February 19, 2015

Frontier Communications Reports 2014 Fourth Quarter and Full Year Results

  • Strong quarter with 21,900 net broadband additions; 109,000 total 2014 net broadband additions
  • Delivered annualized Connecticut acquisition synergies of $165 million
  • Maintained an attractive and sustainable full year dividend payout ratio of 51%
  • 2014 full year free cash flow of $793 million exceeded the previously stated guidance range
  • 2015 free cash flow guidance of $785 million to $825 million

STAMFORD, Conn.--(BUSINESS WIRE)-- Frontier Communications Corporation (NASDAQ: FTR) today reported fourth quarter 2014 revenue of $1,330 million, operating income of $173 million and net income attributable to common shareholders of $14 million, or $0.01 per share. Excluding acquisition and integration costs of $70 million, partially offset by the gain on sale of assets of $12 million and certain tax benefit items of $14 million, net (combined impact of $22 million, or $0.03 per share after tax), non-GAAP adjusted net income attributable to common shareholders, as defined by the Company in the attached Schedule B, for the fourth quarter of 2014 was $36 million, or $0.04 per share.

"We are very pleased to report strong progress in our continuing business as well as an excellent start in Connecticut," said Maggie Wilderotter, Chairman and CEO. "Frontier exceeded the high end of our prior guidance range for Free Cash Flow, which translates into continued strength in our dividend payout ratio and a more secure dividend. We know that our dividend is of paramount importance to our investors, and are delighted to be able to raise the dividend by 5% starting in the first quarter of 2015. In addition, Frontier also delivered an eighth consecutive quarter of strong broadband net additions, another key deliverable for the company. Total net broadband additions were 221,000 since 2012."

"Connecticut operations are off to a great start," said Dan McCarthy, President and COO. "During the quarter we began executing on our plans to simplify processes, eliminate redundancies and further reduce the cost structure while improving service to customers. Our annualized cost savings now total $165 million, and we will continue driving further efficiencies as we progress through 2015."

Revenue for the fourth quarter of 2014 was $1,330 million compared to $1,141 million in the third quarter of 2014 and $1,180 million in the fourth quarter of 2013. Revenue for the fourth quarter of 2014 increased sequentially by $189 million, or 17%, from the third quarter of 2014 and by $150 million, or 13%, from the fourth quarter of 2013. The increase in total revenue during the fourth quarter of 2014 is primarily due to the additional revenue of $216 million as a result of the Connecticut operations acquired on October 24, 2014 (the Connecticut Acquisition) and an increase in data services revenue, partially offset by declines in other revenue for the Frontier legacy operations.

Customer revenue for the fourth quarter of 2014 of $1,202 million increased 18% sequentially compared to $1,017 million in the third quarter of 2014, primarily due to the additional revenue of $207 million as a result of the Connecticut Acquisition and the increase in data services revenue. This was partially offset by lower voice services revenue along with lower non-switched access revenue resulting from the expected decline in wireless backhaul revenue for the Frontier legacy operations. Total residential revenue was $601 million for the fourth quarter of 2014, including additional revenue of $116 million as a result of the Connecticut Acquisition, compared to $498 million in the third quarter of 2014, a 21% sequential increase. Total business revenue was $601 million for the fourth quarter of 2014, including additional revenue of $90 million as a result of the Connecticut Acquisition, compared to $519 million in the third quarter of 2014, a 16% sequential increase.

At December 31, 2014, the Company had 3,214,800 residential customers, which includes 478,100 customers added due to the Connecticut Acquisition. Excluding the impact of the Connecticut Acquisition, the fourth quarter of 2014 resulted in a net loss of 3,600 residential customers, as compared to a net loss of 21,800 customers in the three months ended September 30, 2014 and 18,700 customers in the three months ended December 31, 2013. For the year ended December 31, 2014, the Company improved the rate of decline in residential customers by 20% as compared to the prior year. The average monthly residential revenue per customer was $65.67 in the fourth quarter of 2014, an increase of $5.33 as compared to $60.34 in the third quarter of 2014.

At December 31, 2014, the Company had 304,700 business customers, which includes 48,800 customers added due to the Connecticut Acquisition. Excluding the impact of the Connecticut Acquisition, the fourth quarter of 2014 resulted in a net loss of approximately 4,900 business customers, as compared to a net loss of 3,400 customers in the three months ended September 30, 2014 and a net loss of 3,900 customers in the three months ended December 31, 2013. During the fourth quarter of 2014, the average monthly business revenue per customer was $688.31, or 5% higher than the third quarter of 2014.

