- Adjusted EBITDA1 of $1 billion and Net
Loss of $80 million in the third quarter
- Announcing new organizational structure
to enhance focus on Commercial and Consumer business units
- Annualized Cost Synergy target of $1.4
billion, with $1.25 billion to be realized by mid-2017
- 2016 guidance ranges refined; outlook
for 2017 Adjusted EBITDA reaffirmed
Frontier Communications Corporation (NASDAQ:FTR) today reported
its third quarter financial results and provided an update on its
progress with the acquisition of Verizon’s wireline properties in
California, Texas, and Florida (CTF).
Dan McCarthy, President and CEO, stated, “I am pleased that we
achieved third quarter adjusted EBITDA of $1 billion. We are
reaffirming our adjusted EBITDA guidance for the 4th quarter and
outlook for 2017. We are on course to improve our revenue
performance, principally by returning to normal customer trends in
the CTF market over the coming quarters.”
Frontier today announced a new customer-focused organizational
structure and the creation of Commercial and Consumer business
units. The updated structure will result in enhanced focus on the
commercial segment and more efficient capital allocation. Current
regional support functions including Engineering, Finance, Human
Resources, Communications and Marketing are being centralized to
achieve improved operational performance as well as expense
reductions.
Frontier’s annualized cost synergy target is now $1.4 billion,
up from the $1.25 billion target outlined in the second quarter
earnings report. Yet-to-be attained cost synergies of $400 million
are anticipated to be achieved by mid-year 2019, including $250
million anticipated to be achieved by mid-year 2017.
Frontier’s priorities continue to be driving strong free cash
flow and continuing a disciplined capital allocation policy.
Frontier is committed to maintaining an attractive dividend,
preserving its industry-leading dividend payout ratio, and reducing
leverage.
1 See “Non-GAAP Measures” for a description of this measure and
its calculation, and Schedule A for a reconciliation to net
loss.
Financial Highlights for the Third Quarter
2016:
- Revenue of $2,524 million
- Operating income of $264 million,
operating income margin of 10.5%
- Net loss attributable to common
shareholders of $134 million, or ($0.12) per share, and net loss of
$80 million
- Adjusted EBITDA of $1 billion, adjusted
EBITDA margin2 of 39.6%
- Net cash provided from operating
activities of $321 million
- Adjusted Free Cash Flow3 of $168
million
Revenue:
For the quarter ended September 30, 2016 June 30,
2016
($ in
millions)
Consolidated CTF Frontier Consolidated CTF
Frontier Amount Operations Legacy Amount
Operations Legacy Total revenue $ 2,524 $ 1,212 $ 1,312 $
2,608 $ 1,282 $ 1,326
Revenues from CTF Operations were impacted by a slower than
expected recovery of FiOS® gross additions and an increased
accounts receivable reserve associated with the resumption of
normal customer collection activities. In addition, second quarter
results included the one-time benefit of a true-up of CAF II
revenues for the acquired states that did not recur in the third
quarter.
2 Adjusted EBITDA margin is a non-GAAP measure of performance,
calculated as Adjusted EBITDA, divided by total revenue. See
Schedule A for a reconciliation to net loss.3 Adjusted free cash
flow is a non-GAAP measure of liquidity derived from net cash
provided from operating activities ($321 million in Q3). See
“Non-GAAP Measures” for a description of adjusted free cash flow
and its calculation, and Schedule A for a reconciliation to net
cash provided from operating activities.
Customers:
As of and for the quarter ended September 30, 2016
June 30, 20164
Residential customer metrics: Customers (in
thousands) 5,073 5,228 Average monthly residential revenue per
customer $ 82.34 $ 83.20 Customer monthly churn 2.08% 1.91%
Business customer metrics: Customers (in thousands) 516 528
Average monthly business revenue per customer $ 668.30 $ 658.00
Broadband subscribers (in thousands) 4,404 4,503
Video subscribers (in thousands) 1,526 1,618
The broadband and video unit results during the third quarter
reflected the initiation of customer acquisition activities within
the quarter in the acquired CTF markets. Frontier anticipates
improved customer additions in the fourth quarter.
Integration Costs:
During the third quarter, Frontier incurred $122 million of
integration operating expenses and $11 million of integration
capital expenditures.
