- Achieved Annualized Cost Synergies of
$1 billion in the Second Quarter
- Raising Cost Synergy Target to $1.25
billion from $700 million annually
- Broadband Upgrade Continues – Planning
additional 1.5 million 50 Mbps capable or higher households over
the next year
- 2016 guidance ranges narrowed; 2017
outlook guidance provided
- Dividend Payout Ratio(1) of 49% in
second quarter
Frontier Communications Corporation (NASDAQ:FTR) today reported
its financial results for the second quarter of 2016, which include
contributions from the fully integrated assets Frontier acquired
from Verizon in California, Texas, and Florida (CTF).
“We are very pleased with the performance of our newly acquired
assets and our achievement of annualized cost synergies of $1
billion in the second quarter. We now expect annual cost synergies
related to the acquisition of $1.25 billion, up from our original
estimate of $700 million,” said Dan McCarthy, Frontier President
and Chief Executive Officer.
“As we move forward, we are continuing to focus on executing our
strategy for growth, including upgrading our broadband speed
capabilities, expanding our new Vantage video service to an
increasing portion of our footprint, and implementing our
successful commercial distribution capabilities in Frontier’s new
markets. We will remain focused on increasing our broadband and
video penetration, and improving our efficiency. Our priorities
continue to be driving strong free cash flow and continuing our
disciplined capital allocation policy, which together underpin our
very attractive, sustainable dividend, and industry-leading
dividend payout ratio. We also are very well-positioned to achieve
our plan to reduce leverage over time,” McCarthy said.
Financial Highlights for the Second
Quarter 2016:
- Revenue of $2,608 million
- Operating income of $311 million,
operating income margin of 11.9%
- Net loss of $80 million, or ($0.07) per
share
- Adjusted EBITDA(2) of $1,032 million,
adjusted EBITDA margin of 39.6%
- Net cash provided from operating
activities of $693 million
- Adjusted Free Cash Flow(3) of $250
million
Revenue:
For the quarter ended June 30, 2016
(
$ in millions) Consolidated CTF
Frontier March 31, June 30, Amount Operations Legacy* 2016
2015 Total revenue $ 2,608 $ 1,282 $ 1,326 $ 1,355 $
1,368
* Excludes results from the recently acquired CTF Operations.
See attached schedules for the presentation of consolidated
results.
Revenue in the second quarter of 2016 associated with the CTF
Operations reflected certain reductions to revenues previously
reported for the business, including revenue that did not transfer
over from Verizon and strategic decisions to terminate certain
contracts and services which, while lowering revenues, added to
EBITDA. Revenues were also impacted by one-time items, including
the temporary suspension of late fees, outage credits and the
anticipated acquisition-related accounting changes. Also, as
previously announced, the Company temporarily suspended marketing
activity which impacted customer additions. Mr. McCarthy commented,
“We are pleased that the EBITDA from the acquired operations met
our expectations for the quarter as a result of
better-than-expected cost synergies, and despite our strategic
decision to forego specific revenue opportunities.”
Customers:
As of and for the quarter ended June
30, 2016 June 30, 2015
Residential customer metrics:
Customers (in thousands) 5,243 3,175 Average monthly
residential revenue per customer $ 83.20 $ 64.43 Customer monthly
churn 1.91% 1.78%
Business customer metrics:
Customers (in thousands) 528 299 Average monthly business revenue
per customer $ 658.00 $ 689.21
Broadband subscribers (in
thousands) 4,570 2,406
Video subscribers (in thousands)
1,628 569
The broadband and video unit results during the second quarter
reflect Frontier’s previously-stated plans to suspend marketing
during the second quarter to prospective new customers in the
acquired CTF markets, enabling Frontier to focus its efforts on
supporting existing customers in those markets. Marketing spending
and engagement have now returned to normal levels and the Company
anticipates improved customer additions in the third quarter and
beyond. Residential ARPC increased during the second quarter
largely as a result of the greater availability of video in the new
CTF markets. Business ARPC decreased primarily due to the CTF
markets having proportionally fewer wholesale customers relative to
total business customers as compared to our legacy markets.