At December 31, 2014, the Company had 2,373,900 broadband customers, which includes 398,600 customers added due to the Connecticut Acquisition. Excluding the impact of the Connecticut Acquisition, the Company has added 21,900 and 108,700 net broadband customers during the fourth quarter and full year of 2014, respectively, and 220,900 net broadband customers since 2012.

At December 31, 2014, the Company had 586,600 video customers, which includes 196,400 customers added due to the Connecticut Acquisition. Excluding the impact of the Connecticut Acquisition, the fourth quarter of 2014 resulted in a net loss of 5,700 video customers.

Network access expenses for the fourth quarter of 2014 were $144 million compared to $108 million in the third quarter of 2014 and $111 million in the fourth quarter of 2013. Network access expenses increased in the fourth quarter of 2014 primarily due to the additional costs of $39 million as a result of the Connecticut operations.

Prior period amounts for Other operating expenses have been revised from the previously disclosed amounts to reflect the disaggregation into Network related expenses and Selling, general and administrative expenses. There has been no change to Total operating expenses as a result of this reclassification, details of which are reflected in Schedule C.

Network related expenses for the fourth quarter of 2014 were $320 million compared to $276 million in the third quarter of 2014 and $262 million in the fourth quarter of 2013. Network related expenses increased in the fourth quarter of 2014 primarily due to the additional costs of $52 million as a result of the Connecticut operations.

Selling, general and administrative expenses (SG&A expenses) for the fourth quarter of 2014 were $301 million compared to $257 million in the third quarter of 2014 and $255 million in the fourth quarter of 2013. SG&A expenses increased in the fourth quarter of 2014 primarily due to the additional costs of $30 million as a result of the Connecticut operations.

Depreciation and amortization for the fourth quarter of 2014 was $323 million, which includes $58 million due to the Connecticut Acquisition, compared to $261 million in the third quarter of 2014 and $282 million in the fourth quarter of 2013. Depreciation and amortization for our Frontier legacy operations decreased $17 million compared to the fourth quarter of 2013, primarily due to the expected lower amortization related to the customer base acquired in our 2010 Acquisition.

Acquisition and integration costs for the fourth quarter of 2014 were $70 million ($0.04 per share after tax) compared to $42 million ($0.03 per share after tax) in the third quarter of 2014 and $10 million ($0.01 per share after tax) in the fourth quarter of 2013.

Operating income for the fourth quarter of 2014 was $173 million and operating income margin was 13.0% compared to operating income of $197 million and operating income margin of 17.3% in the third quarter of 2014 and operating income of $258 million and operating income margin of 21.8% in the fourth quarter of 2013.

Investment and other income for the fourth quarter of 2014 includes the recognition of a gain of $12 million associated with the sale of an intangible asset that was not related to the Company's operations.

Interest expense for the fourth quarter of 2014 was $187 million compared to $170 million in the third quarter of 2014 and $166 million in the fourth quarter of 2013. Interest expense increased by $21 million compared to the fourth quarter of 2013, primarily due to the additional interest on the debt financing in connection with the Connecticut Acquisition, partially offset by the lower average debt levels during the first nine months of 2014 resulting from debt refinancing activities and debt retirements during 2013.

Income tax expense (benefit) for the fourth quarter of 2014 was a tax benefit of $15 million compared to a tax expense of $10 million in the third quarter of 2014 and $24 million in the fourth quarter of 2013. Income tax expense decreased by $40 million in the fourth quarter of 2014 compared to the fourth quarter of 2013, principally due to lower pretax income in 2014 and changes in certain deferred tax balances.

Net income attributable to common shareholders of Frontier was $14 million, or $0.01 per share, in the fourth quarter of 2014, compared to net income of $42 million, or $0.04 per share, in the third quarter of 2014 and net income of $68 million, or $0.07 per share, in the fourth quarter of 2013. The fourth quarter of 2014 includes acquisition and integration costs of $70 million, partially offset by the gain on sale of assets of $12 million and certain tax benefit items of $14 million, net (combined impact of $22 million, or $0.03 per share after tax). Excluding the impact of the aforementioned items, non-GAAP adjusted net income attributable to common shareholders of Frontier for the fourth quarter of 2014 was $36 million, or $0.04 per share, as compared to $48 million, or $0.05 per share, in the third quarter of 2014 and $72 million, or $0.07 per share, in the fourth quarter of 2013.

Capital expenditures for Frontier business operations were $159 million for the fourth quarter of 2014 and $572 million for the full year of 2014, compared to $151 million for the fourth quarter of 2013 and $635 million for the full year of 2013. Capital expenditures include $25 million related to the Connecticut operations during the fourth quarter of 2014. The Company incurred $33 million in capital expenditures during the fourth quarter of 2014 and $116 million for the full year of 2014 related to integration activities in connection with the Connecticut Acquisition. The Company used $16 million of the previously received Connect America Fund funding in the fourth quarter of 2014 and $56 million during the full year of 2014 as compared to $12 million in the fourth quarter of 2013 and $33 million during the full year of 2013.