Guidance:
For the full year 2016, Frontier expects:
- Adjusted Free Cash Flow – between $920
million and $950 million
- Capital Expenditures – between $1,250
million and $1,275 million
- Cash Taxes – refund between $100
million and $110 million
For the fourth quarter of 2016, Frontier expects:
- Adjusted EBITDA – at least $1
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, 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.
4 2,321,000 residential customers, 250,000 business customers
and 2,571,000 total customers were acquired at the time of the
April 2016 Verizon Acquisition. 2,093,000 broadband subscribers and
1,187,000 video subscribers were acquired at the time of the April
2016 Verizon Acquisition.
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, severance
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, severance 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.
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, prior to our ownership of the CTF
Operations, on debt incurred and on preferred stock issued to
finance the Verizon Acquisition.
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 adjusted 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, severance 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 third 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 November 1, 2016 through 8 P.M. Eastern
time on November 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 7158179 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 30,400 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; our ability to implement
successfully our recently announced organizational structure
changes; 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 breaches, 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 September 30, June 30, September 30, September
30,
($ in millions and
shares in thousands, except per share amounts)
2016 2016 2015 2016 2015
Statement of Operations Data
Revenue $ 2,524 $ 2,608 $ 1,424 $ 6,487 $ 4,163 Operating
expenses: Network access expenses 440 453 159 1,053 475 Network
related expenses 527 546 331 1,399 969 Selling, general and
administrative expenses 593 596 344 1,546 1,005 Depreciation and
amortization 578 575 325 1,469 1,001 Acquisition and integration
costs 122 127 58 387 150 Total
operating expenses 2,260 2,297 1,217
5,854 3,600 Operating income 264 311 207 633 563
Investment and other income (loss), net (4) - 1 7 3 Interest
expense 386 386 246 1,145 751
Loss before income taxes (126) (75) (38) (505) (185) Income
tax benefit (46) (48) (24) (212)
(92)
Net loss (80) (27) (14) (293) (93) Less:
Dividends on preferred stock 54 53 67 161 67
Net loss
attributable to Frontier
common shareholders $
(134) $ (80) $ (81) $ (454) $ (160) Weighted average shares
outstanding - basic and diluted 1,164,172 1,164,262 1,161,207
1,164,112 1,061,644
Basic and diluted net loss per common
share $ (0.12) $ (0.07) $ (0.07) $ (0.39) $ (0.15)
Other Financial Data: Capital expenditures - Business
operations $ 403 $ 350 $ 177 $ 960 $ 525 Capital expenditures -
Integration activities 11 36 63 99 101 Dividends paid - Common
Stock 124 123 122 370 333 Dividends paid - Preferred Stock 54 53 67
161 67
Frontier Communications
Corporation
Consolidated Financial Data
For the quarter
ended September 30, 2016 June 30, 2016 Consolidated CTF Frontier
Consolidated CTF Frontier September 30,
($ in
millions)
Amount Operations Legacy Amount Operations Legacy 2015
Selected Statement of Operations Data Revenue:
Voice services $ 809 $ 359 $ 450 $ 836 $ 379 $ 457 $ 500 Data and
internet services 1,045 464 581 1,048 463 585 589 Video 392 327 65
419 351 68 71 Other 73 8 65 78
20 58 63 Customer revenue 2,319 1,158 1,161 2,381
1,213 1,168 1,223 Switched access and subsidy 205 54
151 227 69 158 201 Total revenue
$ 2,524 $ 1,212 $ 1,312 $ 2,608 $ 1,282 $ 1,326 $ 1,424
Other Financial Data Revenue: Residential $ 1,272 $
702 $ 570 $ 1,332 $ 753 $ 579 $ 606 Business 1,047
456 591 1,049 460 589 617
Customer revenue 2,319 1,158 1,161 2,381 1,213 1,168 1,223 Switched
access and subsidy 205 54 151 227
69 158 201 Total revenue $ 2,524 $ 1,212 $
1,312 $ 2,608 $ 1,282 $ 1,326 $ 1,424
Operating
Expenses Network access expenses $ 440 $ 286 $ 154 $ 453 $ 298
$ 155 $ 159 Network related expenses 527 206 321 546 218 328 331
Selling, general and administrative expenses 593 253 340 596 240
356 344 Acquisition and integration costs 122 -
122 127 - 127 58 Cost and
expenses (exclusive of depreciation and amortization) 1,682 745 937
1,722 756 966 892 Depreciation and amortization 578
277 301 575 262 313 325
Total
Operating Expenses $ 2,260 $ 1,022 $ 1,238 $ 2,297 $ 1,018 $
1,279 $ 1,217
Frontier Communications
Corporation
Consolidated Financial Data
For the nine months ended September 30,
2016 Consolidated CTF Frontier September 30,
($ in
millions)
Amount Operations (1) Legacy 2015
Selected Statement
of Operations Data Revenue: Voice services $
2,112 $ 738 $ 1,374 $ 1,540 Data and internet services 2,680 927
1,753 1,748 Video 879 678 201 214 Other 218 28
190 190 Customer revenue 5,889 2,371 3,518 3,692 Switched
access and subsidy 598 123 475 471
Total revenue $ 6,487 $ 2,494 $ 3,993 $ 4,163
Other
Financial Data Revenue: Residential $ 3,187 $ 1,455 $
1,732 $ 1,838 Business 2,702 916 1,786
1,854 Customer revenue 5,889 2,371 3,518 3,692 Switched access and
subsidy 598 123 475 471 Total revenue $
6,487 $ 2,494 $ 3,993 $ 4,163
Operating Expenses
Network access expenses $ 1,053 $ 584 $ 469 $ 475 Network related
expenses 1,399 424 975 969 Selling, general and administrative
expenses 1,546 493 1,053 1,005 Acquisition and integration costs
387 - 387 150 Cost and expenses
(exclusive of depreciation 4,385 1,501 2,884 2,599 and
amortization) Depreciation and amortization 1,469 539
930 1,001
Total Operating Expenses $ 5,854 $
2,040 $ 3,814 $ 3,600
(1) Includes operating results of the CTF Operations for the six
month period since April 1, 2016, the date of the Verizon
Acquisition.
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, 2016 2016 2015
2016 2015
Customers (in thousands) 5,589
(1)
5,756
(1)
3,441 5,589 (1) 3,441
Residential customer metrics:
Customers (in thousands) 5,073 (1) 5,228 (1) 3,147 5,073 (1) 3,147
Average monthly residential revenue per customer $ 82.34 $ 83.20 $
63.83 $ 76.11 $ 64.18 Customer monthly churn 2.08% 1.91% 1.97%
1.94% 1.84%
Business customer metrics: Customers (in
thousands) 516 (1) 528 (1) 294 516 (1) 294 Average monthly business
revenue per customer $ 668.30 $ 658.00 $ 693.58 $ 676.80 $ 687.63
Employees 30,358 30,308 18,638 30,358 18,638
Broadband subscribers (in thousands) 4,404 (2) 4,503 (2)
2,434 4,404 (2) 2,434
Video subscribers (in thousands) 1,526
(2) 1,618 (2) 560 1,526 (2) 560
(1) 2,321,000 residential customers, 250,000 business customers
and 2,571,000 total customers were acquired at the time of the
April 2016 Verizon Acquisition.(2) 2,093,000 broadband subscribers
and 1,187,000 video subscribers were acquired at the time of the
April 2016 Verizon Acquisition.