Integration Costs:
Frontier completed its CTF customer conversion activities in the
second quarter and is finalizing the remainder of its integration
work. During the second quarter, Frontier incurred $106 million of
integration operating expenses and $36 million of integration
capital expenditures. These costs were driven by cutover activities
and the acceleration of certain projects to improve synergy
attainment.
Cash Flow Highlights:
For the quarter ended June 30, 2016
June 30, 2015 Capital expenditures – business operations $
350 $ 178 Capital expenditures – integration activities $ 36 $ 28
Dividends paid – preferred stock $ 53 $ -
Adjusted free cash flow(4)
$ 250 $ 200 Dividends paid – common stock $ 123 $ 106 Dividend
payout ratio(4) 49 % 53 %
Guidance:
For the full year 2016, Frontier expects:
- Adjusted free cash flow (as calculated
per Schedule A) to be in the range of $825 million to $900
million(5)
- Capital expenditures to be in the range
of $1,275 million to $1,325 million
- Cash taxes refunds to be in the range
of $10 million to $20 million
- Cash contributions to the pension plan
to be in the range of $10 million to $15 million.
- For the full year 2017, Frontier
expects adjusted EBITDA to be greater than $4 billion.
Non-GAAP Measures
Frontier uses certain non-GAAP financial measures in evaluating
its performance, including EBITDA, EBITDA margin, adjusted EBITDA,
adjusted EBITDA margin, free cash flow, adjusted free cash flow,
adjusted operating expenses, adjusted net income, adjusted earnings
per share and dividend payout ratio, each of which is described
below. Management uses these non-GAAP financial measures internally
to (i) assist in analyzing Frontier's underlying financial
performance from period to period, (ii) evaluate our regional
financial performance, (iii) analyze and evaluate strategic and
operational decisions, (iv) establish criteria for compensation
decisions, and (v) assist in the understanding of Frontier's
ability to generate cash flow and, as a result, to plan for future
capital and operational decisions. 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) present measurements
that investors and rating agencies have indicated to management are
useful to them in assessing Frontier and its results of
operations.
A reconciliation of these measures to the most comparable
financial measures calculated and presented in accordance with GAAP
is included in the accompanying tables. These non-GAAP financial
measures are not measures of financial performance or liquidity
under GAAP, nor are they alternatives to GAAP measures and they may
not be comparable to similarly titled measures of other
companies.
EBITDA is defined as net income (loss) less income tax expense
(benefit), investment and other income, interest expense and
depreciation and amortization. EBITDA margin is calculated by
dividing EBITDA by total revenues.
Adjusted EBITDA is defined as EBITDA, as described above,
adjusted to exclude acquisition and integration costs, and non-cash
pension/OPEB costs. Adjusted EBITDA margin is calculated by
dividing adjusted EBITDA by total revenues.
Management uses EBITDA, EBITDA margin, adjusted EBITDA and
adjusted EBITDA margin to assist it in comparing performance from
period to period and as measures of operational performance. We
believe that these non-GAAP measures provide useful information for
investors in evaluating our operational performance from period to
period because they exclude depreciation and amortization expenses
related to investments made in prior periods and are determined
without regard to capital structure or investment activities. By
excluding capital expenditures, debt repayments and dividends,
these non-GAAP financial measures have certain shortcomings.
Management compensates for these shortcomings by utilizing these
non-GAAP financial measures in conjunction with the comparable GAAP
financial measures.
Adjusted net income (loss) attributable to Frontier common
shareholders is defined as net income (loss) attributable to
Frontier common shareholders and excludes acquisition and
integration costs, certain income tax items and the income tax
effect of these items. Adjustments have also been made to exclude
the financing costs and related income tax effects associated with
the Verizon Transaction, including interest expense and preferred
dividends prior to our ownership of the CTF Operations. Adjusting
for these items allows investors to better understand and analyze
our financial performance over the periods presented.
Adjusted earnings per share is calculated by dividing adjusted
net income (loss) attributable to Frontier common shareholders by
the weighted average shares outstanding – basic.
Free Cash Flow, as used by management in the operation of its
business, is defined as net cash provided from operating activities
less capital expenditures for business operations and preferred
dividends. In determining free cash flow, further adjustments are
made to add back acquisition and integration costs, and interest
expense on commitment fees, which provides a better comparison of
our core operations from period to period. Changes in working
capital accounts are excluded from this calculation due to
seasonality and specific timing of cash receipts and disbursements
between various reporting periods.