Operating cash flow was $496 million for the fourth quarter of 2014 resulting in an operating cash flow margin of 37.3%. Operating cash flow, as adjusted and defined by the Company in the attached Schedule A, was $568 million, or 42.7%, after excluding $70 million of acquisition and integration costs and $3 million of cash pension contributions/OPEB payments in excess of pension and other postretirement benefit expense.

Free cash flow, as defined by the Company in the attached Schedule A, was $193 million for the fourth quarter of 2014 and $793 million for the full year of 2014. The Company's dividend represents a 52% payout of free cash flow for the fourth quarter of 2014 and 51% for the full year of 2014.

Working Capital

At December 31, 2014, the Company had a working capital deficit of $26 million, which reflects the classification of certain debt maturing during 2015 of $298 million as a current liability.

Debt Financing for Connecticut Acquisition

In September 2014, the Company completed a registered debt offering of $1,550 million aggregate principal amount of senior unsecured notes. The Company received net proceeds, after deducting underwriting fees, of $1,519 million from this offering. Upon consummation of the Connecticut Acquisition on October 24, 2014, the Company used the net proceeds from the sale of the notes, together with $350 million from the 2014 CoBank Term Loan and cash on hand, to finance the Connecticut Acquisition.

Pension Contributions

Cash contributions to the pension plan were $13 million for the fourth quarter of 2014. The Company made total cash contributions to its pension plan for 2014 of $83 million. We expect that we will make contributions to our pension plan of approximately $100 million in 2015.

2015 Guidance

For the full year of 2015, the Company's expectation for free cash flow is $785 million to $825 million and for capital expenditures for Frontier business operations is $650 million to $700 million. The Company expects that absent any further legislative changes in 2015, our 2015 cash taxes will be $175 million to $200 million.

Non-GAAP Measures

The Company uses certain non-GAAP financial measures in evaluating its performance. These include non-GAAP adjusted net income attributable to common shareholders of Frontier, free cash flow, operating cash flow and adjusted operating cash flow. A reconciliation of the differences between non-GAAP adjusted net income attributable to common shareholders of Frontier, free cash flow, operating cash flow and adjusted 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 attributable to common shareholders of Frontier as reflected in the statement of income 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 these 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. In addition, the Company believes that non-GAAP adjusted net income attributable to common shareholders of Frontier, free cash flow, operating cash flow and adjusted operating cash flow, as the Company defines them, can assist in comparing performance from period to period, without taking into account factors affecting operating income or net income attributable to common shareholders of Frontier as reflected in the statement of income, or cash flow as 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 investment gains, certain tax items, acquisition and integration costs, acquisition related interest expense, severance costs, pension settlement costs, non-cash pension and other postretirement benefit costs, losses on early extinguishment of debt, gain on sale of Mohave partnership interest and gain on sale of assets, as disclosed in the attached Schedules A and B, 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.

These non-GAAP financial measures have certain shortcomings. In particular, free cash flow does not represent the residual cash flow available for discretionary expenditures, since items such as debt repayments and dividends are not deducted in determining such measure. Operating cash flow has similar shortcomings as interest, income taxes, capital expenditures, debt repayments and dividends are not deducted in determining this measure. Management compensates for the shortcomings of these measures by utilizing them in conjunction with their comparable GAAP financial measures. The information in this press release should be read in conjunction with the financial statements and footnotes contained in our documents filed with the U.S. Securities and Exchange Commission.

Conference Call and Webcast

The Company will host a conference call today at 5:00 P.M. Eastern time. In connection with the conference call and as a convenience to investors, the Company furnished today on a Current Report on Form 8-K certain materials regarding fourth quarter 2014 results. The conference call will be webcast and may be accessed at:

http://investor.frontier.com/events.cfm

A telephonic replay of the conference call will be available beginning at 8:30 P.M. Eastern time, Thursday, February 19, 2015 through Tuesday, February 24, 2015 at 8:30 PM Eastern time via dial-in at 888-203-1112 for U.S. and Canadian callers or, outside the United States and Canada, at 719-457-0820. Use the passcode 8119723 to access the replay. A webcast replay of the call will be available at www.frontier.com/ir.

About Frontier Communications

Frontier Communications Corporation (NASDAQ: FTR) offers broadband, voice, satellite video, wireless Internet data access, data security solutions, bundled offerings and specialized bundles for residential customers, small businesses and home offices, and advanced communications for medium and large businesses in 28 states, including Connecticut. Frontier's approximately 17,400 employees, including the recently acquired Connecticut operations, are based entirely in the United States. More information is available at www.frontier.com and www.frontier.com/ir.

