May 7, 2009

Frontier Communications Reports Strong 2009 First-Quarter Results

20,100 High-Speed Internet Additions 26,100 DISH Network Video Customer Additions First Quarter Free Cash Flow of $146 Million First Quarter Operating Cash Flow Margin of 54%, as Adjusted First Quarter Dividend Payout Ratio of 53% Data and Internet Services Revenue up 7% Year over Year

STAMFORD, Conn.--(BUSINESS WIRE)--May. 7, 2009-- Frontier Communications (NYSE:FTR) today reported first-quarter 2009 revenue of $538.0 million, operating income of $139.5 million and net income attributable to common shareholders of Frontier of $36.3 million.

“I am very pleased with Frontier Communication’s 2009 first quarter results bolstered by our “Rolling Thunder” promotional campaign,” said Maggie Wilderotter, Frontier Communications Chairman and CEO. “Frontier surpassed 600,000 High-Speed Internet customers and as of today has surpassed 150,000 DISH Network video customers. Our first quarter High-Speed growth was the best since the first quarter of 2008 and our first quarter DISH video growth was equal to all video subscribers added during the entire year of 2008. We took market share from our cable competition and we improved our customer churn. Access line losses improved for the third consecutive quarter.”

Revenue for the first quarter of 2009 was $538.0 million compared to $569.2 million in the first quarter of 2008, a 5 percent decrease. Revenue declined as a result of lower access lines and reduced switched access and subsidy revenue, partially offset by a 7 percent increase in data and internet services revenue. Despite the decline in access lines, our customer revenue, which is all revenue except switched access and subsidy, has declined by less than 3 percent. The monthly customer revenue per access line has increased approximately $2.90, or 5%, over the prior year’s first quarter while the monthly total revenue per access line has increased $1.40, or 2%, over the same period, as the Company has continued to successfully sell additional products and services, partially offset by reductions in regulatory revenue.

Other operating expenses and network access expenses for the first quarter of 2009 were $260.9 million as compared to $263.8 million in the first quarter of 2008, a 1 percent decrease. Expenses in the first quarter of 2009 include non-cash pension costs of $8.2 million, as compared to $(0.5) million in the first quarter of 2008. Excluding these costs, other operating expenses and network access expenses declined $11.6 million, or 4%, in 2009.

Operating income for the first quarter of 2009 was $139.5 million and operating income margin was 25.9 percent compared to operating income of $164.3 million and operating income margin of 28.9 percent in the first quarter of 2008. The first quarter 2009 decrease of $24.8 million is primarily the result of the reduction in revenue, partially offset by lower expenses.

Investment and other income (loss), net for the first quarter of 2008 reflects the premium paid of $6.3 million to repurchase a portion of the Company’s 9.25% Senior Notes due 2011.

The Company lost approximately 37,500 access lines during the first quarter of 2009 and had 2,216,800 access lines at March 31, 2009.

The Company added approximately 20,100 net High-Speed Internet customers during the first quarter of 2009 and had 600,000 High-Speed Internet customers at March 31, 2009. The Company added approximately 26,100 video customers during the first quarter of 2009 and had 146,000 video customers at March 31, 2009.

Capital expenditures were $54.6 million for the first quarter of 2009.

Operating cash flow, as adjusted, was $287.9 million for the first quarter of 2009 resulting in an operating cash flow margin of 53.5 percent. Operating cash flow, as reported, of $277.1 million has been adjusted to exclude $2.6 million of severance and early retirement costs and $8.2 million of non-cash pension costs for the first quarter of 2009.

Free cash flow was $146.1 million for the first quarter of 2009. The Company’s dividend represents a payout of 53 percent of free cash flow for the first quarter of 2009.

For the full year of 2009, the Company maintains its previously reported expectations that capital expenditures will be within a range of $250.0 million to $270.0 million and free cash flow will be within a range of $460.0 million to $485.0 million.

In April 2009, we completed a registered offering of $600.0 million aggregate principal amount of 8.25% senior unsecured notes due 2014. We received net proceeds of approximately $539.0 million from the offering which we intend to use to reduce, repurchase or refinance our indebtedness. As of May 7, 2009 we have used $206.7 million of the proceeds to repurchase $214.4 million principal amount of debt.