Adjusted Free Cash Flow is defined as free cash flow, as
described above and adding back interest expense on incremental
debt and dividends paid on preferred stock issued to finance the
Verizon Acquisition incurred prior to our ownership of the CTF
Operations.
Management uses free cash flow and adjusted free cash flow to
assist it in comparing performance and liquidity from period to
period and to obtain a more comprehensive view of our core
operations and ability to generate cash flow. We believe that these
non-GAAP measures are useful to investors in evaluating cash
available to service debt and pay dividends. In addition, we
believe that adjusted free cash flow provides a useful comparison
from period to period because it excludes the impact of financing
raised in connection with the Verizon Acquisition during periods
prior to our ownership of the CTF Operations. These non-GAAP
financial measures have certain shortcomings; they do not represent
the residual cash flow available for discretionary expenditures,
since items such as debt repayments, changes in working capital and
common stock dividends are not deducted in determining such
measures. Management compensates for these shortcomings by
utilizing these non-GAAP financial measures in conjunction with the
comparable GAAP financial measures.
Dividend Payout Ratio is calculated by dividing the dividends
paid on common stock by free cash flow. Management uses the
dividend payout ratio as a metric to indicate how much money
Frontier is returning to our shareholders. We have made adjustments
to exclude the impact of financing raised in connection with the
Verizon Acquisition during periods prior to our ownership of the
CTF Operations, which we believe provides a useful comparison from
period to period.
Adjusted Operating Expenses is defined as operating expenses
adjusted to exclude depreciation and amortization, acquisition and
integration costs, and non-cash pension/OPEB costs. Investors have
indicated that this non-GAAP measure is useful in evaluating
Frontier’s performance.
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 4:30 P.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 second quarter 2016 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
from 8 P.M. Eastern time on August 1, 2016 through 8 P.M. Eastern
time on August 6, 2016, 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 3831047 to access the replay. A
webcast replay of the call will be available at www.frontier.com/ir.
About Frontier Communications
Frontier Communications Corporation is a leader in providing
communications services to urban, suburban, and rural communities
in 29 states. Frontier offers a variety of services to residential
customers over its fiber-optic and copper networks, including
video, high-speed internet, advanced voice, and Frontier Secure®
digital protection solutions. Frontier Business Edge™ offers
communications solutions to small, medium, and enterprise
businesses. Frontier’s approximately 30,300 employees are based
entirely in the United States. More information about Frontier is
available at www.frontier.com.
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 acquisition of properties
from Verizon, including our ability to successfully operate the
acquired business, our ability to realize anticipated cost savings,
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; 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.
(1) Dividend payout ratio is a non-GAAP measure calculated as
common stock dividends ($123 million in Q2), divided by adjusted
free cash flow ($250 million in Q2). Adjusted free cash flow is a
non-GAAP measure of liquidity; the most directly comparable GAAP
measure is net cash provided by operating activities ($693 million
for Q2). See “Non-GAAP Measures” for a description of adjusted free
cash flow and its calculation. See Schedule A for a reconciliation
to net cash provided by operating activities.
(2) Adjusted EBITDA and adjusted EBITDA margin are non-GAAP
measures of performance. See “Non-GAAP Measures” for a description
of these non-GAAP measures and their calculation. See Schedule A
for a reconciliation to net loss.
(3) Adjusted free cash flow is a non-GAAP measure of liquidity.
See “Non-GAAP Measures” for a description of adjusted free cash
flow and its calculation.
(4) Adjusted free cash flow and dividend payout ratio are
non-GAAP measures. See note 1, above.
(5) Frontier does not provide guidance for the most directly
comparable GAAP measure to adjusted free cash flow, because such
guidance for net cash provided from operating activities cannot be
prepared without unreasonable effort. We do not provide guidance
for certain reconciling items between adjusted free cash flow and
net cash provided by operating activities. In addition, some
reconciling items, including changes in current assets and
liabilities, cannot reasonably be predicted and/or are not within
our control. As a qualitative matter, after taking these items into
consideration, factors that will cause adjusted free cash flow to
increase or decrease are likely to have a similar effect on net
cash provided from operating activities. Actual results for these
two liquidity measures may vary materially from each other.