Forward-Looking Statements

This document contains "forward-looking statements," related to future, not past, events. Forward-looking statements address our expected future business and financial performance and financial condition, and contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," or "target." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: risks related to the pending acquisition of properties from Verizon, including our ability to complete the acquisition of such operations, our ability to successfully integrate operations, our ability to realize anticipated cost savings, sufficiency of the assets to be acquired from Verizon, our ability to migrate Verizon's operations from Verizon owned and operated systems and processes to our owned and operated systems and processes successfully, failure to enter into or obtain, or delays in entering into or obtaining, certain agreements and consents necessary to operate the acquired business as planned, failure to obtain, delays in obtaining or adverse conditions contained in any required regulatory approvals for the acquisition, and increased expenses incurred due to activities related to the transaction; risks related to the recently-concluded Connecticut Acquisition, including the effects of unanticipated expenses or liabilities and our ability to fully realize anticipated cost savings; our ability to meet our debt and debt service obligations; competition from cable, wireless and other wireline carriers and the risk that we will not respond on a timely or profitable basis; our ability to successfully adjust to changes in the communications industry, including the effects of technological changes and competition on our capital expenditures, products and service offerings; reductions in the number of our voice customers that we cannot offset with increases in broadband 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 shares; the effects of changes in both general and local economic conditions on the markets that we serve; the effects of increased medical expenses and pension and postemployment expenses; the effects of changes in income tax rates, tax laws, regulations or rulings, or federal or state tax assessments; our ability to successfully renegotiate union contracts; changes in pension plan assumptions, interest rates, regulatory rules and/or the value of our pension plan assets, which could require us to make increased contributions to the pension plan in 2015 and beyond; adverse changes in the credit markets or in the ratings given to our debt securities by nationally accredited ratings organizations, which could limit or restrict the ability, or increase the cost, of financing to us; the effects of state regulatory cash management practices that could limit our ability to transfer cash among our subsidiaries or dividend funds up to the parent company; the effects of severe weather events or other natural or man-made disasters, which may increase our operating expenses or adversely impact customer revenue; the impact of potential information technology or data security breaches or other disruptions; and the other factors that are described in our filings with the U.S. Securities and Exchange Commission, including our reports on Forms 10-K and 10-Q. These risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update or revise these forward-looking statements.

         
Frontier Communications Corporation
Consolidated Financial Data
 
For the quarter ended For the year ended

($ in thousands, except per share amounts)

December 31, September 30, December 31, December 31,
2014 2014 2013 2014 2013
 
Income Statement Data
Revenue $ 1,330,305 $ 1,140,874 $ 1,180,369 $ 4,772,490 $ 4,761,576
 
Operating expenses:
Network access expenses 144,213 107,866 110,606 465,395 431,073
Network related expenses (1) 320,029 276,196 261,512 1,118,427 1,083,555
Selling, general and administrative expenses (1) 300,798 257,273 254,901 1,088,180 1,057,513
Depreciation and amortization 323,175 260,897 282,275 1,138,942 1,169,500
Pension settlement costs (2) - - 3,854 - 44,163
Acquisition and integration costs (3)   69,547   41,611   9,652   141,605   9,652
Total operating expenses   1,157,762   943,843   922,800   3,952,549   3,795,456
 
Gain on sale of Mohave partnership interest   -   -   -   -   14,601
 
Operating income 172,543 197,031 257,569 819,941 980,721
 
Investment and other income, net 12,512 25,106 43 38,996 9,177
Losses on early extinguishment of debt - - - - 159,780
Interest expense   186,561   170,371   165,596   695,500   667,398
 
Income (loss) before income taxes (1,506) 51,766 92,016 163,437 162,720
Income tax expense (benefit)   (15,452)   9,773   24,261   30,544   47,242
 
Net income (2)(3) 13,946 41,993 67,755 132,893 115,478
Less: Income attributable to the noncontrolling
interest in a partnership   -   -   -   -   2,643
 
Net income attributable to common shareholders
of Frontier $ 13,946 $ 41,993 $ 67,755 $ 132,893 $ 112,835
 
Weighted average shares outstanding 994,541 994,647 993,245 994,418 992,659
 
Basic net income per common share attributable
to common shareholders of Frontier (4) $ 0.01 $ 0.04 $ 0.07 $ 0.13 $ 0.11
 
Non-GAAP adjusted net income per common share
attributable to common shareholders of Frontier (4)(5) $ 0.04 $ 0.05 $ 0.07 $ 0.18 $ 0.24
 