The Company uses certain non-GAAP financial measures in evaluating its performance. These include free cash flow and operating cash flow. A reconciliation of the differences between free cash flow and operating cash flow and the most comparable financial measures calculated and presented in accordance with GAAP is included in the tables that follow. The non-GAAP financial measures are by definition not measures of financial performance under GAAP and are not alternatives to operating income or net income reflected in the statement of operations or to cash flow as reflected in the statement of cash flows and are not necessarily indicative of cash available to fund all cash flow needs. The non-GAAP financial measures used by the Company may not be comparable to similarly titled measures of other companies.

The Company believes that the presentation of non-GAAP financial measures provides useful information to investors regarding the Company’s financial condition and results of operations because these measures, when used in conjunction with related GAAP financial measures, (i) together provide a more comprehensive view of the Company’s core operations and ability to generate cash flow, (ii) provide investors with the financial analytical framework upon which management bases financial, operational, compensation and planning decisions and (iii) presents measurements that investors and rating agencies have indicated to management are useful to them in assessing the Company and its results of operations. Management uses these non-GAAP financial measures to plan and measure the performance of its core operations, and its divisions measure performance and report to management based upon these measures. In addition, the Company believes that free cash flow and operating cash flow, as the Company defines them, can assist in comparing performance from period to period, without taking into account factors affecting cash flow reflected in the statement of cash flows, including changes in working capital and the timing of purchases and payments. The Company has shown adjustments to its financial presentations to exclude $8.2 million and $(0.5) million of non-cash pension costs in the first quarters of 2009 and 2008, respectively, because the Company believes that such costs in the first quarters of 2009 and 2008 are unusual, and that the magnitude of such costs in the first quarter of 2009 materially exceed the comparable costs in the first quarter of 2008. In addition, the Company has shown adjustments to its financial presentations to exclude $2.6 million and $2.9 million of severance and early retirement costs in the first quarters of 2009 and 2008, respectively, and $0.8 million of legal settlement costs and related expenses in the first quarter of 2008 because investors have indicated to management that such adjustments are useful to them in assessing the Company and its results of operations.

Management uses these non-GAAP financial measures to (i) assist in analyzing the Company’s underlying financial performance from period to period, (ii) evaluate the financial performance of its business units, (iii) analyze and evaluate strategic and operational decisions, (iv) establish criteria for compensation decisions, and (v) assist management in understanding the Company’s ability to generate cash flow and, as a result, to plan for future capital and operational decisions. Management uses these non-GAAP financial measures in conjunction with related GAAP financial measures. The Company believes that the non-GAAP financial measures are meaningful and useful for the reasons outlined above.

While the Company utilizes these non-GAAP financial measures in managing and analyzing its business and financial condition and believes they are useful to management and to investors for the reasons described above, 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.

About Frontier Communications

Frontier Communications Corporation (NYSE:FTR) offers telephone, video and internet services in 24 states with approximately 5,600 employees. More information is available at www.frontier.com.