Frontier Communications
Corporation
Consolidated Financial Data
For the quarter
ended For the six months ended June 30, March 31, June 30, June 30,
($ in millions and
shares in thousands, except per share amounts)
2016 2016 2015 2016 2015
Statement of Operations Data
Revenue $ 2,608 $ 1,355 $ 1,368 $ 3,963 $ 2,739 Operating
expenses: Network access expenses 453 160 161 613 316 Network
related expenses 546 326 313 872 638 Selling, general and
administrative expenses 596 357 331 953 661 Depreciation and
amortization 575 316 335 891 676 Acquisition and integration costs
127 138 35 265 92 Total
operating expenses 2,297 1,297 1,175
3,594 2,383 Operating income 311 58 193 369 356
Investment and other income, net - 11 1 11 2 Interest
expense 386 373 260 759 505
Loss before income taxes (75) (304) (66) (379) (147) Income
tax benefit (48) (118) (38) (166)
(68)
Net loss (27) (186) (28) (213) (79)
Less: Dividends on preferred stock 53 54 - 107 -
Net loss
attributable to Frontier
common shareholders $
(80) $ (240) $ (28) $ (320) $ (79) Weighted average shares
outstanding - basic and diluted 1,164,262 1,164,041 1,037,407
1,164,083 1,018,976
Basic and diluted net loss per common
share $ (0.07) $ (0.21) $ (0.03) $ (0.28) $ (0.08)
Other Financial Data: Capital expenditures - Business
operations $ 350 $ 207 $ 178 $ 557 $ 348 Capital expenditures -
Integration activities 36 52 28 88 38 Dividends paid - Common Stock
123 123 106 246 211 Dividends paid - Preferred Stock 53 54 - 107 -
Frontier Communications
Corporation
Consolidated Financial Data
For the quarter
ended June 30, 2016 Consolidated CTF Frontier March 31, June 30,
($ in
millions)
Amount Operations Legacy 2016 2015
Selected
Statement of Operations Data Revenue: Voice
services $ 836 $ 379 $ 457 $ 467 $ 515 Data and internet services
1,048 463 585 587 584 Video 419 351 68 67 72 Other 78
20 58 68 65 Customer revenue 2,381 1,213 1,168
1,189 1,236 Switched access and subsidy 227 69
158 166 132 Total revenue $ 2,608 $ 1,282 $ 1,326 $
1,355 $ 1,368
Other Financial Data Revenue:
Residential $ 1,332 $ 753 $ 579 $ 583 $ 615 Business 1,049
460 589 606 621 Customer revenue 2,381
1,213 1,168 1,189 1,236 Switched access and subsidy 227
69 158 166 132 Total revenue $ 2,608 $
1,282 $ 1,326 $ 1,355 $ 1,368
Operating
Expenses Network access expenses $ 453 $ 298 $ 155 $ 160 $ 161
Network related expenses 546 218 328 326 313 Selling, general and
administrative expenses 596 240 356 357 331 Acquisition and
integration costs 127 - 127 138
35 Cost and expenses (exclusive of depreciation 1,722 756 966 981
840 and amortization) Depreciation and amortization 575
262 313 316 335
Total Operating
Expenses $ 2,297 $ 1,018 $ 1,279 $ 1,297 $ 1,175
Frontier Communications
Corporation
Consolidated Financial Data
For the six months ended
June 30, 2016 Consolidated CTF Frontier June 30,
($ in
millions)
Amount Operations Legacy 2015
Selected Statement of
Operations Data Revenue: Voice services $ 1,303 $ 379
$ 924 $ 1,040 Data and internet services 1,635 463 1,172 1,159
Video 487 351 136 143 Other 145 20 125
127 Customer revenue 3,570 1,213 2,357 2,469 Switched access and
subsidy 393 69 324 270 Total revenue $
3,963 $ 1,282 $ 2,681 $ 2,739
Other Financial Data
Revenue: Residential $ 1,915 $ 753 $ 1,162 $ 1,232 Business
1,655 460 1,195 1,237 Customer revenue
3,570 1,213 2,357 2,469 Switched access and subsidy 393
69 324 270 Total revenue $ 3,963 $ 1,282 $
2,681 $ 2,739