Frontier Communications
Corporation
Condensed Consolidated Balance Sheet
Data
($ in
millions)
September 30, 2016 December 31, 2015
ASSETS
Current assets: Cash and cash equivalents $ 331 $ 936 Accounts
receivable, net 1,004 571 Restricted cash - 8,444 Other current
assets 309 180 Total current assets 1,644 10,131
Property, plant and equipment, net 14,899 8,493 Other assets
- principally goodwill 12,502 8,460 Total assets $
29,045 $ 27,084
LIABILITIES AND
EQUITY
Current liabilities: Long-term debt due within one year $ 509 $ 384
Accounts payable and other current liabilities 1,897
1,509 Total current liabilities 2,406 1,893 Deferred income
taxes and other liabilities 4,448 4,069 Long-term debt 17,434
15,508 Equity 4,757 5,614 Total liabilities and
equity $ 29,045 $ 27,084
Frontier Communications
Corporation
Consolidated Cash Flow Data
For the nine months ended September 30,
($ in
millions)
2016 2015
Cash flows provided from (used by) operating
activities: Net loss $ (293) $ (93) Adjustments to reconcile
net loss to net cash provided from (used by) operating activities:
Depreciation and amortization 1,469 1,001 Loss on debt exchanges 7
- Pension/OPEB costs 59 (3) Stock based compensation expense 21 19
Amortization of deferred financing costs 38 194 Deferred income
taxes (163) (163) Change in accounts receivable (56) 59 Change in
accounts payable and other liabilities (118) (46) Change in other
current assets (12) (7)
Net cash provided from
operating activities 952 961
Cash flows provided from
(used by) investing activities: Cash paid for the Verizon
Acquisition (9,886) - Capital expenditures - Business operations
(960) (525) Capital expenditures - Integration activities (99)
(101) Network expansion funded by Connect America Fund - Phase I -
(22) Cash transferred from/(to) escrow 8,444 (8,440) Cash paid for
an acquisition, net of cash acquired - (17) Other -
(2)
Net cash used by investing activities (2,501) (9,107)
Cash flows provided from (used by) financing
activities: Proceeds from long-term debt borrowings 1,625 6,603
Financing costs paid (38) (119) Long-term debt payments (113) (274)
Proceeds from issuance of common stock, net - 799 Proceeds from
issuance of preferred stock, net - 1,866 Dividends paid on common
stock (370) (333) Dividends paid on preferred stock (161) (67)
Other 1 -
Net cash provided from financing
activities 944 8,475 Increase/(Decrease) in cash and
cash equivalents (605) 329 Cash and cash equivalents at January 1,
936 682
Cash and cash equivalents at
September 30, $ 331 $ 1,011
Supplemental cash flow
information: Cash paid (received) during the period for:
Interest $ 1,277 $ 553 Income taxes (refunds), net $ (35) $ 27
Schedule A
Frontier Communications
Corporation
Reconciliation of Non-GAAP Financial
Measures
For the quarter ended For the
nine months ended September 30, June 30, September 30, September
30,
($ in
millions)
2016 2016 2015 2016 2015
EBITDA
Net Loss $ (80) $ (27) $ (14) $ (293) $ (93) Add back (subtract):
Income tax benefit (46) (48) (24) (212) (92) Interest expense 386
386 246 1,145 751 Investment and other income (loss), net 4
- (1) (7) (3) Operating income 264 311
207 633 563 Depreciation and amortization 578
575 325 1,469 1,001
EBITDA 842
886 532 2,102 1,564 Add back:
Acquisition and integration costs 122 127 58 387 150 Pension/OPEB
costs (non-cash) (1) 24 19 (3) 59 (3) Severance costs 11
- 1 11 2
Adjusted EBITDA
$ 999 $ 1,032 $ 588
$ 2,559 $ 1,713 EBITDA margin
33.4% 34.0% 37.5% 32.4% 37.6% Adjusted EBITDA margin 39.6% 39.6%
41.4% 39.5% 41.2%
Free Cash
Flow
Net cash provided from (used by) operating activities $ 321 $ 693 $
345 $ 952 $ 961 Add back (subtract): Capital expenditures -
Business operations (403) (350) (177) (960) (525) Acquisition and
integration costs 122 127 58 387 150 Deferred income taxes (8) 52
278 163 163 Income tax benefit (46) (48) (24) (212) (92) Dividends
on preferred stock (54) (53) (67) (161) (67) Non-cash
(gains)/losses, net (38) (35) (70) (118) (210) Changes in current
assets and liabilities 230 (162) (242) 186 (7) Pension/OPEB costs
(non-cash) (1) 24 19 (3) 59 (3) Cash (paid) refunded for income
taxes 3 - (7) 35 (27) Severance costs 11 - 1 11 2 Stock based
compensation 6 7 7 21 19 Interest expense - commitment fees(2)
- - 52 10 184
Free cash
flow $ 168 $ 250 $
151 $ 373 $ 548 Dividends on
preferred stock - - 67 54 67 Incremental interest on new debt
- - 11 178 11
Adjusted free
cash flow $ 168 $ 250 $
229 $ 605 $ 626
(1) Reflects pension and other postretirement benefit
(OPEB) expense, net of capitalized amounts, of $27 million, $28
million and $19 million for the quarters ended September 30, 2016,
June 30, 2016 and September 30, 2015, respectively, less cash
pension contributions and certain OPEB costs/payments of $3
million, $9 million and $21 million for the quarters ended
September 30, 2016, June 30, 2016 and September 30, 2015,
respectively. Reflects pension and OPEB expense, net of capitalized
amounts, of $77 million and $57 million for the nine months ended
September 30, 2016 and 2015, respectively, less cash pension
contributions and certain OPEB costs/payments of $18 million and
$59 million for the nine months ended September 30, 2016 and 2015,
respectively.(2) Includes interest expense of $52
million for the quarter ended September 30, 2015 and $10 million
and $184 million for the nine months ended September 30, 2016 and
2015, respectively, related to commitment fees on bridge loan
facilities.