This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management’s views and assumptions regarding future events and business performance. Words such as “believe,” “anticipate,” “expect” and similar expressions are intended to identify forward-looking statements. Forward-looking statements (including oral representations) involve risks and uncertainties that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. These risks and uncertainties are based on a number of factors, including but not limited to: reductions in the number of our access lines and High-Speed Internet subscribers; the effects of competition from cable, wireless and other wireline carriers (through voice over internet protocol (VOIP) or otherwise); reductions in switched access revenues as a result of regulation, competition and/or technology substitutions; the effects of greater than anticipated competition requiring new pricing, marketing strategies or new product offerings and the risk that we will not respond on a timely or profitable basis; the effects of changes in both general and local economic conditions on the markets we serve, which can impact demand for our products and services, customer purchasing decisions, collectability of revenue and required levels of capital expenditures related to new construction of residences and businesses; our ability to effectively manage service quality; our ability to successfully introduce new product offerings, including our ability to offer bundled service packages on terms that are both profitable to us and attractive to our customers; our ability to sell enhanced and data services in order to offset ongoing declines in revenue from local services, switched access services and subsidies; changes in accounting policies or practices adopted voluntarily or as required by generally accepted accounting principles or regulators; the effects of ongoing changes in the regulation of the communications industry as a result of federal and state legislation and regulation, including potential changes in state rate of return limitations on our earnings, access charges and subsidy payments, and regulatory network upgrade and reliability requirements; our ability to effectively manage our operations, operating expenses and capital expenditures, to pay dividends and to reduce or refinance our debt; adverse changes in the credit markets and/or in the ratings given to our debt securities by nationally accredited ratings organizations, which could limit or restrict the availability of, and/or increase the cost of financing; the effects of bankruptcies and home foreclosures, which could result in increased bad debts; the effects of technological changes and competition on our capital expenditures and product and service offerings, including the lack of assurance that our ongoing network improvements will be sufficient to meet or exceed the capabilities and quality of competing networks; the effects of increased medical, retiree and pension expenses and related funding requirements; changes in income tax rates, tax laws, regulations or rulings, and/or federal or state tax assessments; further declines in the value of our pension plan assets, which could require us to make contributions to the pension plan beginning in 2010, at the earliest; the effects of state regulatory cash management policies on our ability to transfer cash among our subsidiaries and to the parent company; our ability to successfully renegotiate union contracts expiring in 2009 and thereafter; our ability to pay a $1.00 per common share dividend annually, which may be affected by our cash flow from operations, amount of capital expenditures, debt service requirements, cash paid for income taxes (which will increase in 2009) and our liquidity; the effects of increased cash taxes in 2009 and thereafter; the effects of any unfavorable outcome with respect to any of our current or future legal, governmental or regulatory proceedings, audits or disputes; the possible impact of adverse changes in political or other external factors over which we have no control; and the effects of hurricanes, ice storms and other severe weather. These and other uncertainties related to our business are described in greater detail in our filings with the Securities and Exchange Commission, including our reports on Forms 10-K and 10-Q, and the foregoing information should be read in conjunction with these filings. We do not intend to update or revise these forward-looking statements to reflect the occurrence of future events or circumstances.





























































































































 
Frontier Communications Corporation

Consolidated Financial Data
   

 
   


 


 


 


 
For the quarter ended
March 31, %
(Amounts in thousands, except per share amounts)

 

2009
    2008    

Change


 
Income Statement Data

Revenue

$

537,956
$ 569,205   -5

%


 
Network access expenses

60,684
60,549

0 %
Other operating expenses

200,204

203,264

-2
%
Depreciation and amortization   137,558  

141,080
  -2 %
Total operating expenses   398,446   404,893

 
-2 %


 
Operating income

139,510 164,312 -15 %
Investment and other income (loss), net (1)

8,247

(907 )

1009
%
Interest expense   88,749  

90,860
  -2 %
Income before income taxes 59,008 72,545 -19 %
Income tax expense   22,053

 
26,628  

-17 %


Net income


36,955

45,917
-20

%

Less: Income attributable to the noncontrolling interest in a
partnership

  652  

328
  99 %
Net income attributable to common shareholders of Frontier $ 36,303 $ 45,589  

-20 %


 
Weighted average shares outstanding 309,826 326,173 -5 %


 

Basic net income per share attributable to $ 0.12 $ 0.14 -14 %
common shareholders of Frontier (2)



 


Other Financial Data


Capital expenditures

$ 54,572

$ 47,986

14 %


Operating cash flow, as adjusted (3)
287,870 308,575 -7 %
Free cash flow (3)

146,148
172,280

-15 %
Dividends paid

78,085

82,103

-5
%
Dividend payout ratio (4)

53%



48%

 



10 %








 
(1) Includes premium on debt repurchases of $6.3 million for the quarter ended March 31, 2008.
(2)

Calculated based on weighted average shares outstanding. FSP EITF No. 03-6-1, "Determining


Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities" was


adopted in the first quarter of 2009.
(3) A reconciliation to the most comparable GAAP measure is presented at the end of these tables.
(4)

Represents dividends paid divided by free cash flow.


































































































































































 

Frontier Communications Corporation
Consolidated Financial and Operating Data


 
   

   