Operating Expenses Network access
expenses $ 613 $ 298 $ 315 $ 316 Network related expenses 872 218
654 638 Selling, general and administrative expenses 953 240 713
661 Acquisition and integration costs 265 -
265 92 Cost and expenses (exclusive of depreciation 2,703
756 1,947 1,707 and amortization) Depreciation and amortization
891 262 629 676
Total Operating
Expenses $ 3,594 $ 1,018 $ 2,576 $ 2,383
Frontier Communications
Corporation
Consolidated Financial and Operating
Data
For the quarter ended For the
six months ended June 30, March 31, June 30, June 30, 2016 2016
2015 2016 2015
Customers (in thousands) 5,771 (1)
3,372 3,474 5,771 (1) 3,474
Residential customer metrics:
Customers (in thousands) 5,243 (1) 3,088 3,175 5,243 (1) 3,175
Average monthly residential revenue per customer $ 83.20 $ 62.64 $
64.43 $ 72.88 $ 64.31 Customer monthly churn 1.91% 1.83% 1.78%
1.87% 1.78%
Business customer metrics: Customers (in
thousands) 528 (1) 284 299 528 (1) 299 Average monthly business
revenue per customer $ 658.00 $ 704.10 $ 689.21 $ 680.93 $ 684.58
Employees 30,308 20,416 18,183 30,308 18,183
Broadband subscribers (in thousands) 4,570 (2) 2,487 2,406
4,570 (2) 2,406
Video subscribers (in thousands) 1,628 (2)
543 569 1,628 (2) 569 (1) 2,336,000 residential
customers, 250,000 business customers and 2,586,000 total customers
were acquired at the time of the April 2016 Verizon Acquisition.
(2) 2,160,000 broadband subscribers and 1,197,000 video subscribers
were acquired at the time of the April 2016 Verizon Acquisition.
Frontier Communications
Corporation
Condensed Consolidated Balance Sheet
Data
($ in
millions)
June 30, 2016 December 31, 2015
ASSETS
Current assets: Cash and cash equivalents $ 683 $ 936 Accounts
receivable, net 1,034 571 Restricted cash - 8,444 Other current
assets 164 180 Total current assets 1,881 10,131
Property, plant and equipment, net 16,161 8,493 Other assets
- principally goodwill 11,414 8,460 Total assets $
29,456 $ 27,084
LIABILITIES AND
EQUITY
Current liabilities: Long-term debt due within one year $ 1,043 $
384 Accounts payable and other current liabilities 2,149
1,509 Total current liabilities 3,192 1,893 Deferred
income taxes and other liabilities 4,279 4,069 Long-term debt
16,923 15,508 Equity 5,062 5,614 Total liabilities
and equity $ 29,456 $ 27,084
Frontier Communications
Corporation
Consolidated Cash Flow Data
For the six months ended June 30,
($ in
millions)
2016 2015
Cash flows provided from (used by) operating
activities: Net loss $ (213) $ (79) Adjustments to reconcile
net loss to net cash provided from (used by) operating activities:
Depreciation and amortization 891 676 Pension/OPEB costs 35 - Stock
based compensation expense 15 12 Amortization of deferred financing
costs 28 138 Other non-cash adjustments 2 (10) Deferred income
taxes (171) 115 Change in accounts receivable (141) 77 Change in
accounts payable and other liabilities 170 (99) Change in other
current assets 15 (214)
Net cash provided from
operating activities 631 616
Cash flows provided from
(used by) investing activities: Cash paid for the Verizon
Acquisition (9,886) - Capital expenditures - Business operations
(557) (348) Capital expenditures - Integration activities (88) (38)
Network expansion funded by Connect America Fund - Phase I - (16)
Cash transferred from/(to) escrow 8,444 (1,840) Cash paid for an
acquisition, net of cash acquired - (16) Other 6 1
Net cash used by investing activities (2,081) (2,257)