Other Financial Data
Capital expenditures - Business operations $ 159,402 $ 152,446 $ 150,603 $ 572,443 $ 634,685
Capital expenditures - Integration activities 33,402 40,676 - 115,653 -
Operating cash flow, as adjusted (5) 568,407 479,469 570,156 2,084,376 2,238,155
Free cash flow (5) 193,395 149,050 248,225 793,498 862,494
Dividends paid 100,247 100,208 99,946 400,892 399,768
Dividend payout ratio (6) 52% 67% 40% 51% 46%
 

(1)

    Includes severance costs of $0.3 million, $0.4 million and $2.1 million for the quarters ended December 31, 2014, September 30, 2014 and December 31, 2013, respectively, and $1.9 million and $11.5 million for the years ended December 31, 2014 and 2013, respectively.

(2)

Reflects non-cash pension settlement charge of $3.9 million ($2.4 million after tax) during the quarter ended December 31, 2013 and $44.2 million ($27.4 million or $0.03 per share after tax) during the year ended December 31, 2013 for the accelerated recognition of a portion of the unrecognized actuarial losses in the Company's pension plan as a result of the significant level of lump sum retirement benefit payments made during 2013.

(3)

Reflects acquisition and integration costs of $69.5 million ($43.8 million or $0.04 per share after tax), $41.6 million ($26.6 million or $0.03 per share after tax) and $9.7 million ($6.1 million or $0.01 per share after tax) for the quarters ended December 31, 2014, September 30, 2014 and December 31, 2013, respectively, and $141.6 million ($89.8 million or $0.09 per share after tax) and $9.7 million ($6.1 million or $0.01 per share after tax) for the years ended December 31, 2014 and 2013, respectively.

(4)

Calculation based on weighted average shares outstanding.

(5)

Reconciliations to the most comparable GAAP measures are presented in Schedules A and B at the end of these tables.

(6)

Represents dividends paid divided by free cash flow, as defined in Schedule A.

Note: Prior period amounts for Other operating expenses have been revised from the previously disclosed amounts to reflect the disaggregation into Network related expenses and Selling, general and administrative expenses. There has been no change to Total operating expense as a result of this reclassification, as shown in Schedule C.

         
Frontier Communications Corporation
Consolidated Financial and Operating Data
 
For the quarter ended
December 31, 2014

($ in thousands)

Connecticut Frontier September 30, December 31,
Consolidated Operations Legacy 2014 2013
 
Selected Income Statement Data
Revenue:
Voice services $ 525,263 $ 74,039 $ 451,224 $ 471,786 $ 494,807
Data and internet services 554,945 88,468 466,477 468,796 472,986
Other   121,590   44,098   77,492   76,045   77,091
Customer revenue 1,201,798 206,605 995,193 1,016,627 1,044,884
Switched access and subsidy   128,507   9,091   119,416   124,247   135,485
Total revenue $ 1,330,305 $ 215,696 $ 1,114,609 $ 1,140,874 $ 1,180,369
 
Other Financial and Operating Data
Revenue:
Residential $ 601,238 $ 116,485 $ 484,753 $ 498,009 $ 501,580
Business   600,560   90,120   510,440   518,618   543,304
Customer revenue 1,201,798 206,605 995,193 1,016,627 1,044,884
Switched access and subsidy   128,507   9,091   119,416   124,247   135,485
Total revenue $ 1,330,305 $ 215,696 $ 1,114,609 $ 1,140,874 $ 1,180,369
 
 
For the year ended
December 31, 2014
Connecticut Frontier December 31,
Consolidated Operations Legacy 2013
 
Selected Income Statement Data
Revenue:
Voice services $ 1,950,938 $ 74,039 $ 1,876,899 $ 2,044,631
Data and internet services 1,947,967 88,468 1,859,499 1,866,461
Other   353,759   44,098   309,661   298,843
Customer revenue 4,252,664 206,605 4,046,059 4,209,935
Switched access and subsidy   519,826   9,091   510,735   551,641
Total revenue $ 4,772,490 $ 215,696 $ 4,556,794 $ 4,761,576
 
Other Financial and Operating Data
Revenue:
Residential $ 2,092,251 $ 116,485 $ 1,975,766 $ 2,026,910
Business   2,160,413   90,120   2,070,293   2,183,025
Customer revenue 4,252,664 206,605 4,046,059 4,209,935
Switched access and subsidy   519,826   9,091   510,735   551,641
Total revenue $ 4,772,490 $ 215,696 $ 4,556,794 $ 4,761,576
 
           
Frontier Communications Corporation
Consolidated Financial and Operating Data
 
For the quarter ended For the year ended
December 31, September 30, December 31, December 31,
2014 2014 2013 2014 2013
 