For the quarter ended


March 31, %


(Amounts in thousands, except operating data)
  2009  

    2008

  Change


 
Select Income Statement Data



Revenue

Local services $ 200,896 $ 217,158 -7 %
Data and internet services 156,393 145,982 7 %
Access services 90,065 107,818 -16 %
Long distance services 41,412 46,453 -11 %
Directory services 27,705 28,628 -3 %
Other   21,485   23,166 -7 %
Total revenue

  537,956   569,205

-5 %




 
Expenses

Network access expenses

60,684

60,549

0
%
Other operating expenses (1)

200,204 203,264 -2 %
Depreciation and amortization   137,558

  141,080 -2 %
Total operating expenses

  398,446   404,893

-2 %




 
Operating Income

$

139,510
$

164,312
-15 %


 
Other Financial and Operating Data



Revenue:



Residential


$
230,466

$
241,362 -5 %
Business   217,425   220,025 -1 %
Total customer revenue 447,891 461,387 -3 %
Regulatory (Access services)   90,065   107,818 -16 %
Total revenue $ 537,956 $ 569,205 -5 %


 
Access lines:

Residential

1,427,149


1,553,094
-8 %
Business   789,654

  832,979 -5 %
Total access lines   2,216,803

  2,386,073 -7 %


 

Other data:



Employees


5,628

5,828 -3

%
High-Speed Internet (HSI) subscribers

600,047

543,020

11 %


Video subscribers


146,010

101,410 44

%
Switched access minutes of use (in millions)

2,377

2,602

-9 %


Average monthly total revenue per


access line $ 80.21 $ 78.81 2 %
Average monthly customer revenue per

access line

$

66.78
$

63.88
5 %
(1)  

Includes severance and early retirement costs of $2.6 million and $2.9 million for the quarters ended


March 31, 2009 and 2008, respectively. Includes non-cash pension costs of $8.2 million and


$(0.5) million for the quarters ended March 31, 2009 and 2008, respectively. Includes legal


settlement costs of $0.8 million for the quarter ended March 31, 2008.




























































 

Frontier Communications Corporation
Condensed Consolidated Balance Sheet Data


 
   

   
(Amounts in thousands)



 
March 31, 2009 December 31, 2008



ASSETS



Current assets:

Cash and cash equivalents

$ 177,431

$ 163,627
Accounts receivable and other current assets

  287,690   304,332
Total current assets

465,121

467,959


 
Property, plant and equipment, net 3,201,965 3,239,973


 


Other long-term assets


 
3,133,199   3,180,744


Total assets


$
6,800,285

$
6,888,676

 



LIABILITIES AND SHAREHOLDERS' EQUITY



Current liabilities:

Long-term debt due within one year

$

3,872
$

3,857
Accounts payable and other current liabilities

  321,885   378,918
Total current liabilities 325,757 382,775


 
Deferred income taxes and other liabilities

1,260,630

1,254,610


Long-term debt


4,720,713

4,721,685
Shareholders' equity

 

493,185
  529,606
Total liabilities and equity $ 6,800,285 $ 6,888,676
























































































































 
Frontier Communications Corporation
Consolidated Cash Flow Data
 
(Amounts in thousands)

 

 
 


For the three months ended March 31,


  2009         2008  


 

Cash flows provided by (used in) operating activities:

Net income

$

36,955


$
45,917


Adjustments to reconcile net income to net cash provided


by operating activities:
Depreciation and amortization expense

137,558

141,080

Stock based compensation expense

2,122

3,019
Pension expense 8,246

(530
)
Loss on extinguishment of debt

-


6,290


Other non-cash adjustments


(3,759 )

(1,741 )
Deferred income taxes

4,125

(282

)
Change in accounts receivable

9,211

19,057
Change in accounts payable and other liabilities (47,409 ) (69,731 )
Change in other current assets   26  

  (1,568 )
Net cash provided by operating activities

147,075

141,511


 
Cash flows provided from (used by) investing activities:

Capital expenditures

(54,572
)

(47,986 )


Other assets (purchased) distributions received, net


 
158  

  654  
Net cash used by investing activities

(54,414
)

(47,332 )


 
Cash flows provided from (used by) financing activities:

Long-term debt borrowings - 135,000
Long-term debt payments (962 ) (129,332 )
Settlement of interest rate swaps