Cash flows provided from (used by) financing activities:
Proceeds from long-term debt borrowings 1,625 3 Financing costs
paid (7) - Long-term debt payments (69) (250) Proceeds from
issuance of common stock, net - 799 Proceeds from issuance of
preferred stock, net - 1,866 Dividends paid on common stock (246)
(211) Dividends paid on preferred stock (107) - Other 1
(2)
Net cash provided from financing activities 1,197
2,205 Increase/(Decrease) in cash and cash equivalents (253)
564 Cash and cash equivalents at January 1, 936 682
Cash and cash equivalents at June 30, $ 683 $ 1,246
Supplemental cash flow information: Cash paid
(received) during the period for: Interest $ 711 $ 358 Income
taxes (refunds), net $ (32) $ 20
Schedule A
Frontier Communications
Corporation
Reconciliation of Non-GAAP Financial
Measures
For the quarter
ended For the six months ended June 30, March 31, June 30, June 30,
($ in
millions)
2016 2016 2015 2016 2015
EBITDA
Net Loss $ (27) $ (186) $ (28) $ (213) $ (79) Add back (subtract):
Income tax benefit (48) (118) (38) (166) (68) Interest expense 386
373 260 759 505 Investment and other income, net -
(11) (1) (11) (2) Operating income 311 58 193
369 356 Depreciation and amortization 575 316
335 891 676
EBITDA 886
374 528 1,260 1,032 Add back:
Acquisition and integration costs 127 138 35 265 92 Pension/OPEB
costs (1) 19 16 (2) 35 -
Adjusted EBITDA $ 1,032 $ 528
$ 561 $ 1,560 $ 1,124
EBITDA margin 34.0% 27.6% 38.6% 31.8% 37.6% Adjusted
EBITDA margin 39.6% 38.9% 41.0% 39.4% 41.0%
Free Cash
Flow
Net cash provided from (used by) operating activities $ 693 $ (62)
$ 367 $ 631 $ 616 Add back (subtract): Capital expenditures -
Business operations (350) (207) (178) (557) (348) Acquisition and
integration costs 127 138 35 265 92 Deferred income taxes 52 119
(148) 171 (115) Income tax benefit (48) (118) (38) (166) (68)
Dividends on preferred stock (53) (54) - (107) - Non-cash
(gains)/losses, net (35) (45) (81) (80) (140) Changes in current
assets and liabilities (162) 118 168 (44) 235 Pension/OPEB costs
(1) 19 16 (2) 35 - Cash paid (refunded) for income taxes - 32 (3)
32 (20) Stock based compensation 7 8 5 15 12 Interest expense -
commitment fees(2) - 10 75 10 132
Free cash flow
$ 250 $ (45) $ 200
$ 205 $ 396 Dividends on preferred
stock - 54 - 54 - Incremental interest on new debt -
178 - 178 -
Adjusted free cash flow
$ 250 $ 187 $ 200
$ 437 $ 396 (1) Reflects
pension and other postretirement benefit (OPEB) expense, net of
capitalized amounts, of $28 million, $21 million and $18 million
for the quarters ended June 30, 2016, March 31, 2016 and June 30,
2015, respectively, less cash pension contributions and certain
OPEB costs/payments of $9 million, $5 million and $20 million for
the quarters ended June 30, 2016, March 31, 2016 and June 30, 2015,
respectively. Reflects pension and OPEB expense, net of capitalized
amounts, of $49 million and $37 million for the six months ended
June 30, 2016 and 2015, respectively, less cash pension
contributions and certain OPEB costs/payments of $14 million and
$37 million for the six months ended June 30, 2016 and 2015,
respectively. (2) Includes interest expense of $10 million and $75
million for the quarters ended March 31, 2016 and June 30, 2015,
respectively, and $10 million and $132 million for the six months
ended June 30, 2016 and 2015, respectively, related to commitment
fees on bridge loan facilities.