Customers (1) 3,519,572 3,001,101 3,074,280 3,519,572 3,074,280
Residential customer metrics:
Customers (1) 3,214,836 2,740,278 2,803,481 3,214,836 2,803,481
Average monthly residential revenue per customer $ 65.67 $ 60.34 $ 59.44 $ 61.11 $ 59.23 (2)
Customer monthly churn 1.62% 1.86% 1.67% 1.73% 1.69%
 
Business customer metrics:
Customers (1) 304,736 260,823 270,799 304,736 270,799
Average monthly business revenue per customer $ 688.31 $ 658.56 $ 664.04 $ 661.15 $ 654.04
 
Employees 17,354 14,510 13,650 17,354 13,650
Broadband subscribers (3) 2,373,893 1,953,376 1,866,670 2,373,893 1,866,670
Video subscribers (3) 586,616 395,899 385,353 586,616 385,353
Switched access minutes of use (in millions) 3,853 3,637 4,008 15,193 16,498
 

(1)

    Reflects 478,100 residential customers, 48,800 business customers and 526,900 total customers attributable to the Connecticut Acquisition as of October 24, 2014.

(2)

Calculation excludes the operations of Mohave Cellular Limited Partnership (Mohave), which was sold to Verizon Wireless on April 1, 2013.

(3)

Reflects 398,600 broadband subscribers and 196,400 video subscribers attributable to the Connecticut Acquisition as of October 24, 2014.
   
Frontier Communications Corporation
Condensed Consolidated Balance Sheet Data
 

($ in thousands)

December 31, 2014 December 31, 2013

ASSETS

Current assets:
Cash and cash equivalents $ 682,134 $ 880,039
Accounts receivable, net 614,164 479,210
Other current assets   189,794   259,590
Total current assets 1,486,092 1,618,839
 
Property, plant and equipment, net 8,566,048 7,255,762
Other assets - principally goodwill   8,921,890   7,760,883
Total assets $ 18,974,030 $ 16,635,484
 

LIABILITIES AND EQUITY

Current liabilities:
Long-term debt due within one year $ 297,622 $ 257,916
Accounts payable and other current liabilities   1,214,454   1,043,671
Total current liabilities 1,512,076 1,301,587
 
Deferred income taxes and other liabilities 4,318,662 3,404,749
Long-term debt 9,485,615 7,873,667
Equity   3,657,677   4,055,481
Total liabilities and equity $ 18,974,030 $ 16,635,484
 
   
Frontier Communications Corporation
Consolidated Cash Flow Data
 

($ in thousands)

For the year ended December 31,
2014 2013
 
Cash flows provided by (used in) operating activities:
Net income $ 132,893 $ 115,478

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 1,138,942 1,169,500
Losses on early extinguishment of debt - 159,780
Pension settlement costs - 44,163
Pension/OPEB costs (18,026 ) 37,243
Stock based compensation expense 23,462 16,932
Gains on sale of assets (37,041 ) (14,601 )
Other non-cash adjustments 32,129 11,065
Deferred income taxes (77,876 ) (7,510 )
Change in accounts receivable (61,528 ) 50,487
Change in accounts payable and other liabilities 89,666 (6,507 )
Change in other current assets   47,451     (80,403 )
Net cash provided by operating activities 1,270,072 1,495,627
 
Cash flows provided from (used by) investing activities:
Cash paid for the Connecticut Acquisition (2,017,787 ) -
Capital expenditures - Business operations (572,443 ) (634,685 )
Capital expenditures - Integration activities (115,653 ) -
Network expansion funded by Connect America Fund (56,453 ) (32,748 )
Grant funds received for network expansion from Connect America Fund 3,748 63,636
Proceeds on sale of assets 38,636 17,755
Cash transferred from escrow 11,411 31,249
Other   32,820     12,300  
Net cash used by investing activities (2,675,721 ) (542,493 )
 
Cash flows provided from (used by) financing activities:
Long-term debt borrowings 1,911,125 750,000
Financing costs paid (40,496 ) (19,360 )
Long-term debt payments (259,935 ) (1,563,022 )
Premium paid to retire debt - (159,429 )
Dividends paid (400,892 ) (399,768 )
Other   (2,058 )   (8,048 )
Net cash provided from (used by) financing activities 1,207,744 (1,399,627 )
 
Decrease in cash and cash equivalents (197,905 ) (446,493 )
Cash and cash equivalents at January 1,   880,039     1,326,532  
 
Cash and cash equivalents at December 31, $ 682,134   $ 880,039  
 
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 655,531 $ 667,753
Income taxes, net $ 70,390 $ 94,161
 