-


15,521


Financing costs paid


-

(857 )
Premium paid to retire debt

-

(6,290

)
Issuance of common stock

680

591
Common stock repurchased -

(24,784
)
Dividends paid

(78,085
)

(82,103 )


Repayment of customer advances for construction


 
(490 )   (757

)
Net cash used by financing activities (78,857 ) (93,011 )


 


Increase in cash and cash equivalents


13,804

1,168
Cash and cash equivalents at January 1,

  163,627  

 

226,466
 


 


Cash and cash equivalents at March 31,
$ 177,431  

$ 227,634

 


 
Cash paid during the period for:

Interest $ 116,408 $ 121,396
Income taxes $ 1,255 $ 1,859


























































































































 
Schedule A
 
Reconciliation of Non-GAAP Financial Measures
 

 


     

For the quarter ended March 31,
(Amounts in thousands)

 

2009
   

 
2008  
 

Net Income to Free Cash Flow ;



Net Cash Provided by Operating Activities





 
Net income $ 36,955 $ 45,917


 

Add back:



 
Depreciation and amortization

137,558


141,080


 
Income tax expense

22,053


26,628


 
Pension expense (non-cash) (1)

8,246 (530 )


 


Stock based compensation


2,122

3,019


 
Subtract:



 
Cash paid for income taxes 1,255 1,859


 
Other income (loss), net (2) 4,959 (6,011 )


 

Capital expenditures

54,572

47,986

   
Free cash flow

146,148
172,280


 
Add back:

Deferred income taxes 4,125 (282 )


 

Non-cash (gains)/losses, net

6,609

7,038



 
Other income (loss), net (2)

4,959 (6,011 )


 
Cash paid for income taxes

1,255


1,859


 
Capital expenditures

54,572


47,986


 
Subtract:



Changes in current assets and liabilities


38,172

52,242


 
Income tax expense 22,053 26,628


 
Pension expense (non-cash) (1)

8,246

(530

)


 
Stock based compensation

2,122 3,019


 

 
Net cash provided by operating activities

$

147,075 $ 141,511  



(1)

 
Includes pension expense of $10.2 million and $(0.7) million, less amounts capitalized into the cost of capital
expenditures of $2.0 million and $(0.2) million, for the quarters ended March 31, 2009 and 2008, respectively.
(2)

Includes premium on debt repurchases of $6.3 million for the quarter ended March 31, 2008.


































































































































































 
Schedule B
Reconciliation of Non-GAAP Financial Measures
 

 

 
For the quarter ended March 31, 2009  

 
For the quarter ended March 31, 2008
(Amounts in thousands)      

 
   

   

 
   

     


Severance



Severance




and Early Non-cash

and Early

Non-cash

Legal

Operating Cash Flow and

As Retirement Pension As

As

Retirement

Pension

Settlement
As

Operating Cash Flow Margin



  Reported  

Costs

Costs(1)

Adjusted



Reported



Costs

Costs(1)

Costs Adjusted






 
Operating Income

$ 139,510

$ (2,556)
$ (8,246)

$ 150,312 $ 164,312 $ (2,891) $ 530 $ (822) $ 167,495








 
Add back:





Depreciation and





amortization 137,558 - - 137,558

141,080

-

-

-
141,080
Operating cash flow

$ 277,068

$ (2,556)
$ (8,246)

$ 287,870 $ 305,392 $ (2,891) $ 530 $ (822) $ 308,575








 
Revenue

$ 537,956

$ 537,956

$ 569,205



$ 569,205






 

Operating income margin





(Operating income divided





by revenue)

25.9%

27.9%

28.9%



29.4%






 
Operating cash flow margin





(Operating cash flow divided







by revenue)
51.5%

53.5%

53.7%



54.2%






 






 




(1)   Includes pension expense of $10.2 million and $(0.7) million, less amounts capitalized into the cost of capital
expenditures of $2.0 million and $(0.2) million, for the quarters ended March 31, 2009 and 2008, respectively.

Source: Frontier Communications

Frontier Communications
David Whitehouse, 203-614-5708
Senior Vice President & Treasurer
david.whitehouse@frontiercorp.com


Close window | Back to top

Copyright 2017 Frontier Communications