Schedule B
Frontier Communications
Corporation
Reconciliation of Non-GAAP Financial
Measures
For the quarter
ended June 30, 2016 March 31, 2016 June 30, 2015
($ in millions,
except per share amounts)
Net Income (Loss) Basic Earnings (Loss) Per Share Net Income (Loss)
Basic Earnings (Loss) Per Share Net Income(Loss) Basic Earnings
(Loss) Per Share Net loss attributable to Frontier
common shareholders $ (80) $ (0.07) $ (240) $ (0.21) $ (28) $
(0.03) Acquisition and integration costs 127 138 35
Acquisition related interest expense (1) - 188 75 Certain other tax
items (2) (17) - (15) Income tax effect on above items: Acquisition
and integration costs (51) (53) (12) Acquisition related interest
expense - (73)
(28) 59 0.05 200 0.17 55 0.06 Dividends on preferred
stock - - 54 0.05 - -
Adjusted net income (loss) attributable to Frontier common
shareholders(3) $ (21) $ (0.02) $ 14 $ 0.01 $ 27 $ 0.03 For
the six months ended June 30, 2016 June 30, 2015 Net Income (Loss)
Basic Earnings (Loss) Per Share Net Income (Loss) Basic Earnings
(Loss) Per Share Net loss attributable to Frontier common
shareholders $ (320) $ (0.28) $ (79) $ (0.08) Acquisition
and integration costs 265 92 Acquisition related interest expense
(1) 188 132 Certain other tax items (2) (17) (15) Income tax effect
on above items: Acquisition and integration costs (104) (34)
Acquisition related interest expense (73)
(48) 259 0.22 127 0.13 Dividends on preferred
stock 54 0.05 - - Adjusted net income (loss) attributable to
Frontier
common shareholders(3) $ (7) $ (0.01) $ 48 $ 0.05 (1)
Represents interest expense related to commitment fees on bridge
loan facilities in connection with the Verizon transaction. Also
includes interest expense related to the September 2015 private
debt offering in connection with financing the Verizon transaction.
(2) Includes impact arising from federal research and development
credits, the domestic production activities deduction, changes in
certain deferred tax balances, state tax law changes, state filing
method change and the net impact of uncertain tax positions. (3)
Adjusted net income (loss) attributable to Frontier common
shareholders may not sum due to rounding.
Schedule C
Frontier Communications
Corporation
Reconciliation of Non-GAAP Financial
Measures
For the quarter
ended June 30, 2016 Consolidated CTF Frontier March 31, June 30,
($ in
millions)
Amount Operations Legacy 2016 2015
Adjusted Operating
Expenses
Total operating expenses $ 2,297
$ 1,018 $ 1,279 $ 1,297
$ 1,175 Subtract: Depreciation and
amortization 575 262 313 316 335 Acquisition and integration costs
127 - 127 138 35 Pension/OPEB costs 19 1 18
16 (2)
Adjusted operating expenses $
1,576 $ 755 $ 821 $
827 $ 807 For the six months
ended June 30, 2016 Consolidated CTF Frontier June 30, Amount
Operations Legacy 2015
Adjusted Operating
Expenses
Total operating expenses $ 3,594
$ 1,018 $ 2,576 $ 2,383
Subtract: Depreciation and amortization 891 262 629 676
Acquisition and integration costs 265 - 265 92 Pension/OPEB costs
35 1 34 -
Adjusted operating
expenses $ 2,403 $ 755 $
1,648 $ 1,615 For the quarter
ended For the six months ended June 30, March 31, June 30, June 30,
Dividend Payout
Ratio
2016 2016 2015 2016 2015 Numerator Dividends paid on common
stock $ 123 $ 123 $ 106 $ 246 $ 211 Less: Dividends on June 2015
common stock issuance - (18) - (18)
-
$ 123 $ 105 $
106 $ 228 $ 211
Denominator Free cash flow (see Schedule A) $ 250 $ (45) $ 200 $
205 $ 396 Dividends on preferred stock
- 54 -
54
- Incremental interest expense - 178
- 178 -
Adjusted free cash flow $
250 $ 187 $ 200 $
437 $ 396 Dividend payout ratio
49% 56% 53% 52% 53%
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160801006196/en/
Frontier Communications CorporationInvestors:Luke Szymczak,
203-614-5044VP, Investor
Relationsluke.szymczak@FTR.comorMedia:Peter
DePasquale, 203-614-5097VP, Corporate
Communicationspeter.depasquale@FTR.com
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