Schedule B
Frontier Communications
Corporation
Reconciliation of Non-GAAP Financial
Measures
For the quarter ended
September 30, 2016 June 30, 2016 September 30, 2015
($ 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 $ (134) $ (0.12) $ (80) $
(0.07) $ (81) $ (0.07) Acquisition and integration costs 122
127 58 Acquisition related interest expense (1) - - 52 Severance
costs 11 - - Certain other tax items (2) 3 (17) - Income tax effect
on above items: Acquisition and integration costs (48) (51) (30)
Acquisition related interest expense - - (31) Severance costs
(4) - -
84 0.07 59 0.05 49 0.04 Dividends on preferred stock
- - - - 67 0.06 Adjusted
net income (loss) attributable to Frontier common shareholders(3) $
(50) $ (0.04) $ (21) $ (0.02) $ 35 $ 0.03 For the nine
months ended September 30, 2016 September 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 $ (454) $ (0.39) $ (160) $ (0.15)
Acquisition and integration costs 387 150 Acquisition related
interest expense (1) 188 184 Severance costs 11 2 Certain other tax
items (2) (14) (15) Income tax effect on above items: Acquisition
and integration costs (152) (64) Acquisition related interest
expense (73) (79) Severance costs (4) -
343 0.29 178 0.17 Dividends on preferred stock 54
0.05 67 0.06 Adjusted net income (loss) attributable to
Frontier
common shareholders(3) $ (57) $ (0.05) $ 85 $ 0.08
(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 September
30, 2016 June 30, 2016 Consolidated CTF Frontier Consolidated CTF
Frontier
September 30,
($ in
millions)
Amount Operations Legacy Amount Operations Legacy
2015
Adjusted Operating
Expenses
Total operating expenses $ 2,260
$ 1,022 $ 1,238 $ 2,297
$ 1,018 $ 1,279 $ 1,217
Subtract: Depreciation and amortization 578 277 301 575 262
313 325 Acquisition and integration costs 122 - 122 127 - 127 58
Pension/OPEB costs (non-cash) 24 11 13 19 1 18 (3) Severance costs
11 8 3 - - - 1
Adjusted operating expenses $ 1,525 $
726 $ 799 $ 1,576 $
755 $ 821 $ 836 For the
nine months ended September 30, 2016 Consolidated CTF Frontier
September 30, Amount Operations Legacy 2015
Adjusted Operating
Expenses
Total operating expenses $ 5,854
$ 2,040 $ 3,814 $ 3,600
Subtract: Depreciation and amortization 1,469 539 930
1,001 Acquisition and integration costs 387 - 387 150 Pension/OPEB
costs (non-cash) 59 12 47 (3) Severance costs 11 8
3 2
Adjusted operating expenses
$ 3,928 $ 1,481 $ 2,447
$ 2,450 For the quarter ended
For the nine months ended
September30, June30, September30,
September30,
Dividend Payout
Ratio
2016 2016 2015 2016 2015 Numerator Dividends paid on common
stock $ 124 $ 123 $ 122 $ 370 $ 333 Less: Dividends on June 2015
common stock issuance - - (17)
(18) (17)
$ 124 $
123 $ 105 $ 352 $
316 Denominator Free cash flow (see
Schedule A) $ 168 $ 250 $ 151 $ 373 $ 548 Dividends on preferred
stock - - 67 54 67 Incremental interest expense - -
11 178 11
Adjusted
free cash flow $ 168 $ 250 $
229 $ 605 $ 626
Dividend payout ratio 74% 49%
46% 59% 50%
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161101006768/en/
Frontier Communications CorporationINVESTOR CONTACT:Luke
Szymczak, 203-614-5044VP, Investor
Relationsluke.szymczak@FTR.comorMEDIA CONTACT:Peter DePasquale,
203-614-5097VP, Corporate
Communicationspeter.depasquale@FTR.com
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