Non-cash investing and financing activities:
Capital lease obligations $ 23,574 $ 25,082
Financing obligation for contributions of real property to pension plan $ - $ 23,422
Reduction of pension obligation $ - $ (23,422 )
Increase (decrease) in capital expenditures due to changes in accounts payable $ (15,271 ) $ 39,847
 
         
Schedule A
Frontier Communications Corporation
Reconciliation of Non-GAAP Financial Measures
 
For the quarter ended For the year ended

($ in thousands)

December 31, September 30, December 31, December 31,
2014 2014 2013 2014 2013
 

Operating Income to Adjusted Operating Cash Flow to Free Cash Flow

 
Revenue $ 1,330,305 $ 1,140,874 $ 1,180,369 $ 4,772,490 $ 4,761,576
Less: Total operating expenses 1,157,762 943,843 922,800 3,952,549 3,795,456
Add: Gain on sale of Mohave partnership interest   -   -   -   -   14,601
Operating income 172,543 197,031 257,569 819,941 980,721
 
Depreciation and amortization   323,175   260,897   282,275   1,138,942   1,169,500
Operating cash flow 495,718 457,928 539,844 1,958,883 2,150,221
 
Add back:
Acquisition and integration costs 69,547 41,611 9,652 141,605 9,652
Pension/OPEB costs (1) 2,849 (20,458) 14,685 (18,026) 37,243
Pension settlement costs (2) - - 3,854 - 44,163
Severance costs 293 388 2,121 1,914 11,477
 
Subtract:
Gain on sale of Mohave partnership interest   -   -   -   -   14,601
Adjusted operating cash flow 568,407 479,469 570,156 2,084,376 2,238,155
 
Add back:
Interest and dividend income 143 118 133 1,493 2,401
Stock based compensation 5,112 6,458 4,371 23,462 16,932
 
Subtract:
Cash paid for income taxes 34,304 21,678 11,486 70,390 94,161
Capital expenditures - Business operations (3) 159,402 152,446 150,603 572,443 634,685
Interest expense (4)   186,561   162,871   164,346   673,000   666,148
Free cash flow $ 193,395 $ 149,050 $ 248,225 $ 793,498 $ 862,494
 
Operating income margin (Operating income
divided by revenue)
As Reported 13.0% 17.3% 21.8% 17.2% 20.6%
As Adjusted (5) 18.4% 19.2% 24.4% 19.8% 22.4%
 
Operating cash flow margin (Operating cash flow
divided by revenue)
As Reported 37.3% 40.1% 45.7% 41.0% 45.2%
As Adjusted 42.7% 42.0% 48.3% 43.7% 47.0%
 

(1)

    Reflects pension and other postretirement benefit (OPEB) expense, net of capitalized amounts, of $17.1 million, $13.4 million and $16.2 million for the quarters ended December 31, 2014, September 30, 2014 and December 31, 2013, respectively, less cash pension contributions and certain OPEB costs/payments of $14.3 million, $33.9 million and $1.5 million for the quarters ended December 31, 2014, September 30, 2014 and December 31, 2013, respectively. Reflects pension and OPEB expense, net of capitalized amounts, of $59.1 million and $77.9 million for the years ended December 31, 2014 and 2013, respectively, less cash pension contributions and certain OPEB costs/payments of $77.1 million and $40.7 million for the years ended December 31, 2014 and 2013, respectively.

(2)

Reflects non-cash pension settlement charges of $3.9 million for the quarter ended December 31, 2013 and $44.2 million during the year ended December 31, 2013 for the accelerated recognition of a portion of the unrecognized actuarial losses in the Company's pension plan as a result of the significant level of lump sum retirement benefit payments made during 2013.

(3)

Excludes capital expenditures for integration activities.

(4)

Excludes interest expense of $7.5 million and $1.3 million for the quarters ended September 30, 2014 and December 31, 2013, respectively, and $22.5 million and $1.3 million for the years ended December 31, 2014 and 2013, respectively, related to commitment fees on the bridge loan facility in connection with the Connecticut Acquisition.

(5)

Excludes acquisition and integration costs, pension/OPEB costs, pension settlement costs, severance costs and gain on sale of Mohave partnership interest.
 
