, $19 million and $17 million for the quarters ended December 31, 2015, September 30, 2015 and December 31, 2014, respectively, less cash pension contributions and certain OPEB costs/payments of $5 million, $21 million and $14 million for the quarters ended December 31, 2015, September 30, 2015 and December 31, 2014, respectively. Reflects pension and OPEB expense, net of capitalized amounts, of $75 million and $59 million for the years ended December 31, 2015 and 2014, respectively, less cash pension contributions and certain OPEB costs/payments of $65 million and $77 million for the years ended December 31, 2015 and 2014, respectively.

(2)

Excludes capital expenditures for integration activities.

(3)

Excludes interest expense of $52 million for the quarter ended September 30, 2015 and $184 million and $23 million for the years ended December 31, 2015 and 2014, respectively, related to commitment fees on bridge loan facilities. Also excludes $178 million and $11 million for the quarters ended December 31, 2015 and September 30, 2015, respectively, and $189 million for the year ended December 31, 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 December 31, 2015 September 30, 2015 December 31, 2014

Net income (loss)

Net Income(Loss)

Basic Earnings(Loss) PerShare

Net Income(Loss)

Basic Earnings(Loss) PerShare

NetIncome

Basic EarningsPer Share

  GAAP, as reported Net income (loss) $ (103) $ (0.09) $ (14) $ (0.01) $ 14 $ 0.01 Dividends on preferred stock   (53)   (0.05)   (67)   (0.06)   -   - Net income (loss) attributable to Frontier common shareholders (156) (0.14) (81) (0.07) 14 0.01 Acquisition and integration costs 47 0.04 27 0.02 44 0.04 Severance costs - - - - - - Acquisition related interest expense (1) 105 0.09 22 0.02 - - Gain on sale of assets - - - - (8) - Certain tax items (2) 7 0.01 - - (14) (0.02) Dividends on preferred stock   53   0.05   67   0.06   -   - Non-GAAP, as adjusted (3) $ 56 $ 0.05 $ 35 $ 0.03 $ 36 $ 0.04   For the year ended December 31, 2015 December 31, 2014

Net income (loss)

Net Income(Loss)

Basic Earnings(Loss) PerShare

NetIncome

Basic EarningsPer Share

GAAP, as reported Net income (loss) $ (196) $ (0.18) $ 133 $ 0.13 Dividends on preferred stock   (120)   (0.11)   -   - Net income (loss) attributable to Frontier common shareholders (316) (0.29) 133 0.13 Acquisition and integration costs 133 0.12 90 0.09 Severance costs 1 - 1 - Acquisition related interest expense (1) 210 0.19 14 0.01 Gain on sale of assets - - (23) (0.02) Certain tax items (2) (8) (0.01) (29) (0.03) Dividends on preferred stock   120   0.11   -   - Non-GAAP, as adjusted (3) $ 140 $ 0.13 $ 186 $ 0.18  

(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. Also includes interest expense related to the September 2015 private debt offering in connection with financing the pending Verizon transaction.

(2)

Includes impact arising from state law changes, state filing method change, federal research and development credits, the domestic production activities deduction, non-deductible transaction costs, changes in certain deferred tax balances and the net impact of uncertain tax positions.

(3)

Non-GAAP, as adjusted may not sum due to rounding.

Schedule C

           

Frontier Communications Corporation

Reconciliation of Non-GAAP Financial Measures

  For the quarter ended For the year ended

($ in millions)

December 31, September 30, December 31, December 31, 2015 2015 2014 2015 2014  

Operating Expenses to Cash Operating Expenses

  Total operating expenses $ 1,231 $ 1,217 $ 1,157 $ 4,831 $ 3,952   Subtract: Depreciation and amortization 319 325 323 1,320 1,139 Acquisition and integration costs 86 58 70 236 142 Pension/OPEB costs 13 (3) 3 10 (18) Severance costs   -   1   -   2   2 Cash operating expenses $ 813 $ 836 $ 761 $ 3,263 $ 2,687  

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Frontier CommunicationsINVESTORS:Luke Szymczak, 203-614-5044luke.szymczak@FTR.comorMEDIA:Brigid Smith, 203-614-5042AVP, Corporate Communicationsbrigid.smith@FTR.com