           
Schedule B
Frontier Communications Corporation
Reconciliation of Non-GAAP Financial Measures
 

($ in thousands, except per share amounts)

For the quarter ended
December 31, 2014 September 30, 2014 December 31, 2013

Net income attributable to common shareholders of Frontier

Net Income

Earnings Per
Share

Net Income

Earnings Per
Share

Net Income

Earnings Per
Share

 
GAAP, as reported $ 13,946 $ 0.01 $ 41,993 $ 0.04 $ 67,755 $ 0.07
Pension settlement costs - - - - 2,389 -
Gain on sale of assets (7,518) - (15,973) (0.02) - -
Acquisition and integration costs 43,768 0.04 26,588 0.03 6,124 0.01
Severance costs 178 - 248 - 1,419 -
Acquisition related interest expense (1) (105) - 4,793 - 793 -
Certain tax items (2)   (14,269)   (0.02)   (9,998)   (0.01)   (6,236)   (0.01)
Non-GAAP, as adjusted (3) $ 36,000 $ 0.04 $ 47,651 $ 0.05 $ 72,244 $ 0.07
 
For the year ended
December 31, 2014 December 31, 2013

Net income attributable to common shareholders of Frontier

Net Income

Earnings Per
Share

Net Income

Earnings Per
Share

 
GAAP, as reported $ 132,893 $ 0.13 $ 112,835 $ 0.11
Pension settlement costs - - 27,381 0.03
Gain on sale of assets (23,491) (0.02) - -
Losses on early extinguishment of debt - - 98,888 0.10
Gain on sale of Mohave partnership interest - - (8,591) (0.01)
Gain on investment in Adelphia - - (889) -
Acquisition and integration costs 89,806 0.09 6,124 0.01
Severance costs 1,214 - 7,283 0.01
Acquisition related interest expense (1) 14,270 0.01 793 -
Certain tax items (2)   (28,994)   (0.03)   (4,993)   (0.01)
Non-GAAP, as adjusted (3) $ 185,698 $ 0.18 $ 238,831 $ 0.24
 
(1)     Represents interest expense related to commitment fees on the bridge loan facility in connection with the Connecticut Acquisition.
(2) Includes impact arising from state law changes, the net impact of uncertain tax positions, the domestic production activities deduction, federal research and development tax credits, non-deductible transaction costs, settlement of an IRS audit and changes in certain deferred tax balances.
(3) Non-GAAP, as adjusted may not sum due to rounding.
 
           
Schedule C
Frontier Communications Corporation
Other Operating Expenses Reclassification
 
For the Nine For the For the
($ in thousands) Months Ended For the Quarter Ended Year Ended Year Ended

September 30,
2014

September 30,
2014

June 30, 2014 March 31, 2014

December 31,
2013

December 31,
2012

 

As Reported

Other operating expenses $ 1,585,780 $ 533,469 $ 523,385 $ 528,926 $ 2,141,068 $ 2,234,553
Network related expenses - - - - - -
Selling, general and administrative expenses - - - - - -
Total operating expenses 2,794,787 943,843 922,923 928,021 3,795,456 4,024,685
 

As Revised

Other operating expenses $ - $ - $ - $ - $ - $ -
Network related expenses 798,398 276,196 258,777 263,425 1,083,555 1,133,692
Selling, general and administrative expenses 787,382 257,273 264,608 265,501 1,057,513 1,100,861
Total operating expenses 2,794,787 943,843 922,923 928,021 3,795,456 4,024,685
 

Adjustments

Other operating expenses $ (1,585,780) $ (533,469) $ (523,385) $ (528,926) $ (2,141,068) $ (2,234,553)
Network related expenses 798,398 276,196 258,777 263,425 1,083,555 1,133,692
Selling, general and administrative expenses 787,382 257,273 264,608 265,501 1,057,513 1,100,861
Total operating expenses - - - - - -
 

Note: Prior period amounts for Other operating expenses have been revised from the previously disclosed amounts to reflect the disaggregation into Network related expenses and Selling, general and administrative expenses. There has been no change to Total operating expenses as a result of this reclassification.

         
Schedule D
Frontier Communications Corporation
Pro Forma Financial Information
 
For the year ended For the quarter ended

($ in millions)

December 31, December 31, September 30, June 30, March 31,
2014 2014 2014 2014 2014
 
 
Revenue $ 5,775 $ 1,409 $ 1,448 $ 1,455 $ 1,463
Less: Total operating expenses   4,790   1,168   1,198   1,206   1,218
Operating income 985 241 250 249 245
 
Depreciation and amortization   1,334   323   326   339   346
Operating cash flow 2,319 564 576 588 591
 

Note: Pro forma condensed combined financial results of the Company, after giving effect to the Connecticut Acquisition.

Frontier Communications Corporation
Investors:
Luke Szymczak, 203-614-5044
Vice President, Investor Relations
luke.szymczak@FTR.com
or
Media:
Brigid Smith, 203-614-5042
AVP, Corporate Communications
brigid.smith@FTR.com

Source: Frontier Communications Corporation

News Provided by Acquire Media


Close window | Back to top

Copyright 2017 Frontier Communications